Should you sell? Or should you rent? San Diego Realtor Jeremy McHone goes over the pros and cons of each. And how one can make you more money in the long run.

Sell vs Rent: What is the Best Option for You?

Should you rent your home out when you move out of it or should you sell it? It's one of the most common questions I get so let's dive into that. I'm Jeremy McHone with the Whissel Realty Group and I'm going to discuss whether you should rent or sell your home. So one of the most common questions I get from my clients when they're moving out of a home, is should I rent it out or should I sell it? And the answer is, it depends. It depends on your situation. It depends on your goals.

Let's start with what are the pros and cons of renting your home. The first downside to renting your home is potential vacancies. There may be months where you're not collecting any rent but you're still responsible for the expenses. Another one of the downsides is repairs. You're still responsible for those repairs whether you broke something in the house or the tenant did. And another downside is that if you do decide to sell it down the line when it's a rental property and you haven't lived there for a while, you're probably going to get hit with capital gains tax on those gains. More about that a little bit later.

Let's look at the upsides to renting out your property. One, if the rent exceeds the expenses it's potential passive income and that passive income could continue to appreciate and increase over time. Another one of the upsides to renting out your property is over time, if property values continue to increase, which we expect them to, you're going to be able to take advantage of that appreciation by keeping that asset. And another upside to renting your property is there's tax benefits, namely depreciation. Now, when I say depreciation, a lot of people think of that as the opposite of appreciation.

They think that depreciation means that the value of their home is going down. It's actually not what that means in this context. Depreciation is an accounting term that the IRS uses to describe the fact that when you own a home, over time, you're going to have to spend money to maintain it so they let you write off those expenses for the life of the property. Now let's talk about selling your home. Pros and cons, let's start with the cons first again. What are the downsides to selling your home? In my opinion, the biggest downside to selling your home as opposed to renting it is the opportunity cost of that appreciation if property values continue to rise after you sell it.

So you might be kicking yourself for selling it If it becomes worth more after you sell it. What are the upsides of selling your home? One, you get to take all that equity all at once and cash it in. Number two, you don't have to worry about maintenance or repairs after you've sold your property and you don't have to deal with tenants or vacancies or any of that. And the third and probably the biggest upside to selling your home is you actually get to take a lot of your gains tax-free. If you've lived in your home for two of the last five years then you get to take the first $250,000 of gains if you're single, and the first $500,000 of gains if you're married, tax-free and there's not a lot of ways to be able to take down that much money and not pay any taxes on it. So once you've rented out your home for three years and one day, now it's no longer considered having been your primary residence for two of the last five years so you lose that tax advantage.

So my advice is if you're trying to decide whether you want to sell your property or rent it out, one, look at whether the rent would cover the expenses and if that would be like a positive cash flow, and don't forget to take into account maintenance costs when you're doing that and property management costs. And the next thing to think about is are you ever going to need to sell this home?

If you know that down the line you're going to have to sell it eventually, it probably makes sense to sell it right now, takes all those gains tax-free, and not have to worry about a few years paying capital gains tax when you go to sell it. If you're trying to decide whether to rent or sell your home and you have more questions, feel free to reach out. You can drop a comment below, or you can shoot me a text or give me a call at 619-971-0791.

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