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Sell or Rent — the new conundrum for Seattle property owners

by Peter Nelson       12/15/2017      Sell your Seattle property, or turn it into a rental?

Sell or Rent ??

With the real estate market booming in Seattle in both the brokerage and rental markets, many owners are tasked with the decision of whether to sell their property or turn it over to professional management for rent.  There are two compelling reasons to hold the property and rent it out, and one very good reason for selling.

Hold the Property and Rent It Option

The video above describes two important reasons for holding on to your real estate as long as you can.

Wealth Building

Real estate is a great tool for building wealth in a portfolio.  It is a long-term play, and should not be considered in any other light.  But if one is committed to the long term, then it is a great mechanism for building net worth.  Without going into the gory details of why, suffice to say that rents and market value continue to rise over the long term, while mortgage payments remain relatively level.  So while an owner may have to feed a property the first few years, in the long haul that same property will be a profit center and throw off cash.

Wealth Transfer Protection

Real estate is also a great tool for transferring wealth to heirs.  Our understanding of current tax law (and we are not tax attorneys, so please consult one before using this advice) is that the basis of real estate gets ratcheted (usually up) to the new value once an owner passes.  For instance, if you purchase a piece of real estate for $100,000 and it is worth $1 million when you die then $900,000 of capital gains passes tax-free to the estate as the estate uses the new value as a basis.  This is a significant element of real estate tax law.

Ride the Market

Another excellent reason for not selling is the simple fact that the Seattle market is red hot, and expected to remain so for a very long time.  Selling now is leaving lots of money still on the table.  Even if it means feeding a property a few hundred dollars a month, that is minuscule compared to the thousands of dollars it will appreciate every month.

Sell it Option

There is really only one good reason for selling real estate in this market.  And that is if you have a very good reason for the use of the proceeds.  Reasons could include: a college education, medical expenses, a remodel, or another investment.  In fact, doing a 1031 exchange in a rising market makes perfect sense and now is the time to do it.  Move equity from an under-performing property to a better one.

 

It is our hope that these ideas will help you make an informed decision that will prosper you and your family.  All the best.