First off, if you sell now, you'll sell the condo for more than you paid for it, making a nice profit that is exempt from capital gains. Second, as long as you sell it within 2 years of vacating it, you'll be exempt from capital gains. Third, employment will continue to rise at a faster rate than the number of houses being built in Santa Clara County, so prices will continue to go up, as will rents. Fourth, you should be able to rent out the condo for at least $2,500, maybe $3,000, depending on location and its condition.
All that said, before yesterday, I would have said hold on to it for 1.5 years then sell. Make your lease for 1.5 years with a notice to vacate and notice of non-renewal at end of term as a condition of signing the lease. It is much easier to sell a condo vacant of tenants than with tenants. Your sweet spot for maximum tax free gain is just before the end of the end of the two year tax exempt period.
Better yet, lock in both rent and sale by offering your condo as a lease with option to buy proposal today. You'll get a tenant, maximize your rent, and have an assured sale at the end of term. Your realtor would market the condo as a lease to buy sale. You'll be flooded with offers because such terms are so rare and the demand is so large. In a lease to buy, the lease is above market, with the above market portion applied toward the purchase price. If the lessee is unable to convert to sale, you keep the extra income from the lease. If the tenant does convert to sale, you earn income without having any vacancy during the sale period of the condo at the end of the lease term. Price for the condo at sale can be fixed now based upon current market projections.
Because the lease to buy option is a form of financing, only a realtor with a mortgage origination endorsement or license can arrange the sale for you. I have such an endorsement.
Now why did yesterday's news give me pause? As of yesterday, Congress is considering eliminating Fannie Mae and Freddie Mac entirely. Almost the entire loan industry is currently dependent on these two institutions for originating loans because it is their computer programs that are the basis for underwriting every single home mortgage in this country. Eliminating the entities eliminates the standardization that underpins the market for mortgage backed securities. With no standard, generated by a US government backed entity, the market for American mortgages will crash much worse than what we are now just recovering from. Interest rates may skyrocket and length of loans may shorten, forcing down prices of homes no matter what else is happening in the economy.
In the meantime, interest rates will steadily climb during the Congressional debate and eventual dismantling of Fannie Mae and Freddie Mac as we now know them. This is a given for the future, the only question is whether any standardized loan software, with the imprimatur of our government backing will be left intact among the wreckage. Without the entities creating the loan securitization, the ability to maintain such software disappears, so the answer is most likely no.
Now, Congress is slow to act, but when it acts, it almost always does the wrong thing for the economy. Congress will act before the next elections on this issue, not today. So you probably have just under a year to rent and then sell without risk of your investment plans being torn up by the stupidity in Washington DC. If you want absolute lack of future risk, sell now and invest in something that will not be so damaged by the changes in mortgage financing coming down the pike. By entering into a least to sell contract, you can manage that risk now and maximize your profits.
Do not buy bonds at this time. As yields go up, prices go down, resulting in a loss to you unless you plan to hold the current low interest rates for the coming decades. As long as QE2 continues, inflationary pressure is being built into the economy for the foreseeable future. For more advice on investing alternatives should you decide to sell now, I suggest you call my brother, Peter Pearce, at 800-756-2779. He manages private wealth for private clients equal to the pension funds of many of our states. Had I listened to his advice over the past five years, I would be have quadrupled or more my money. Instead, I funded my wife's new business, which has not done as well.
All the above is the tax and risk risk climate for your decision. Whether you should rent for up to a year and a half, sell now, or offer your condo as a lease to sell now, really depends on how your expected rate of return pencils out and your cash flow needs. For that, a personal consultation going over your specific situation and goals is in order and should not be done on a public forum. I invite you to call me, Mitchell Pearce, at 408-639-0211 at no obligation.