By: Revanche

Selling our home in California: Part 1

August 21, 2017

Part 1 of selling our home in CA Do we rent out or do we sell?

I was sorely tempted to keep this home as a rental property but ultimately decided against it for several reasons:

  1. Because of our refinance last year, our monthly costs are quite, relatively, low now. All told, our mortgage, HOA, insurance, and taxes run about $3350 per month. A home this size would probably be renting out for around $3500-3700 per month. That’s a cash flow of $179 to $379 per month. That’s not nearly enough to cover the maintenance and have a real profit margin. The two first years of cash flow would have to be banked against maintenance costs. That could work if I wasn’t so risk averse, we didn’t have any other drains on our income, and we had a comfortable savings cushion to cover our new home expenses. Which leads me to Reason number 2…
  2. We’re comfortable right now but not once you subtract the new mortgage and reno costs. We need the profit from the sale to recoup that spending. Short term thinking, admittedly, but I’m ok with that given Reasons 3 and 4.
  3. Both our CA properties are in the worst subduction zone possible. If and when the big one hits, both properties are highly likely to be completely destroyed. I’m not willing to bank my sense of stability on hoping there’s no major earthquake until we can easily afford the deductible on our earthquake insurance for two properties, and deal with the pain of rebuilding both. One will be painful enough.
  4. I don’t want to be a hands on real estate investor. I’ll do the accounting and management from afar but if we owned a property as nearby as this, I would feel compelled to do much of the property management myself. At this stage in life, that’s not something I’m prepared to do. The other option, hiring a property manager who would take 10% off the top, means the cash flow would be even less. In fact, that expense would drop our cash flow down to nearly nothing.
  5. After five years, we wouldn’t even qualify for the cap gains exclusion.

What’s the point, then?

I know that this is the right decision for us even if I am grumpy that the math doesn’t work.

Tax implications: Capital gains exclusion

I know, this may not be the first place your head goes to when we’re talking about getting ready to sell your home but this is a huge one in our state, given our market. Once I was sure that selling was the right way to go, I went straight to the IRS for the goods to make absolutely sure our sale qualified and that we were eligible for the exclusion.

How your sale qualifies. Your sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if all of the following requirements are met.

  • You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
  • You didn’t acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
  • You didn’t claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude.

All of these are true: PiC purchased this home long before we married, we’ve both lived here for much longer than the 2-year use requirement. We file jointly but I had to be sure that only one of us had to be an owner for the 2-year ownership requirement because we left the title in his name.

Marriage. Married individuals may exclude up to $500,000 of gain if they file a joint return and neither spouse excluded gain on the sale of another home within a previous 2-year period. If one spouse meets the ownership requirement, both are considered to have met the requirement.

I’m still working on whether or not we are exempt for CA state taxes but I’m reasonably certain that we should be.

Hiring an agent

I know most PF bloggers would say “go take a real estate course, and sell it yourself!” But I’m not (mostly) an idiot. That works for people who don’t have serious and severe limitations on their time and energy. I’m hiring someone to perform a service and to spare me the real pain of having to learn an entirely new skill in a compressed period of time.

I can take the real estate course when I’m not juggling fireballs and spinning ten plates in the air. Later.

We had a great agent referred to us by our friends who were really happy with her services, twice. After meeting with her and chatting by email, we determined that her rate and style were in line with our expectations.

Out of her fee, she would be paying for all marketing, the deep cleaning service, the photography. We’re paying her to advise us of regulations, the best way to market the sale, strategize pricing, do all the marketing legwork, and handling all our negotiations.

She’s the antidote for needing to sell while suffering from a fair amount of information overload, and serious decision fatigue. She’s been incredibly responsive and flexible, going to great lengths to minimize the disruption to our lives, which was highly appreciated considering how much we’re keeping moving at the same time between this sale and our renovations.

She’s even been helping with the seemingly endless packing and transporting furniture to get this place show ready. But that leads into a whole other story, for a whole other day.

Read Part 2 and Part 3!

:: Have you ever done a FSBO or been tempted to? Or did you go the agent route when it’s time to buy or sell? How was that experience?

14 Responses to “Selling our home in California: Part 1”

  1. Taylor Lee says:

    My mother works as a real estate agent. From what I’ve noticed in hometown market and current city hot market, FSBO’s consistently do poorly– sit on the market long and, when they do sell, end up out of desperation being underpriced. Sellers rarely know how to price, declutter, or photograph the home if left to their druthers. Also, sellers trying to save money through FSBO will often neglect to offer the buyer’s agents a commission, which means those agents will often skip over FSBO properties. Not saying that they don’t work out for some people, but in your case and your market (where you can see 5-digit or 6-digit swings just by pricing/timing right) I think you made the right decision.

    • Revanche says:

      Yeah, while we had some relatively decent instincts on how to declutter and price, we really needed our agent’s guidance to make the best informed decisions. We most definitely would not have had such an easy time of booking vendors like reliable cleaners or photographers.

  2. We kept my home in Greensboro as a rental even though it didn’t cash flow, but mostly because I moved out right as the real estate bubble crashed and our real estate agent was lousy (friend of a friend, new to the business and she didn’t stay in the business long.) Now it’s been a rental for a decade. I still wish we could have sold it instead (it’s too far away for convenient maintenance.) ‘

    Which is all to say “Good job, getting a good realtor! Best of luck with the sale.”
    Emily @ JohnJaneDoe recently posted…Financially Savvy Saturday #208My Profile

  3. Cindy in the South says:

    I have always used an agent. That said, I am about to pass out on the cost of California homes. Wow! My mortgage, including taxes and insurance, is $504 a month and that is AFTER a refinance where it increased, because I used equity that I pulled out and used to vest in my state retirement system. I would do the same that you are doing. IF I ever sell my current home and move a little closer to my grown kids, I will use an agent again.

    • Revanche says:

      You and me both! I’ve always lived in this state but it’s still scary as all get out.

      If you ever have to sell, I wish you the very best agent!

  4. SP says:

    When I see the $$$ amount that agents take in these expensive markets, it makes me want to to throw up a little. But I also don’t think I’d be willing to do it myself. They really can add a lot of value in the staging and marketing. I do think they provide a valuable service, but I also feel like the standard commission is a bit out of line for that service when we are talking about really pricey houses. For someone with a busy schedule and lots going on, the debate seems easy – get help!
    SP recently posted…Homeownership, 3 years inMy Profile

    • Revanche says:

      Right? I did the calculation and thought: well holy crap that’s a huge chunk of money for about a month (if concentrated) or two’s worth of work. But it at least evens out in terms of the money, I suspect we would have made enough mistakes without her help that she earned her fee, and she added the benefit of making it a lot easier for us than it would have been to research it all ourselves.

  5. I am super-impressed that you were able to buy a house without selling your current place first! We would definitely have to sell our place here to even get 20% down out where you are.
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    • Revanche says:

      Ah don’t be too impressed. I wasn’t fully ready so we had to take a short term loan to make that happen. It was only (to me) acceptable because the disruption to our lives doing it the other way (selling first, then buying) was too much given our needs.

  6. I think your decisions are bang-on. No point in spreading yourself too thin with a rental, and the DIY thing (ie. being your own realtor) has limits – which only you can determine, and you have done so wisely. Burnout is not an efficient option, and it sounds like your agent is doing a great job. We weren’t able to sell our first home for 3 years, and we rented it out because we had no other option. It was SUCH a relief when it finally did sell (to the person who was renting it – so no agent necessary in that case). Looking forward to the “show ready” post : )
    Prudence Debtfree recently posted…Dealing With My Financial Achilles’ Heel: Metaphor of Pipe, Valve, and FilterMy Profile

    • Revanche says:

      You’re so right – burnout is NOT an option. And I’ve come dangerously close even with paying for the services of a GC for the new place, and having a realtor handle the sale of our old place. I absolutely didn’t want to deal with the hassle of renting, considering how little we’d be making per month.

  7. So glad you have help here. I have never been tempted by FSBO. I’m also a firm believer that paying professionals *sometimes* pays off. I am not good at negotiations or selling anything… I will always hire those to be done. 🙂

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