When it comes time to move on from one home to the next, should you sell your current property or should you turn it into a rental?
The answer to this question will vary from person-to-person, and there a few things to keep in mind before you decide which option is right for you.
First, you’ll need to consider how converting a home that was once your primary residence into a rental property will impact your taxes. Single homeowners who have lived in the property as a primary residence for two of the last five years can sell the home for up to $250,000 tax-free, and married homeowners who’ve lived in a property for that same length of time can sell tax-free for twice as much: up to $500,000.
The next factor you’ll need to think about is whether you’re prepared to act as a landlord. The passive income you can earn from converting your home into a rental property is certainly attractive, but the job of a landlord isn’t without challenges. Thankfully, there are companies out there specifically designed for homeowners like you. If you want to rent out a property but aren’t thrilled about becoming a landlord, then hiring a property management company may be the perfect solution.
Even after passing off the majority of your responsibilities as a landlord to a management company, though, there are still certain issues you may encounter. For one thing, not every tenant will take care of your home the way you’d prefer. From deferred maintenance to more serious damage, there are many ways in which a tenant may harm your property beyond what their security deposit will cover. And this isn’t the only problem that can arise with your tenants. Some tenants, for one reason or another, may simply stop paying rent. If this happens, you’ll become responsible for navigating the eviction process.
The bottom line is that if you’re thinking of turning your home into a rental property, you need to evaluate your risk tolerance. Though there’s a potential you may never encounter the problems we’ve covered today during your time as a landlord, there’s still a chance you will. You need to be prepared for the worst-case scenario before you make such a major decision.
If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.