Is the worst behind us? Or is there more to come?
Regardless of whichever way you feel the market is going to go, if you’re a homeowner, you should be aware of the pros and cons of selling vs. renting.
There is no doubt that owning real estate over a long period of time is one of the best investments you can make.
Here are a few easy pros to owning investment properties…
- Principal Pay-down
- Tax Benefits
- Tax Deferred Sale
Principal Pay-down is a basic principal when you own a property and have a mortgage on it. Your tenant is paying your mortgage with their rent payment. This means that they’re paying off the home for you. All of the interest as well as “paying down” the balance of the loan.
Appreciation assumes that home values will increase over time. If you’re considering selling vs. renting right now, your home value could also decrease. Yet, your rent is secured by a lease. If the value of the home changes, up or down, the costs (monthly or annual) don’t change on the home. The properties value is not realized until you sell it.
Tax Benefits. I’ll start by saying I’m not an accountant and you should consult yours…. BUT, there are a ton of benefits when owning investment properties. Depreciation is one of the biggest. Homes appreciate in value… while their parts depreciate. Meaning the property will need work done to it at some point. This is called depreciation and is one way to save a ton of money on taxes.
Deferring Tax (Capital Gains) at sale is referred to as a 1031 exchange. This means that you’re able to sell your property. and defer the taxes you’d have to pay until a later date. This is done by selling your current property and purchasing a property to “Exchange” them in your portfolio. A 1031 Exchange allows you to sell a property without paying any tax on the gain you had on the home.. rolling those profits into the next property.
Yes, owning investment real estate is an incredible way to build wealth, but what if you’re thinking of selling that property…
Now, let’s talk about the benefits of selling and cashing out.
Cash is King. This is one of the most popular sayings for a reason. Especially in a market where there is a lot of uncertainty in the future. The real question comes down to two things if you ask me..
1) How much do you value the feeling of safety with having cash in the bank?
2) What are you doing with that cash you have?
If you’re planning on investing that cash elsewhere, you’d want to weigh your options. Go with what you feel is right. The good news is, once that cash is liquid, you can do whatever you want with it.
What if you’re planning on selling now to cash out, and wait for prices to drop so you can buy again. Now you need to understand that you’re speculating. There is nothing wrong with speculating, but that is a fancy word for guessing.
I’m urging my clients who are thinking this way, to have a back-up plan for the possibility that they guessed wrong, and prices don’t come down.
A lot of people don’t realize the cost of moving (twice) plus the amount of rent that they’ll be paying adds up.
Let’s say you’re renting a house for $5,000/mo which is $60k for the year. Plus the cost of moving, twice brings that to $70k.
You’re banking that home values come down AT LEAST $70k to break even.
Either way, like anything, there are scenarios that make sense either way. You have to decide what makes the most sense for you.
Our job here at SBLuxuryGroup.com is to make sure that you know all your options so that you can make the best decision.
PS – If you’re in this situation and now sure if you should rent or sell, reply to this and we’ll send you a Rent vs. Sell analysis