Should You Sell or Keep Your Home as a Rental?

By Nick Krautter

Nick Krautter is a Portland-based real estate professional, market analyst, and author of The Golden Handoff: How to Buy and Sell a Real Estate Agent’s Business, which debuted number one on Amazon for mergers and acquisitions.

There’s a factor people really forget to take into account when they’re deciding whether to buy or sell, and it isn’t on any chart. What do you really want to do with your life, and where do you really want to live? Personal timing, and the timing that works for your family, matters far more than interest rates or market trends. I’ve seen it play out again and again.

Picture yourself stepping between two boats on a lake. Whether the water level is high or low, you’re basically trading across. Where it gets confusing is when you’re moving from a market that’s declining to one that’s improving, or vice versa, leaving a market that’s had a lot of appreciation for one that’s declining. If you’re moving within the same city, chances are you’re on the same water level, and the water level is just a metaphor for whether prices are high or low. The point is that a high tide and a low tide both lift and lower both boats.

The rental question turns on a tax rule most people don’t think about. Something else to consider when you’re moving, especially if the market is declining, is whether to keep the home as a rental or sell it. When I’m giving people advice on that decision, a couple of factors matter. If it’s been your primary residence and you have appreciation, it’s usually better to take the tax advantage of realizing that capital gain. You get an exemption of $250,000 for a single person or $500,000 for a married couple.

So if you have a gain and it’s protected by the homeowner exemption, it often makes more sense to take that gain, especially since you can use the exclusion only once every two years. The catch is that the exemption depends on the home having been your primary residence for at least two of the five years before you sell. Rent it out long enough that you no longer have two of those five years as your primary residence, and you can lose the exemption, leaving you locked in as a rental property. Everyone’s situation is different, so it’s worth running the specifics by your tax professional before you decide.

The second factor is simpler: do you need the money? Do you need the equity from that home to buy the one where you’re moving? That question answers itself for a lot of people, and it deserves to sit right alongside the tax math rather than behind it.

So keep this in mind. If you’ve got a plan to move for life reasons, that’s a really big positive reason to buy or sell. Give me a call and let me help you work through it. Does it make more sense to keep this as a rental and find a good property manager? Or does it make more sense to sell, take the equity, take the tax advantage if it’s your primary residence, and put that money to work in your new home? I’d rather look at the real numbers with you than have you guess. Call or text me at 503-901-8100, email me at nkrautter@gmail.com, or visit sellpdx.com. Let’s figure out what actually fits your life.