At Zenith Properties, we frequently encounter property owners in Washington State, who are torn between selling or renting their homes. It’s a question with no one-size-fits-all answer.
Sell your home if you want to see profits immediately and up front, or rent it out if you want long-lasting cash flow.
Either way, the decision depends on various factors, including your personal circumstances, mindset, and financial projections. By carefully considering the numbers and evaluating your situation, you can arrive at the best decision that aligns with your goals and maximizes your financial outcomes.
Should I Sell My Home?
Selling your home could be a good option if you are looking for an immediate financial boost. However, it can be a costly process, and it could force you to forgo long-term profits that you could get through renting. Here’s a closer look at the benefits and drawbacks of selling:
Benefits of Selling Your Home
- Access to Cash: Selling your home allows you to convert your equity into immediate cash, providing a potential financial boost.
- Capital Gains Tax Exemption: Under current IRS rules, you can exclude up to $250,000 of capital gains ($500,000 for a married couple filing jointly) if you have owned and used the home as your primary residence for at least two of the five years before the sale.
- Funding Life-Changing Priorities: The proceeds from selling your property can be used to finance significant life priorities. Evaluate the relative importance of these priorities and ensure that selling is the optimal choice for fulfilling them.
Disadvantages of Selling Your Home
- Costs and Expenses: Selling a home comes with significant expenses, including real estate commissions (often 5-6%), Washington State’s Real Estate Excise Tax (REET), title insurance, and escrow fees. Combined with potential seller concessions and repair costs, total selling expenses can range from 7% to 10% of the sales price. Additionally, you may need to invest in sale preparation and address repair costs negotiated by the buyer. Capital gains taxes may also apply, and you might need to bring cash to cover expenses if there is insufficient equity.
- Opportunity Costs: Selling means potentially losing a low-interest mortgage that cannot be easily replaced. You will also miss out on future property appreciation, which could be financially advantageous in the long run.
Questions to Consider If You Want to Sell
With all of those benefits and drawbacks in mind, here are some key questions you should think about to determine if selling your home is the right choice for you.
- How much will your property sell for? Get a market analysis from an expert and find out.
- If you sell, how much net equity can you realistically expect to have after all of the selling expenses?
- How will you feel if it takes longer than expected to sell your property and you are forced to take a price reduction to sell it? The market is much slower now than it has been in previous years, especially with the higher interest rates buyers are saddled with these days.
- How will you feel if mortgage rates stay above 5% indefinitely and you sell your property that has a 2.5%, a 3%, a 3.5% or a 4% interest rate?
- How will you feel 5 years from now if the property you used to own gets resold for $100k, $200k, or $300k more than you sold it for? That’s something to think about!
Should I Rent My Home?
Renting your home can be a great long-term source of income. And when you partner with a property manager, renting your home becomes an easy revenue source. Here are the main advantages and disadvantages of renting to help you determine if it could be a viable option for you:
Benefits of Renting Your Home
- Recurring Rental Income: Renting out your property provides a regular cash flow through rental payments, offering a steady source of income.
- Property Appreciation: By retaining ownership, you can benefit from future appreciation, allowing your property’s value to grow over time.
- Equity Building and Tax Advantages: Renting allows for equity accumulation as your mortgage is paid down or covered by tenants. Moreover, you can take advantage of tax deductions by depreciating the property, potentially saving thousands of dollars annually in income taxes (consult a tax professional for details).
Disadvantages of Renting Your Home
- Foregoing Equity Harvesting: Renting means you cannot access the equity in your property unless you opt for a home equity line of credit (HELOC) if you require immediate cash.
- Potential Management Hassles: Being a landlord involves dealing with tenants, which can be challenging at times and may require your attention and time.
- Complex Regulations and Property Maintenance: Washington State has particularly robust landlord-tenant laws, including statewide ‘Just Cause Eviction’ ordinances, specific notice periods for rent increases (currently 90 days), and strict rules for handling security deposits. Navigating these regulations without professional help can be risky. Property maintenance responsibilities can also become burdensome over time. Engaging professional property management services can alleviate these concerns.
Are you ready to have your investment property professionally managed? Click below and start today!Ask Zenith Your Questions Today
Questions to Consider If You Want to Rent
How much will your property rent for?
Get a market analysis from an expert and find out. If you rent, how much will your monthly net cash flow be after paying the mortgage, professional management, and including a reasonable maintenance allowance?
What will your property be worth in 5 years?
If it appreciates at a conservative rate of 5% or 6% per year, it will go up in value between 28% and 34%. If your property is worth $500k today at 6% appreciation, it will be worth approximately $670k in 5 years!
How much will your mortgage be paid down over the next 5 years?
Odds are it will be a lot if your mortgage rate is below 5%.
How much will you save in income taxes by depreciating your property?
On a home with a building value (depreciable basis) of $330,000, the annual depreciation deduction would be around $12,000 ($330k/27.5 years). For an owner in a 20% tax bracket, this translates to $2,400 in annual tax savings.
How will you feel about being a landlord?
Does the thought of managing tenants make you nervous or afraid? Or will it make you happy to know you are providing a home for a family who needs it while your property is producing income and appreciating?
Get Professional Property Management Advice
By weighing these factors, you can determine whether selling or renting aligns better with your circumstances and leads to the most favorable outcome for your WA state property. At Zenith Properties, we’ve seen great success with WA state homeowners turning their properties into revenue streams.
If you need professional advice, don’t hesitate to contact us! We have licensed and experienced real estate professionals and a team of professional property management experts who can evaluate both the sale and rental potential of your property.
At Zenith Properties, we provide our clients with:
- Maximized Financial Results
- Personalized Responsive Service
- Provided by Highly Trained Professionals
Get started today by filling out an application here. Let us know your situation and goals so we can help you achieve the best possible outcome. You can also reach out to a team member here to discuss more details.