Our home has doubled in value over the past 10 years – should we sell it and move to a cheaper part of the country?

A Reddit user is wondering whether to sell an expensive home to move for retirement, or whether he should keep the property and rent it out.

So, should he tap into his equity since his home has dramatically increased in value, or would the rental approach be a better bet for him? Here’s how he can decide. 

Doubled home equity leads to a tough choice

The Reddit user explained that he and his wife are almost 50 and the home they own has doubled in value from $2 million to $4 million over a 10-year period of time. They have 20 years left on their mortgage, which has a fixed rate of 2.9% and a $500K balance, but they want to move to a low cost of living area.

They are now trying to decide whether to sell and invest the proceeds, but they are worried about the capital gains taxes that will result in taking such a large amount of profit — even though $500K of their gains are excluded under IRS rules.

Their other option is to keep the property, pay their $7K per month in mortgage and insurance costs plus $26K in annual property taxes, and rent out the property for $7,500 per month. 

Should you sell a home or rent it out when moving during retirement?

While the Reddit user may be concerned about the capital gains taxes on the property, the reality is that he is most likely going to be better off selling the home, taking the one-time tax hit, and investing the proceeds after paying for a cheap home in cash in his new lower cost of living area.

There are many reasons why that’s the case, including the following:

• Tying up so much of your net worth in one asset doesn’t make sense as a retiree
• He’d be losing money on the house each month after covering the mortgage and other expenses since he can’t rent the property for enough to pay for the costs
• There’s a huge risk of a renter damaging such an expensive house, which would mean one of his most valuable assets would be worth less
• He can’t live on the equity he has in the home unless he sells it
• He’d likely get stuck paying a much higher mortgage rate in a new area if he didn’t use the proceeds from the home to pay cash for his new place

Ultimately, while all signs point to selling, the Reddit user still may want to talk with a financial advisor before moving forward.

The advisor can help him to confirm that selling is the right move and may be able to work with him to find ways to reduce the capital gains taxes that are due, such as by factoring in allowable deductions for home repairs and upgrades or timing the sale strategically to a period of time when his income is lower and he can take advantage of a low capital gains tax rate. 

A financial advisor can also help him decide how best to use the proceeds from the sale of his home to help make his retirement more secure. The Redditor is lucky that his home went up so much in value, and that he now has this golden opportunity to use the equity to truly enjoy his later years. He should get the professional advice needed to make the most of that chance.