Should I sell or rent out house?

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Submitted by bibsoconner on January 9, 2022 - 7:38am

Hi fellow Pigs. I'm a long time lurker and occasional poster.

I'm also extremely cheap so I'm hoping for some free marital advice today :)

My wife and I are both 50+ yrs. She loves her job (biotech) and can work remotely from anywhere. I'm starting to hate my career (software engineering) and would like to try something else*. Our one and only house in Pt. Loma is paid off (about 2.3 million according to Redfin/Zillow). We had this idea of moving to St. Thomas, USVI. My wife has family there. She'd continue with her existing job. I'd teach college, high school, or just be a bartender or bus boy. Those last two jobs do not scare me and actually sound sort of appealing right now. I'm somewhat in favor of selling the house. Renting it out from a distance could be a pain. My wife wants to rent it out in case we hate St. Thomas or want to return. She's convinced prices only go up even though she was certainly around in 2008-10. She's got some good points that we are locked into Property Taxes based on 1.4 million and generally, prices go up. As I said, I think renting will be a pain and don't see why we need to return to San Diego (or California) even if we get sick of St. Thomas. So the questions:

1. Would you sell or rent?
2. Assuming you say rent, any ideas for renting a relatively high end (4 bedroom Pt. Loma) house? A particular agency? Rent year to year? Airbnb? We're both concerned about renters trashing the place. And upkeep could be a pain (older, big house).
3. I floated the idea that if we must rent, we put our daughter in it (SDSU student) and have her rent it to students/friends (and stay herself). Perhaps less money but a family member watching the place. We could even make sure she has "skin in the game". I have confidence that my daughter has enough maturity and would act in our best interests based on inheriting it one day and taking a cut off the rent. My wife has considerably less confidence in her.
4. And of course, feel free to dust off your crystal balls and tell me exactly what house prices will do in the next 5 years. That might tell me whether to sell now or later.

Incidentally, rental prices in St. Thomas are very roughly 3-4 thousand a month for something decent. Food prices are a LOT more expense. Gas, curiously is cheaper ($4/gallon).

Thanks for the ideas!

*I've suggested I just retire and my wife can support us both. That didn't go over well :). A future post will ask, "Do we have enough to retire before I drop dead from boredom and/or anxiety at work?".

Submitted by plm on January 14, 2022 - 12:04pm.

Coronita wrote:
plm wrote:
By cashing out my trading account, I meant doing it slowly not all at once, first 80K in long term capital gains is tax free each year. And even if I need more each year, its only taxed at 15 percent. Now if only the plan for CA free health care passes, my expenses will drop considerably.

https://www.marketwatch.com/story/i-reti...

"I retired at 50, went back to work at 53, then had a major medical issue that left me unemployed – ‘There’s no such thing as a safe amount of money’ for retirement"

Not much you can do to prevent major medical issues. But not going back to the office and getting exposed to Covid and retiring so you have time to exercise again actually makes more sense to avoid medical issues.

Submitted by svelte on January 15, 2022 - 8:53am.

plm wrote:
Coronita wrote:
plm wrote:
By cashing out my trading account, I meant doing it slowly not all at once, first 80K in long term capital gains is tax free each year. And even if I need more each year, its only taxed at 15 percent. Now if only the plan for CA free health care passes, my expenses will drop considerably.

https://www.marketwatch.com/story/i-reti...

"I retired at 50, went back to work at 53, then had a major medical issue that left me unemployed – ‘There’s no such thing as a safe amount of money’ for retirement"

Not much you can do to prevent major medical issues. But not going back to the office and getting exposed to Covid and retiring so you have time to exercise again actually makes more sense to avoid medical issues.

Find a job where you work from home. Still getting paid and building up retirement account, not exposed to COVID, and you should still have time to exercise given that you're not commuting.

"Not much you can do to prevent major medical issues."
Which goes back to our point: make as much money as you can before a major medical issue hits because after that your earning potential is probably severely impacted.

If the person in the article above retired at 50 and went back to work at 53, then it sounds like they needed the money and severely miscalculated how long their money would last when retiring at 50. Severely.

Which goes back to my other point - it is folly to think anyone can project out 40 years with any degree of accuracy. Perhaps if you have millions in stocks or rental property you should be OK, but most people don't have that.

Submitted by sdrealtor on January 15, 2022 - 9:47am.

#flyerlife

Submitted by carlsbadworker on January 15, 2022 - 11:39am.

scaredyclassic wrote:

Ok. I agree. Maybe old people are getting slower. Or wiser.

Personally I've been seeing a 4 perc annual gain in wisdom. At this rate, under current actuarial calculations, I should be enlightened right before dying, and I'm reasonably confident I have enough wisdom to last my lifespan through. Could run short though.

I personally believe getting slower is wiser. Imagine how less worries life can be if we don't have to react to many imaginative threats in our mind. Yes, once a while you did eventually encounter a real one...even Buddha died of food poison, but that's probably one real one out of one hundred imaginative ones...and you don't have to live in a constant fear of world-ending scenario. To me, that's liberating...and wiser.

Besides, the world is doing just fine...and if it doesn't, there isn't much you can do about it anyway. Stop managing the universe. It doesn't need your help.

Anyway, back to the OP, I searched the rental price and it looks like it is around $6K per month? So my math shows $2.3M/(6k*12) = 32. So that's around 3.125% annual before-cost yield...in case you want to compare with other investment options.

Submitted by Escoguy on January 15, 2022 - 12:49pm.

carlsbadworker wrote:
scaredyclassic wrote:

Ok. I agree. Maybe old people are getting slower. Or wiser.

Personally I've been seeing a 4 perc annual gain in wisdom. At this rate, under current actuarial calculations, I should be enlightened right before dying, and I'm reasonably confident I have enough wisdom to last my lifespan through. Could run short though.

I personally believe getting slower is wiser. Imagine how less worries life can be if we don't have to react to many imaginative threats in our mind. Yes, once a while you did eventually encounter a real one...even Buddha died of food poison, but that's probably one real one out of one hundred imaginative ones...and you don't have to live in a constant fear of world-ending scenario. To me, that's liberating...and wiser.

Besides, the world is doing just fine...and if it doesn't, there isn't much you can do about it anyway. Stop managing the universe. It doesn't need your help.

Anyway, back to the OP, I searched the rental price and it looks like it is around $6K per month? So my math shows $2.3M/(6k*12) = 32. So that's around 3.125% annual before-cost yield...in case you want to compare with other investment options.

For San Diego, 3.25% is a low gross rental yield.
Prices are certainly much higher than a year ago.
If I had a 2.3M house, I would want at least 8K.
I get 4.1-4.5K easily on homes worth 1M for comparison.
That gets it closer to 5%.

Submitted by gzz on January 15, 2022 - 4:12pm.

1. It is quite common for college students to be de facto landlords by holding a lease in their name and screening and collecting from a succession of roommates.

2. If you paid 1.4 and it is worth 2.8, you have a savings of about 14k a year in property taxes. $14,000 PER YEAR. $140k+ over ten years!

That only will go up, and is also a bit of stability too. The net present value of that low assessment is about $350,000-400,000. You lose that permanently if sell without transferring it to a new property, which you are allowed to do at a certain age.

I rent out a 5/3 house worth about 1.8 in OB, rent is below market at $5300.

It is certainly a bit more work than a studio condo, but I’ve made like a million in appreciation, that’s the profit source, not the rent yield.

If your house rents for $70k a year, the property manager may take 7k. And for what, to avoid 3-10 hours of easy work a year? Bad deal!

I dealt with two different detached house property managers when I rented in OB/PB two detached houses (2005-2011 time period). In both cases the property managers didn’t come close to justifying their fees.

Submitted by gzz on January 15, 2022 - 4:20pm.

“ I get 4.1-4.5K easily on homes worth 1M for comparison.”

Well it doesn’t hurt to list for 8k and see if anyone bites. Also easy to see if 8k gets better or worse than his place on zillow.

But the rental pool thins out really fast as you head upmarket.

The supply of people with 100k in annual rent is small because the tax advantage of owning is huge at that 200-350 household income level.

At 2.3m, the purchase price also reflects a trophy property / ownership premium above its utilitarian rental value.

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