To rent or to sell

Hello Folks,

We are in the process of buying our second home (Upgrading from current townhome to single fam). We are debating if we should keep our current town home and rent it out to become landlords or sell?

Financial Situation:

  1. Our Current Town Home is almost paid off with Current Valuation ~$1M price tag in North San Jose area.
  2. Single Fam that we are targeting is <$2.5M in good school dist. If we keep the townhome, we are looking at a total $2.2M debt ($2M mortgage. + $200K HELOC).
  3. If we sell Townhome, we are looking at ($1.35M loan).
  4. We both work with more than $.5M combined pre-tax TC.

Motivation to sell:

  1. Given Market condition it looks like top of the market and if we are buying at the top, why not sell at the top too?
  2. If we do not sell, we will be really short on cash for next 2-3 months will next grant of RSU/bonuses come.
  3. If market corrects, we can buy back similar property probably ~100K cheaper.
  4. No capital gain taxes on first property’s value appreciation.
  5. We can probably get a better interest rate at ~1.5M mortgage than ~$2M mortgage with $200K heloc.
  6. Current Rental market looks bad
  7. The ~$900K-1M can generate more return compared to renting it out.
    Calc: approx monthly rent ~$3500(3bhk). =$42K
    Property Tax, HOA, Insurance ~14K,
    Monthly current mortgage (should be paid off without additional payments in 2.5 years) = 30K
    cashflow negative = ~2K.
    This ~$900K can be deployed somewhere else to generate better returns mostly.

Motivation to not sell:

  1. Rent out, Passive income, almost cash flow neutral even after deducting the current mortgage payment and once mortgage payment is done, its basically cash generating property for us.
  2. Over next 2.5 years the townhome will pay off itself and then appreciate (based on above calculation), ~2K cash flow negative for 2-3 years is not a big deal.
  3. Mostly, we will continue to get RSU/bonus which will continue to improve our finances again over next year.
  4. Once we exit a property/ position its hard to enter again.
  5. Rental market will improve by end of the year.
  6. We keep out property taxes on townhome low in long term by not selling the property while rent will increase faster over a decade.

I would appreciate your thoughts and what you savy investors think? This is our chance to become a landlord/ have a passive income but given current market top and the fact that we will be emptying our liquid assets we are in dilemma + we have not been a landlord in states, we are both immigrants.

I am in the same situation in 2007.

Well it depends on what you think is current market. In 2007, peak of property market, I bought a SFH (ofc at ridiculously high price) and sold the townhome (at very high price too). I felt then the RE market is nearly peak or has peaked but my wife loves the SFH, so I did a replacement to minimize risk. Sure enough, the RE market tumbled and I bought at the highest price in the neighborhood. However because I have cash standby, I am able to buy a second SFH in 2011 with those cash as downpayment.

Don’t forget you can get a tax free capital gain tax for the first $500k capital gain of your Primary house.

Make your own judgement. Too much analysis did you no good. Is a judgement call.

Not true. I got another SFH at lower $/sqft in 2011.

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We think its the peak or near peak for real estate. Emotionally we don’t want to sell but financially it seems to make more sense to sell. This townhome was priced at $1.15 in Jan 2019 and now $1.05 (100k less) while single fams we are looking at have gone from $2.2 to $2.5 (supply demand or may be just covid trend). We feel the trend will continue specially for good schools and locations closer to tech companies.

Another big factor you need to consider is whether you want to get into the business of being a landlord. You need to have the right personality to be willing to do that, and to consider the time you need to spend to be worth the hassle. It’s very subjective as everyone values their own time/efforts differently.


Another 50% gain in RE is possible in a few years. The millienials will drive this market fore the next 10 years.

What’s the right personality for being a landlord? I am pretty handy so fixing some issues or managing a property should be fine as long as I don’t get really unlucky with some really BS Tenants. The chances of Real S tenants in $3500 range is less as well in Bay area in my opinion as people tend to mind their time well but yeah there is a possibility which we will have to learn to deal with.

That’s interesting to hear. What’s the theory this assumption based on? I would appreciate a little more details.

I have managed rentals for fifty years. My grandfather managed fifty years before that. It is all about managing tenants. The other stuff like fixing things is easy and fun. Management is key like any other business. As far as appreciation. Millienals are finally buying. They are the biggest generation in history, followed by another large generation. Construction costs are out of sight. Demand is off the charts. Inventory the lowest ever. Tahoe prices are up 30-40% yr over year.


In your situation, I’ll sell TH.

and that’s from hedging the risk prospective?

That and the tax savings for capital gain


Reasons I would sell:

  1. There are tons of new townhomes coming up in Miliptas / North San Jose & Sunnyvale. Thats downward pressure on prices.
  2. current rental market is very weak.

Reasons I will hold on to the property:

  1. After Covid, the price of townhomes might bump up a bit since people will look to stay close by to work.
  2. If you have significant net worth and other investments in stock and have excess cash sitting around etc., Then makes sense to hold on to real estate.

Honestly, it can go either way. Just take a decision and move on. Don’t look back.

Well, you need to be willing to deal with different kinds of people, and be willing to find solutions to solve problems. Some people get headaches just thinking of dealing with tenants. Some people just want to live a peaceful life and not be bothered.

I suppose you don’t have the ambition to become a landlord and keep growing your portfolio, otherwise you wouldn’t have asked the question here. You said your loan is almost paid off so you are averse to taking risks even with the craze low interest rates we have now. My sense is it’s probably better to just sell and be done with it (and enjoy the tax-free gain!) rather than become a casual landlord. If you keep the TH it would be for appreciation, but appreciation without leverage is not going to be that great even in good years. Might as well use the capital on something else.




I am sitting tight watching my RE portfolio appreciating rapidly :money_mouth_face:


How is the rental market for townhomes right now in good school districts like Cupertino compared to say before pandemic? Down 10%?

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General comment.

If one is bullish on BA RE short term.
then load up with as much leverage as possible(considering personal situation/risks).

If not bullish
Cut down on leverage.

Because leverage affects both ways(up or down) equally.

Rents are 50% in a year in Tahoe

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With your income, I’d imagine you’d work at a fairly large tech shop. Getting younger tenants within the company helps. They would not behave like assholes that way, since you may work together at some point. Thats what we did for our rental in nsj.

On mortgage, short term pull from RSU is fine, but don’t plan on using rsu money on a monthly basis. When stocks go low, you will feel the stress - and incidentally, thats when your tenant may stop paying rent as well. Not worth it.

For me, if I hadnt rented out the home but instead dumped all that money on stocks (whatever consertatively), I wouldve come out similarly. So for stocks, its the discipline to hold on. For landlording, its the people management skills. Whichever you prefer, its up to you.

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