In a slowing market, is it better to sell your home or rent it out? Today I’ll discuss.
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If you’re a homeowner who’s thinking of selling in a market that’s slowing down, is it wiser to proceed with the sale or just rent out the home?
There are a few things you’ll want to consider when making the decision to rent or sell.
1. Are there any tax ramifications? If the home you own is your primary residence, tax law says that if you’ve owned it for two of the past five years, you can enjoy a capital gains tax exemption at the time of sale. For federal tax, that’s about $250,000 for one person, and about twice that for a couple. If you decide to rent your home out for a couple years, you may miss your opportunity to enjoy that tax benefit.
“If you don’t think you’re currently ready to manage a rental property, maybe it’s just better to sell right now and take your profits.”
2. Are you ready to manage a tenant? Managing tenants is no small task, especially in California where they have rent control and there are lots of laws that regulate landlords. Make sure you understand these factors before you jump into becoming a landlord yourself.
3. How long do you want to rent for? Are you looking to capitalize on the seasonal change of the market? For example, as we head into the fall, the market is usually slower than the spring and summer. If you’re planning to rent it out in the spring, then make sure you manage the rental time period accordingly.
4. Is it even possible to convert your primary home into a rental? If so, you may be able to use a 1031 exchange to help you defer taxes. It won’t help you become tax-exempt, but you can defer those taxes.
5. If you already have a lot of equity built up in your home, now may be the time to cash it in for a profit. If you aren't confident in your ability to manage a rental property and could stand to gain a large profit from your property, it may be better to sell your home and cash in on your equity.
If you have any questions about this topic and how it might apply to your specific situation, please feel free to reach out to us. We will be happy to analyze your case to see whether it’s a better option for you to rent or sell.
