When it’s time to leave Los Angeles, you’ll need to decide what to do with your home. In our market, you have some excellent options. You can sell it and earn some great money on that sale. Home values here are high and while prices are peaking and the market is settling down with rising interest rates, there’s still a demand for homes.
You can also rent it out. Rental values are higher than ever in Los Angeles, and there are thousands of well-qualified tenants looking for their next rental home. With a rental property, you get recurring income and you also hold onto valuable asset as it appreciates and your tenants pay down your mortgage.
What should you do with your Los Angeles home when you don’t plan to live in it any longer?
There are several good reasons to go ahead and list it. If you are cash strapped and in need of money right now, selling is a good idea. You’re likely to have multiple offers coming in, and you’ll be able to set the terms you want when it comes to closing and conditions.
However, if you’re not in any immediate need for an infusion of cash, you can afford to be strategic. Maybe you’d like to begin a real estate portfolio. You have a piece of property that can launch that portfolio without going out and acquiring a rental home.
If you’re on the fence and wondering whether selling is the best option versus renting it out, consider these pros and cons to selling versus renting.
Why Should You Sell Your Los Angeles Home?
Start by evaluating the sales market to see if you can earn what you want on your property. Are there a lot of homes just like yours on the market? If not, you have an opportunity to earn the asking price you want – maybe even more.
In a market that’s favorable to sellers, when you can get the asking price you want, selling is an excellent opportunity to access your equity and walk away with an impressive profit. We have been in a pretty strong sales market recently.
Selling is a good idea when:
- You know you’ll never come back to Los Angeles and you won’t need the home.
- You have no interest in being a real estate investor or landlord and you just want to let go of the home entirely.
- You need a sum of cash for a down payment on another house or to pay for something large like college tuition.
Selling is a great idea if you’re simply ready to not own this particular home anymore. It’s also a great idea if you need access to the equity you have built up in the home over the many years that you’ve owned it. Sell when you’re moving on.
Why Should You Rent Out Your Los Angeles Home?
Selling is attractive because of the instant gratification that comes with earning the money and letting your home go. It’s a clean break.
But, it’s not the right choice for everyone. Here are some great reasons to hold onto your property and rent it out.
- Tax Benefits to Renting Out a Los Angeles Home
When you decide to hold onto your home instead of selling it, you can use depreciation for tax purposes. The IRS actually has a pretty generous formula that can dramatically reduce your tax liability. Simply divide the amount you paid for the house plus the cost of major improvements you’ve made by 27.5 years and you’ll get your annual depreciation rate. Note: you have to subtract the value of the land. Depreciation is only on the house itself.
That’s not the only tax benefit. You can also deduct for:
- Property taxes
- HOA fees
- Los Angeles property management expenses
- Maintenance and repair costs
- Mortgage interest
You’ll need to report the income you earn from your property when you’re renting it out. However, with the long list of deductions you’re eligible to take, holding onto your asset and using it as an incoming-producing property is an excellent idea for tax purposes.
Selling your home will result in capital gains taxes. When you’re looking for the best way to position your tax exposure, renting out your property is a better move than selling it.
- Property Values are Still Increasing and Will Continue to Increase
Let’s not forget that by renting instead of selling, you’re holding onto a valuable asset.
All of the annual expenses that you’ll be writing off may create a loss for your property, but think about the fact that you can hold your investment as long as you want, and the loss will be spread out over the years of ownership. In California, the real estate market is growing rapidly. Well-maintained homes in desirable Los Angeles neighborhoods are increasing in value dramatically. Holding onto your property may seem counterintuitive in this market, but it actually has the potential to earn you much more in the long term.
Even better – you can use this property to grow your portfolio and launch a lucrative real estate investing career. As your current property appreciates, you can use it as leverage to acquire another property. This is how wealth is earned in real estate.
Renting allows you to earn consistent and recurring income every month. Tenants pay rent, and you can use that rent to pay down the mortgage, take care of insurance and taxes, and contribute to maintenance. All of these expenses are covered even while your property continues to increase in value.
Los Angeles Property Management
Maybe you want to sell simply because you don’t want to be a landlord.
That’s understandable. In Los Angeles, it’s riskier than ever to rent out property. There are a lot of tenant protections in place and you have to be mindful of rent control laws, just cause eviction requirements, and fair housing rules.
We can help. Working with a Los Angeles property management company like ours will make the process much easier, and far more profitable.
If you’re still trying to decide what to do with your Los Angeles property when you leave town, contact us at Earnest Homes. We’d be happy to walk you through your options.