Should You Sell Your House or Rent It Out? #AskTheMoneyGuy

hey money got family chose Brian pressed

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a question there it's Brian

Preston the bully guy today's question

Brian comes from Kara and this is

actually from the money guy website

money guy calm she says hey guys we have

a possible move coming up due to a

potential job opportunity the question

we were tossing around right now is

whether or not to sell our home would it

be better to hang on to the house and

make it into a riddle or would it be

smarter to sell the house now since it's

currently our prime area so it wouldn't

have to pay any capital gains tax I've

searched your archives and haven't

really found what I'm looking for I'd

love to hear a show on this topic of

selling versus renting or just an

updated conversation on rental

properties in general Chiarelli that's a

fantastic question and one we get along

with a cara cara cara cara so Carrie

that's Ora or Cara go go cara cara I

think that's a great question and I'll

resemble this in some ways so this is

you hit us at a perfect time to ask this

question is because a lot of you you

know as you're selling maybe you had a

starter home or mid-level home but

you're upgrading you're like should I

sell this thing so turning into Russell

property what what are my options so let

me walk you through because I think

there's kind of three things you have to

go through here in the decision-making

the first thing is is how big is the

gain on your primary residence I mean

because the thing you have to think

about when you sell your primary

residence a lot of great tax benefits

for you because if you lived in you

alluded to this carrying it carrying

your question if you live in your house

for two of the last five years and it's

actually less than that if you're

getting transferred for business or

things but typically it's two out of the

last five years $250,000 for single

people five hundred thousand for married

couples of tax-free gain now the

difference is if you were to turn to a

rental and you were to sell it and

you've had even just a hundred thousand

dollars of gain now all of a sudden you

have to pay capital gains tax on the

sale of the primary residence or of your

rental residence so the big thing you

have to ask yourself if you have a huge

gain on your house meaning the

properties appreciate it significantly

you have a really large game it might

make sense to not turn it into rental

property because you want that tax-free

gain that is a very powerful thing now

I'm gonna go ahead and tell you this is

where I'll reflect is that I had a house

in South Atlanta they just never

completely recovered after the Great

Recession meaning that I owned this

house for over a decade and it's still

worth less than what I totally have in

it which is an unfortunate situation so

if you do come to a situation where you

have a house that is actually lost value

or you have not made much gain well

because the government gives you such a

big tax benefit on the capital gain they

also have a provision where you don't

get to deduct losses on your primary

residence so if you want to be able to

deduct the losses on your primary

residence that's at a loss you have to

actually turn it into rental properties

right so you know that's a big part now

a lot of people when they start making

the decision am I gonna do rental

property or not I always they always

think it's a great tax benefit I'm gonna

get all these ride offs from doing

rental problems because it's like twenty

five thousand hours a year of losses

when you take into account of

depreciation your mortgage interest and

everything else you know so why wouldn't

one do this because it'd be great to

deduct those losses the caveat that

nobody ever talks about is that those

deductions those losses phase-out

between a hundred and hundred fifty

thousand dollars of income so if you

make between 100 and 150 thousand

dollars probably not gonna be able to

deduct the loss now you eventually will

get the losses when you sell the

property but it just kind of adds up in

the background so don't do this don't

let the tax tail wag the dog then the

fact that you think this is going to be

a panacea of Awesome tax things it's

just not that way you do rental property

because you think you can make money off

of either the appreciation of the

property the cash flow from the rental

income you don't do it just because you

know you think you're gonna make money

off of tax losses and before we talk

about the therm ride you said it

perfectly the thing you have to do is

kind of do the math what do you expect

to bring in from a rental income

perspective what is that relative to the

value that you could recognize if you

were to sell the house and you can

quickly calculate your rate of return so

if it's only generating two three four

percent maybe it doesn't make sense to

rent it you'd be better off selling it

if how

ever it generates 1812 for sure then it

might make sense to rent so you need to

do the mathematics on that and you need

to figure out do I still think that this

house will continue to appreciate in the

future where I would want to be able to

capitalize on that or is it probably at

an all-time high or near the most

expensive it'll ever be those are kind

of the mathematics you have to weigh if

you just want to approach this from

purely an analytical standpoint however

yeah I was obvious it never going man I

do love the math but you also have to

think about are you design or hard to be

a linguist right now I will tell you

right now I am a reluctant landlord

because I told you I had a house that

was actually at a loss and I had a house

that I just couldn't sell I mean it was

it was in a depressed market that just

was not getting traction so I had to

turn it into rental property just so it

didn't sit vacant during a winter so it

would I tell you I'm a reluctant

landlord and here's why I'm a reluctant

landlord I'm constantly sitting there

worried about whenever it reaches 0 to

20 degrees in Atlanta I'm always

worrying about what's gonna break freeze

or flood you know it really is one of

the things I am just a nervous I know

I'm kind of OCD in that way that I'm

always thinking in the negative or

glass-half-empty on what could be

breaking because renters never treat

your property like they would if it was

theirs because their renters so they

just not going to take care of it as

well I mean I even had a place down in

Florida years ago where we had just a

drip drip drip leak right that turned

into a thousand thousand dollar repair

because none of the the short-term

rentals were reporting it to the

management company that there was a leak

behind the commode well that ended up

getting mold on the you know behind the

walls we had to rip out stuff so I'm

just telling you be careful of here if

you're well as people is not wired to be

a landlord it's okay I mean not

everybody wants to be in the rental

market place you have to take that into

your decision-making and ultimately the

buck stops with you if the HVAC goes out

or if the roof springs a lake or if

whatever the case may be ultimately

you're the one who has to take care of

that you're the one who has

possibility for that and that may just

not be something that you even want to

trouble yourself with so guys great

question Karen I think that a lot of

people are gonna probably like this

question because it does you know dip

into the real estate marketplace with

investing and people ask us about that

all the time so keep the questions


I'm your host Brian Preston mr. beau

handsome you know remember go to our

website money guy comm you can ask

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that's right I'm your co-host Bo Hanson

Brian Preston but again I out to3 off