“I’m Moving. Should I Rent My Home Out, Sell it & Reinvest in Other Rentals, or Trade Up?”

by Amanda Han

With the current real estate market increase, I have been seeing more and more people trade up on their primary home. But what if you are fortunate enough to consider keeping your existing primary home while trading up? Here are some common questions that we come across:

  • Does it make sense to keep the old primary home as a rental?
  • Does it make sense to sell it and re-invest in other rental properties?
  • Does it make sense to simply sell the property and put more as a down-payment on the replacement home?

As usual, the answer will vary depending on your unique situation. Here are some of the things to consider when making this important decision.

Sell to Pay Down the Loan on the New Primary Home

The Good

This can potentially be a great idea if you are someone who is looking to lower your debt. By selling your old home and putting more money down on your new home, you can potentially lower your future monthly payment and save on some interest costs.

If you have lived in that house as your primary home at least 2 out of the last 5 years, you can also potentially take advantage of the $250k/$500k capital gains exclusion on the tax side. For example, if you are a single person and you are eligible for this exclusion, you can save up to $37,500 of capital gains taxes this year on the sale of your old primary home.

The Bad

The potential downside of this is that you will have no cash flow from this money when it is used to pay down debt on your primary home. Also, with a lower debt and lower interest expense, that could mean less to deduct on your tax returns come April tax time.

Sell to Re-Invest in a New Rental

The Good

A lot of times it can make sense to sell your primary home and take part or all of the money to buy an investment property. If the numbers do not work when you look at keeping that old home as a rental because of rents in the area, it can make sense to re-position that equity into other rental markets in-state or even out-of-state so that the money can be put to work for you. The upside is that now you can potentially have another stream of rental income when you reposition that money into an investment property.

The Bad

The potential downside is that this can mean you are taking on more debt overall by having debt on your new primary home and new debt on the new investment property.

For this route, make sure that you analyze the numbers to take into consideration the costs of selling your home and costs of acquiring your new investment property.

Turning the Old Primary Into a Rental Property

The Good

Depending on the situation, it can potentially be a smart move to turn your current primary home into a rental property. One of the benefits is that you can potentially save on selling and buying costs when you turn your home into a rental versus selling it and buying a different investment property. There can be some tax advantages to turning your primary home into a rental as well in appreciating markets. Here is an example of how someone was able to use their primary home to get tax-free gains from the IRS.

Let’s say you bought your home 10 years ago for $150k, and now it is worth $200k. Let’s also assume that the property can generate great monthly rental income and you also expect the property to appreciate more in value over the next 2 years. If you hold on to the property as a rental and then decided to sell 2 years later when the property is worth $250k, then you can potentially exclude the entire gain from taxes. We will take depreciation out of this scenario just to keep things simple.

Since this property was used as your primary home at least 2 out of the 5 preceding years, you can exclude up to $100k of the gain from taxes saving roughly $15k in tax dollars. Not a bad deal for locking in some tax-free money, right?

The Bad

Potential downside of keeping this old home as a rental property is that you have less down payment toward your new primary home. Other potential downsides are the work needed to own a rental property. Last but not least, even though real estate has been doing well, there is no guarantee that it will continue to appreciate in the future. As such, by keeping this property you may end up selling it for less down the road.

With rises in home values and currently low interest rates, there are great moves to be made with real estate. Be sure to consult with your advisory team and weigh all your options to ensure that you are taking full advantage of this real estate climate.

Which of these options do you prefer? What routes have you taken before?

Let us know your take with a comment!

Interested in Finding out More? Reach out below

Shawn Ireland

Phone: 913-225-6231

Email: Ireland_Investments@yahoo.com

Address: 1415 Main St. #823, Grandview, MO 64030

Website: www.irelandinvestmentsllc.com/

Facebook: @IrelandInvestmentsLLC/

Instagram: @irelandinvestmentsllc

Twitter: @IrelandLlc

Ireland Investments llc

This information is intended only for the use of the intended recipient(s) and it may be privileged and confidential. Please note that any views or opinions presented in this post are solely those of the author and do not necessarily represent those of the company. This is reposted information and is not original thought of Ireland Investments or anyone associated with the business.

Popular areas we service;

Kansas city Missouri, Overland Park Kansas, Kansas city Kansas, Olathe Kansas, Independence Missouri, Shawnee Kansas, Blue Springs Missouri, Lenexa Kansas, Leavenworth, Kansas, Leawood Kansas, Liberty Missouri, Raytown Missouri, Gladstone Missouri, Grandview Missouri, Belton Missouri, Prairie Village Kansas, Gardner Kansas, Raymore Missouri, Grain Valley Missouri, Ottawa, Kansas, Lansing Kansas, Excelsior Springs Missouri, Merriam Kansas, Harrisonville Missouri, Cameron Missouri, Mission Kansas, Kearney Missouri, Smithville Missouri, Pleasant Hill Missouri, Oak Grove Missouri, Bonner Springs Kansas, Roeland Park Kansas, Parkville Missouri, De Soto Kansas, Richmond Missouri, Greenwood Missouri, Paola Kansas, Basehor Kansas, Tonganoxie Kansas, Odessa Missouri, Peculiar Missouri, Platte City, Missouri, Higginsville Missouri, Lexington Missouri, Edwardsville Kansas, North Kansas City Missouri, Osawatomie Kansas, Louisburg Kansas, Fairway Kansas, Mission Hills Kansas, Sugar Creek Missouri, Riverside Missouri, Buckner Missouri, Pleasant Valley Missouri, Lawson Missouri, Plattsburg Missouri, Lake Lotawana Missouri, Weatherby Lake Missouri, Wellsville Kansas, Edgerton Kansas, Westwood Kansas, Garden City Missouri, Gower Missouri, Claycomo Missouri, Lone Jack Missouri, Drexel Missouri, Lake Tapawingo Missouri, Glenaire Missouri, Dearborn Missouri, Avondale Missouri, Osborn Missouri, Sibley Missouri, Oaks Missouri, Unity Village Missouri, Levasy Missouri, Randolf Missouri, River Bend Missouri, Jackson County Missouri, Johnson County Kansas, Clay County Missouri, Wyandotte County Kansas, Cass County Missouri, Platte County Missouri, Leavenworth County Kansas, Miami county Kansas, Lafayette County Missouri, Ray County Missouri, Clinton County Missouri, Bates County Missouri, Linn County Kansas, Caldwell County Missouri, Crossroads Real estate, 18th and vine Real estate, Hospital Hill real estate, library district real estate, longfellow real estate, dutch hill real estate, quality hill real estate, river market real estate union hill real estate, Greater downtown KCMO real estate, East Side KCMO real estate, Midtown KCMO real estate, Westport Real estate, Hyde Park real estate, Northeast KCMO real estate, Northland real estate, Plaza Real estate, South Kansas City Real estate, Fairway Kansas real estate, Kansas city Kansas real estate, lake quivira Kansas real estate, Lenexa Kansas real estate, Mission hills Kansas real estate, overland park Kansas real estate, prairie village Kansas real estate, Shawnee Kansas real estate, weatherby lake Missouri real estate, westwood Kansas real estate

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Website Built with WordPress.com.

Up ↑

%d bloggers like this: