So you've got a property you're not living in anymore. Maybe you moved for a job, inherited a house, or simply outgrew your starter home. Now comes the big question that keeps many homeowners up at night: do you become a landlord or cash out and sell?
I've seen clients go both routes, and honestly, there's no universal "right" answer. Your cousin Sarah might be killing it with her rental duplex, while your neighbor Jim is thrilled he sold his condo at the market peak. The truth is, what works depends entirely on your situation, your personality, and frankly, your tolerance for 2 AM phone calls about broken water heaters. That said, there is an easy remedy for those 2 AM phone calls, but we'll get into that later.
Let's Talk Numbers First (Because Money Talks)
Before you get swept up in dreams of passive income or visions of a fat check from a sale, you need to crunch some real numbers. And I mean real numbers. These aren't the optimistic "the rent will cover everything" math that sounds great over dinner conversation.
Start with the rental income potential. What are similar properties in your area actually renting for? Not what you think they should rent for, but what tenants are actually paying. Then subtract everything. This really means everything. Your mortgage payment (if you still have one), property taxes, insurance, maintenance costs, the occasional month when the place sits empty, and if you're smart, money set aside for that inevitable major repair. Of course, there's an easy way to mitigate some of those concerns.
Here's what many first-time landlords don't realize: even if you break even monthly, you might still come out ahead. Your tenant is essentially paying down your mortgage principal. You also get tax deductions for depreciation and expenses. And hopefully, your property appreciates over time. It's not just about monthly cash flow.
But let's be honest... if you're hemorrhaging money every month just to keep a rental property, that's not an investment, it's an expensive hobby.
When Keeping It as a Rental Actually Makes Sense
Your local rental market is hot
Some areas are just goldmines for landlords. College towns, tech hubs, places where people want to live but can't afford to buy. These markets can be landlord-friendly. If you're seeing "For Rent" signs disappear quickly and hearing stories of bidding wars over rental properties, that's a good sign. Los Angeles county, and especially Culver City, is one of those special areas.
You're thinking long-term wealth building
Real estate has this beautiful quality... it can make you money in multiple ways simultaneously. Your property might appreciate, your tenants pay down your mortgage, you get tax benefits, and if you're lucky, you even get some monthly cash flow. It's like having multiple income streams from one investment.
This works especially well if you're in your peak earning years and don't need the money right now. Think of it as part of your retirement strategy. Just make sure you diversify your strategy.
The tax benefits actually help you
Here's where things get interesting from a tax perspective. Rental properties come with deductions that can significantly impact your tax bill: depreciation, maintenance, repairs, property management fees, even the mileage driving to check on the property.
Of course, there's a catch (isn't there always?). If you sell later, you'll face something called depreciation recapture. But, if you're in a high tax bracket now and expect to be in a lower one later, this timing difference can work in your favor.
You can handle the landlord life
Be brutally honest with yourself here. Are you the type of person who can deal with tenant drama, coordinate repairs, and handle the business side of property management? Some people thrive on this stuff. They enjoy the challenge and the hands-on aspect. Others would rather have a root canal.
When Selling Makes More Sense
You need the cash now
Sometimes life happens. Maybe you want to buy a bigger house, start a business, or your kid's college tuition is breathing down your neck. Real estate is great for long-term wealth building, but it's terrible for liquidity. You can't pay your mortgage with theoretical appreciation.
If that property represents a huge chunk of your net worth, selling might give you the diversification you need. Having all your money tied up in one asset, even real estate, can be risky.
The market is clearly overheated
Every market has its moments. Sometimes prices get so divorced from rental reality that selling becomes the obvious choice. If you could sell your property for $2,000,000 but it would only rent for $4,000 a month, the math can start tilting toward selling... unless you plan on renting the property for about 40 years.
You're moving far away
Managing rental property from across the country is possible, but it's not fun. There's something to be said for being able to drive by your investment property occasionally. I knew a couple who kept their starter home as a rental when they moved out of the US. Trying to manage a property from another country was too much of a hassle.
The property is a maintenance nightmare
Not all properties make good rentals. That charming old Victorian with the quirky plumbing and vintage electrical system? It might be lovely to live in, but it could be a landlord's nightmare. Tenants don't treat rental properties like they would their own homes. And, older properties with character often come with character-sized repair bills.
The Real Questions You Need to Ask Yourself
Beyond all the financial calculations, here are the questions that will really determine whether you should rent or sell:
What would you do with the money from a sale? If your honest answer is "stick it in a savings account," then keeping the rental property probably makes more sense. But if you have higher-return investments lined up or debt to pay off, selling might be smarter.
How does this fit your overall financial picture? If real estate already dominates your investment portfolio, selling for diversification might be wise. If you have zero real estate exposure beyond your primary residence, keeping the rental could provide balance.
What's your five-year plan? Might you want to move back to that area? Planning to retire soon and want to simplify your finances? These life factors matter as much as the financial ones.
Can you sleep at night? Seriously. If being a landlord is going to stress you out or keep you awake worrying about your property, it's not worth it. Peace of mind has value too.
Making the Call
Here's my advice. Run the numbers for both scenarios: rent vs sell. But, don't stop there. Think about what you actually want your life to look like. Some people genuinely enjoy being landlords. They like the control, the steady income, and building long-term wealth through real estate. Others prefer the simplicity of index funds and sleeping soundly without worrying about midnight maintenance calls.
Also, remember that neither choice has to be permanent. You can rent for a few years and then sell. You can sell now and buy rental property later when your situation is different.
Take your time with this decision. Talk to other landlords in your area about their experiences. Maybe even talk to a few tenants about what they look for in rental properties and landlords. The more information you have, the better decision you'll make.
And whatever you choose, make sure it aligns with your overall financial goals and life plans. The "right" choice is the one that helps you sleep better at night and gets you closer to where you want to be in five or ten years.
Whether you become a landlord or walk away with cash in hand, you're in the enviable position of having options. That's already a win.
What's the Easiest Way to Make Passive Income as a Landlord?
Let's say you want passive income, but those 2 AM phone calls we mentioned earlier throw you for a loop. And, you're worried about the related responsibilities. The idea of property taxes, insurance, maintenance costs, and empty months hold you back. So, if property management isn't your thing, you can always hire Martin Feinberg Real Estate & Property Management to handle it. We even handle properties for families who have moved overseas. Our fees are minimal and our testimonials outstanding. It's the easiest way to make passive income as a landlord. Contact us for more information.
FAQS
When to Rent a Property?
Renting is typically best when:
The move is temporary and the owner plans to return.
The property is in a high-demand rental market, making it easy to find tenants.
The owner expects local home values to appreciate.
The owner has locked in a low mortgage rate, allowing for potential cash flow.
The owner wants to try real estate investing, leveraging a favorable owner-occupant loan.
There’s a desire for passive income and potential tax advantages.
Ownership offers diversification and protection against volatile markets.
There’s a wish to maintain flexibility, possibly returning to the home in the future.
When to Sell a Property?
Selling is often preferable when:
Immediate cash is needed for the next home or to capitalize on a seller's market.
The owner has significant equity and wants to realize gains.
There has been a major life change, such as job relocation or a need to downsize.
The property requires significant repairs or is costly to maintain.
Maintaining two homes would stretch finances.
The owner has little interest in becoming a landlord or dealing with tenant issues.
Inherited properties have become a burden and are not ideal for rental.
The owner prefers to avoid the risks and work associated with rentals.
What are the Factors to Consider when deciding whether to Rent or Sell?
Local Market: Hot selling markets may favor selling, while strong rental demand can make renting attractive.
Financial Needs: The urgency and amount of funds required can steer the decision.
Long-Term Goals: Plans to return or hold as investment property encourage renting.
Property Condition: Poor condition or high maintenance costs may necessitate selling.
Transaction Costs: Selling involves closing costs and agent fees, while renting brings income but also operational responsibilities.
