We knew we’d return to the East Coast to be closer to family at some point. So, after 10 years of loving life in Seattle, we made the move back to the Philadelphia area.
The Seattle real estate market is insane. We lived in a 1,300 square foot single family home in a desirable neighborhood with great schools and close to downtown (i.e., short commute to Amazon). Prior to purchasing this house in 2006, we sold our Philadelphia home for a nice profit, affording us to pay off my student loans, buy two (used) cars and put 20% cash down on our new Seattle home. This was all without a thought of kids (which came only two short years later). Thankfully, the house worked for our family of four because we quickly realized we couldn’t afford a bigger house that wasn’t a fixer.
During our time in Seattle, we also purchased a smaller investment property in another neighborhood. We didn’t follow the “buy the worst house in the best neighborhood” rule, but we bought what we could afford and got newly renovated (low maintenance) house in a neighborhood we knew was “up and coming.” For three years, we acted as the property managers with no turnover and very few issues.
So, when it came time for us to move, we were torn: sell or rent? The Seattle market has seen such growth: was it a bubble and should we sell now (2016)? Or hold onto the properties with a nice monthly income, hope the long-term growth continues and accept there will be maintenance and management costs? We took a deep breath and decided to rent, turning over the property management to a company that takes 10% off the top of the first rental and 8% off the top of the second. This has proven well worth it! They take care of everything and are prompt to answer any questions of concerns.
In the two years since February 2016, property 1 (primary) has grown in value by 35% and property 2 (investment) has grown by 46%. This doesn’t account for the monthly rent which more than covers the mortgages. So, I didn’t do an entirely accurate comparison, but in the same time period, a $10k investment in VTSAX would have grown around 35%. Selling our properties would provide a much larger investment, so perhaps this would have been a wiser decision, but I like: 1) the passive monthly income and 2) having diversified assets.
The Plan for Property 1:
- Keep it for the passive income during retirements, or
- Move back! Right now, we’re thinking about retiring in WA.
- We also keep in mind that if we sell by 2020, we can avoid paying capital gains tax for having lived there for two of the prior five years.
We definitely have an emotional tie to this house and neighborhood and simply don’t want to sell it. At least we recognize this!
The Plan for Property 2:
- Keep it for passive income in retirement, or
- Sell it to pay for college for two kids in 10+ years, while collecting monthly rent. But, with this, comes real estate market risks and increasing maintenance costs as the property ages.
And, of course, the ever-present threat of an earthquake in the PacificNW that could reduce both properties to a pile of rubble.
We purchased our big, old, inefficient home in the Philly ‘burbs, but the market here is not nearly has hot, so it’s not so exciting to think about. With some improvements coming to the neighborhood that will increase walkability and overall appeal, I’m sure we’ll sell it for more than we bought it, but if you consider the real costs of home ownership, I can’t confidently say we’ll see a profit.
Either way, we’re in a great place with these investments and will keep them for now. I’m not sure what would change that. I’m afraid that if we sell and funnel the profit into investment accounts, we’d be putting all of our eggs in one basket. It’s all about balance!