My husband and I purchased a townhouse in Ashburn, VA in 2004. Our home would only sell for 50,000 more than

Asked by Karen Maffett, Ashburn, VA Mon Apr 21, 2008

we paid for it, but we did put 100,000 down on it. We are currently looking to buy a SFH. Should we sell our townhouse or rent it out until prices start to appreciate. We do have the funds to puchase without having to sell. Thanks for any advice!

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T Yankov, Home Buyer, Washington, DC
Thu Mar 24, 2011
You should consider the opportunity cost of the built-in equity in your townhouse. If you sell it now, you will not have to pay any capital gains tax on the net profits (up to 500K for married couples filing jointly) and you can invest the profits in a non-real-estate investment (such as a no-cost mutual index fund). Keep in mind that the 50K amount you have given us will cover your real estate agent's fees and other transactional costs involved in buying a second home, so your net profits will be much less than 50K.

Consider whether owning two homes would give you sufficient diversification. If owning two homes would place more than 80% of your assets in real estate, you should probably avoid that if you can rather be putting all of your eggs in one basket. As someone else pointed out, home prices in your area are not likely to appreciate much for the next few years.

More importantly, if you rent it out for more than three years and then decide to sell, you will no longer be able to claim an exemption from the capital gains tax -- the IRS requires that you have lived in your home for at least two of the last five years. This means that you will have to either sell before renting it for 3 years or make it your primacy residency again before selling to meet the two year requirement.

Calculate how much of your principal will be paid off if renting it for 3 years plus expected appreciation (I don't think there will be much of the latter in your case). Then compare that number to the expected return you can expect to get in the stock market if you invested the net proceeds from the sale (at a conservative 8% historical annual return average) over three years, and see which one makes more sense.
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Syrena Price, , 20147
Thu May 8, 2008
Since you are in no need to sell for a down payment on your purchase and you definitely want a SFH to enjoy then renting your current property seems logical. Since the market is currently in favor of buyers then waiting may be the best option. Definitely get a realtor for representation for both renting and buying!
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Lenn Harley, , Maryland and Northern Virginia
Tue May 6, 2008
Renting the town home makes sense if you can buy your single family without the funds from the town home. Further, you're in a very good negotiating position as a non-contingent buyer in the present day market.

Make sure the numbers work with both loans. The lender will probably only credit you with about 75% of the rent from the town home unless you have a history of rental income.

You are a dream buyer in today's market if you can buy a "move-up" home. Most folks need the money from the present home to buy the next one.

Good luck.
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Allan Wulff, Agent, Reston, VA
Thu Apr 24, 2008
Renting makes sense if you can rent the house for as much as your monthly mortgage payment. However, it will be a while before prices begin to increase in the housing market so appreciation on your rental property may be slow in coming.

It is best to think of your family needs for comfort and shelter and whether you want to be a Landlord too. Send me an email with your address and I can give you a better idea of rental prices and renting or selling. You should be able to get all of your $100,000 back.
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Jonathan Bunn, Agent, Raleigh, NC
Thu Apr 24, 2008
Hi Karen

I am a little late on answering this question. However, I wrote a post that you may find helpful on my site addressing some of the pro's and con's. I hope this helps.

Try this link:…
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Danilo Bogda…, Agent, Reston, VA
Tue Apr 22, 2008
There are definitely things you can do to minimize your risk when renting the property. And the rental market in Ashburn is moving much faster than the "for sale" market - 21 days versus 100 days on the market (average).

But consider this as well - the rental rates are very low so you should definitely run a cash-flow analysis. Look at what you could rent out your property for and then compare that to your monthly payment + HOA dues + about $75 to $100 per month in maintenance (average). See if you're losing money, breaking even or making money each month and take that into consideration.

And know that there is typically a one to two month lapse between when the current tenants' lease runs out and when the next tenant moves in.

Even if the bottom is near, real estate prices will most likely go sideways for a while afterwards, probably 3 to 5 years. As long as you can hold on to the property for at least that long, you will see your property's value go up. If you plan on selling and/or moving prior to then, you may want to sell now.

As many have said in their answers below, real estate is one of the greatest long-term investments you can make. All I'm saying is that you take everything into consideration and weigh the pros and cons. If you're in this for the long-haul and can afford to rent your town home, hold on and rent it out. If not, then you may want to sell. Just depends on your personal situation.
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Tony Arko, Agent, Reston, VA
Mon Apr 21, 2008
I just recently rented a townhouse for a couple who did exactly the same thing you are considering. They rented a nice townhouse in Brambleton to another professional couple. We did a thorough credit check and interview with the couple. There are ways to eliminate most of the risk associated with being a landlord so it is not as dangerous as others will make you believe. That being said it is a risk that you have to consider should something happen to your tenants job status or other unforseen occurances.

The rental market is strong in Ashburn and the efforts to keep interest rates low and free up money for buyers is having an impact. Also, several builders have just recently left Loudoun County. I think we are nearing the bottom of this market and the downside risk is small enough that renting is definitely a viable option if you don't need the money to buy the next house.
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Nancy Pav, Agent, Ashburn, VA
Mon Apr 21, 2008

Owning real estate for the long term has been one of the best ways to create wealth. Long term is the operative term there. If you keep it, you should have a plan. How long do you want to hold it for, how much will it rent for, will you hire a property manager, what kind of risk are you willing to tolerate. These are all questions you need to ask yourself.

You've got quite a nice return on your investment though. If you put $100,000 down and in 4 years are seeing a $50,000 profit, you're averaging about 12.5% per year.
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Cindy Jones, Agent, Alexandira, VA
Mon Apr 21, 2008

It sounds as if you planned well when you purchased your townhouse in Ashburn Farms in 2004. You are correct that values are up slightly in your area since you purchased. You do have to also look at what you paid in closing costs when you purchased your property and what you will pay in costs to sell your home. If you just broke even would it be a bad thing? You have had a nice home and the tax benefits from owning during this time period.

On to whether you should sell or rent your home. Are you prepared to be a landlord? Have you thought about the costs associated with renting your home and dealing with the down times when the home is empty? If you don't sell and have to get a higher loan on the new property will you be comfortable with two mortgages? If you sell and walk away with the 100K you put in your current TH will that money give you a more manageable mortgage on your new home?

I know I asked you more questions but these are all part of the decision making process. Once you know your comfort level and consider that a potential zero profit isn't necessarily a bad thing then you can decide what is the best choice for you.

Good luck,
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James Downing, Agent, Dunedin, FL
Mon Apr 21, 2008
The question is; do you want to be a landlord for the next several years? I do not see prices moving up much in VA for some time. There is way too much on the market and the many foreclosures are driving prices downward. If you can sell quickly; now may as good a time as any.
If you decide to go the renting way - think about how you will manage if you do not have a tenant or the time between tenants. Or the damage they may cause to your property.
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