Selling vs. Renting Out: What's the Best Option for Your Home?

For homeowners torn between selling their current property or converting it into a rental, this post offers insights to help make an informed decision.

Introducing Kyle Whissel from Whissel Realty Group, who shares valuable insights on this topic.

The Hidden Costs of Renting Out

One of the primary considerations when thinking about renting out a home is the associated expenses. Contrary to popular belief, renting out a property isn't just about collecting monthly rent. Studies suggest that homeowners should anticipate subtracting approximately 40% from their rental income to cover various expenses. These costs include:

• Taxes

• Insurance

• Maintenance

• Vacancy periods

• Repairs

Furthermore, if a property manager is hired, especially in regions like Southern California, they might charge between 8 to 10% (or even more) of the collected rent, potentially increasing the expenses.

A common misconception is thinking that if a property can be rented for $5,000 a month and the mortgage is $4,000, there's a clear profit of $1,000. However, after deducting the 40% for expenses, the actual income drops to $3,000, leading to a monthly loss of $1,000.

Additionally, becoming a landlord brings its own set of challenges. In places like California, laws tend to favor tenants over landlords. Issues like dealing with tenants, maintenance, and potential evictions can be time-consuming and costly.

The Benefits of Selling

On the other hand, selling a home offers a unique financial advantage. If the property has been the primary residence for two of the last five years, homeowners can benefit from tax exemptions. Single homeowners can keep up to $250,000 of the gain from the sale tax-free, while married couples can keep up to $500,000.

This exemption provides a rare opportunity to enjoy a significant financial gain without handing a portion to taxes. The proceeds from the sale can be used freely, whether it's for investment, travel, or any other purpose.

Making the Decision

To make an informed decision:

1. Calculate potential rental income, subtract 40% for expenses, and then deduct the mortgage (considering only principal and interest).

2. Compare this with the potential sale price, keeping in mind the tax-free gain that can be availed.

For those seeking personalized advice on this matter, Whissel Realty Group offers free consultations to help homeowners weigh their options and decide the best course of action.

Want more like this? Check out our website with tools that will help you grow your business.

San Diego Featured Listings

See More Listings

See More Listings