patrick.net

alpo says

3. 40K - from liquidating money lying in last employers 401K plan.

Ummm... I hope you didn't cash out your 401k to pay down the mortgage. That's investment-advantaged account that doesn't pay incremental capital gains on each stock transaction. Also, you'll owe penalties if you aren't of retirement age.

I wish I had seen this thread 2 months ago. I am in a similar boat to you except that I have little desire to keep my house long term. I ALSO refer to my $2M house as a "shack!" I've been thinking of selling the whole thing and fleeing the state. But, there are a bunch of painful costs:
• real-estate cartel will try to grab their 6% (even if they grab 3 or 4% that's a big chunk because it is on the whole thing, not just the appreciation)
• federal and state capital gains taxes. My capital gains will be $2M - $0.8M, so I'm looking at 0.4M in capital gains. (That includes the Obamacare and other extras on high capital gains.)

So I'm really looking at having $1.5M in my pocket at the end of the day, not $2.0M. That alone starts (slightly) to tip the balance in favor of keeping the house.

That being said, it seems that my area's houses rent for worse even than yours: about $4.5k/month. Add in a property tax of $1k/month and $0.5k/month for upkeep (it's an old shack) and I'm facing a very poor return on equity — less than 2.5% of $1.5M.

pkennedy says

You might want to make sure your rental numbers are correct for the house. 5K might not be anywhere near the right amount, it might be 7-10K, or more.

Maybe you aren't from around here. :-)

A $2M house close to Apple or Google is a mighty lousy one if it is one of the older ones. It'll be in need of much expensive upgrading. On the plus side, it'll have a "huge" 7000 sq ft lot in a quiet neighborhood without much traffic. The thing is, renters care more about the inside of the house than they do about the neighborhood. Thus the imbalance between rent and own.

In my neighborhood, the price imbalance is actually worse than that of the original poster.
A $2.0M typically rents for about $4k/month. Yikes!

I joke that I should sell my house but with a rent-back stipulation that has no expiration. I'd just permanently rent my place back from whoever was dumb enough to buy it from me!

Check out this one that caused quite a stir when it sold. Sale price $2M. Rent zestimate: $3595/month!
https://www.zillow.com/homes/for_sale/Sunnyvale-CA-94087/19537995_zpid/97549_rid/0-900_size/37.364499,-122.053278,37.358803,-122.063031_rect/16_zm/1_rs/

pwagner says

Ummm... I hope you didn't cash out your 401k to pay down the mortgage. That's investment-advantaged account that doesn't pay incremental capital gains on each stock transaction. Also, you'll owe penalties if you aren't of retirement age.

I actually did :-), but on the bright side paying off 40K in mortgage principal right now will save me approx $10K in mortgage interest payments over next 4 years or so that I expect to hold this mortgage. I look at 10% 401K penalty as 10% stock market fluctuation. Most of this is psychological, numbers can be very convincing for any future scenario specially when looking forward in 4 to 5 year time frame.

pwagner says

I've been thinking of selling the whole thing and fleeing the state. But, there are a bunch of painful costs:
• real-estate cartel will try to grab their 6% (even if they grab 3 or 4% that's a big chunk because it is on the whole thing, not just the appreciation)
• federal and state capital gains taxes. My capital gains will be $2M - $0.8M, so I'm looking at 0.4M in capital gains. (That includes the Obamacare and other extras on high capital gains.)

Yeah, I thought about selling too or actually came close to being forced to sell during divorce financial settlement specially with a vindictive ex. But selling without adding a second floor or remodeling the attic is leaving money on the table. rental is bad but dollars per square foot is pretty high.

Doesn't look like anyone has mentioned it yet, but being a landlord is no picnic, especially in California where tenants have all the leverage, and you have almost none. Your $2,000 income is potential, only realized once you have a good renter(not easy to find), who is not going anywhere. It could take you multiple tenants to find that person, and what you get along the way could eat up a vast chunk of your time, and your potential profits.

As others have already mentioned, you are looking at a topping market. Invest elsewhere, save, pay off your debt, and wait for the crash to get that smaller place.

I'm actually contemplating moving to an RV fulltime, not sure how the parks are up there, but that could be an alternative to the townhouse, depending on what type of lifestyle you enjoy.