I often work with people who are trying to figure out if it will be better to rent or sell their homes. Most real estate salespeople (who aren’t Realtors) will try to convince you to sell. Selling might indeed be the right thing for you and it certainly will be the best thing for the salesperson. However Realtors are bound to a code of ethics, and a vital part of our job is giving advice that is not our personal interest but in the best interests of our clients. Here is one rent vs. sell situation that I have been working on lately.
My client has mother in her late 70's who has gone into assisted living. What do you do with the house? Do you cash in now during our ‘hot’ market? I’m not a CPA and can’t give accounting advice, however I am assuming there would likely a considerable tax liability because they purchased the home long ago and the mother’s gains would exceed $250,000. Also the mother could live another 10 or more years. If you cash in now will there be enough money in the estate to care for the mother for the rest of her life?
Or do you want to take a chance on finding a stable renter today who will hopefully not lose their job in our shrunken and shifting economy? Do you want to manage the property yourself or pay someone else to manage it for you? Not having to deal with a renter and any issues that might come up with the property can be a really nice feeling. But so can a monthly check of approximately $4,000 that can be used towards the mother’s care.
Again I can’t give tax advice but once the mother eventually passes the property can be sold and the tax basis comes on the date of death, not on when she bought the house or moved out. By renting the property the heirs can get income to offset assisted living expenses, capture potential appreciation on the market which could be considerable based on Marin’s historical patterns, and likely avoid capital gains taxes.
This decision would be a lot more challenging if the mother still lived at home and you threw in the option of staying put and acquiring live-in care, or move to assisted living. That decision has already been made. Likewise it looks like the decision to rent is probably been made too. I’m glad this family is choosing to rent the house. It’s the right decision for them.
Since they are going the rental route it’s probably best if they reevaluate in after two years of being landlords. At that point they can still make the decision to sell and at least get the owner occupant capital gains exemption. But if all goes according as planned we’ll find a great tenant who stays many years and has little need to contact the landlord, other than sending the rent checks and taking care of occasional maintenance needs.
As for my part I’ve found that renting houses can be a lot more work than selling them, and for a whole lot less money. When renting it’s not like we are working for minimum wage though. Some Realtors won’t do rentals. Because I was a tenant for much of my life I enjoy doing rentals. We are getting to work in our chosen profession, helping people make these extremely important decisions and executing plans to get the homes ready and rented. It can be exciting and gratifying. I also think it’s a good business decision to help people with rentals. Maybe someday the owners will decide to sell with me. They also might refer me to friends who have real estate needs.
Rent or sell, I am ready to help.
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