When an individual finds themselves in a position where they own an additional property, they often wonder what their options are.
Often, a property owner can be in this position after needing to relocate and purchasing a home in the area they intend to move to, or after they inherit a home from a relative. In this situation, the primary options are to either keep the home and rent it out, or to sell the home. Below we detail some of the key things you should consider when determining whether or not to sell your home or turn it into a rental property.
The local market for rentals and home sales
Not all areas are ideal places to own a rental property, just as some locations may not prove to be ideal when trying to sell a home. Taking a look at the current rental and real estate market in your area will help you to begin thinking about the true pros and cons of turning your home into a rental vs. selling your home.
In Ventura County, for example, the housing market is currently experiencing significant growth, with the average rent for a home being $3,160. This indicates that the local market for rentals is strong and can provide a consistent income stream for landlords. Additionally, the recent trends of the housing market in Ventura County shows that property values are increasing, which can provide a good investment opportunity for landlords.
The financial benefits of owning a rental property can not be overstated. When you own a rental property, you open yourself up to receiving passive income. Additionally, as the home is being rented out, you are able to allow the property value to continue to appreciate, gaining value. This means that landlords can generate a significant income stream by renting out their property.
These benefits are not guaranteed, however. When assessing whether or not selling the home or renting it out is in your best interest, we recommend looking at a number of factors. Is the property in an area with rental prices that will provide the property owner with enough security? Is the location of the property in an area where rentals are in demand? If the unit is in an area with high rental vacancy rates, this is something to pay attention to.
If you need assistance determining the rental value of your home, please reach out to a member of our team, here! We provide free rental analysis and can help walk you through any questions you may have.
Let’s run the numbers
As of 2021, the median house price in Ventura County, CA is $667,000 according to Zillow. According to RentTable, the average rent for a home in Ventura County, CA, is $3,160 monthly. If you take these numbers and compare them to selling, you will see the below, estimated results:
These numbers depend on many factors, as discussed above. If you want to calculate results using your unique situation, see a free rent calculator, here.
The tax benefits that are associated with owning a rental property are one of the top benefits. Many new landlords are nervous about anticipated costs associated with owning a rental. However, we always recommend that property owners look into the costs they will be able to deduct as a tax benefit. These could include maintenance costs, the cost of hiring a property manager, or any improvements made to the property. Additionally, there are tax benefits which include the depreciation of the rental property.
One of the major tax benefits of owning a rental property is the ability to deduct expenses associated with the property. These expenses can include things like maintenance costs, the cost of hiring a property manager, or any improvements made to the property. Additionally, landlords are able to claim depreciation on the property. This can provide a significant tax benefit over time. Landlords can depreciate a rental property over a 27.5 year period. This can result in thousands of dollars in tax savings each year, according to the IRS.
Another benefit of owning a rental property is the ability to have a consistent income stream. This can provide landlords with a reliable source of income that can help offset the costs of owning the property. Additionally, owning a rental property can provide an opportunity for long-term financial growth.
These benefits can make a big difference when it comes to assessing whether or not it is in your best interest to rent or buy. To learn more about the tax benefits of owning a rental property, listen to a recent episode of The Accidental Landlord podcast featuring guest and tax expert Julio Gonzalez, here.
You will always have something to come back to.
In cases where a property owner is moving for work or to tend to other potentially temporary things, having the home to return to makes the owner feel more confident in their move. While the option to sell the home remains on the table indefinitely, once an owner sells the home there is no option to go back without buying back into the local market.
Although not every homeowner is moving out of the area, having a property to move back to is an attractive option for many owners. It may depend on the market your unit is in. However, in Ventura County, as property value rises it can be difficult for owners to buy back into the market after selling and leaving for a significant amount of time. Retaining the home as a rental property not only allows you to reap the benefits of consistent rental income, but allows you to have peace-of-mind knowing that you will be able to return if needed.
Both options have their own benefits and drawbacks, and it's important to consider all factors, including personal circumstances, when deciding whether to rent out or sell a property. Consulting a financial advisor or a real estate professional would be helpful in making the right decision.
Overall, it is clear that over time and in the majority of cases, renting out a second home will benefit the property owner more in a number of ways. Although navigating this process can be overwhelming, one of our dedicated team members is available to help you. Reach out to us today by visiting our contact page, here.