Should You Sell or Rent Out Your Home?

By Jason Penrose

Jason has been licensed since 1999, and is currently one of the top 20 agents in Arizona for homes sold.

Deciding whether to sell your current home or convert it into a rental property can be a challenging decision. There are several financial and emotional factors to weigh before you make a decision, and it’s important you approach it with a long-term mindset. Here’s everything you need to consider:

Capital gains tax. One major consideration is capital gains tax. According to the IRS, if you have lived in the home for at least two of the past five years, you may qualify for a capital gains tax exclusion. This allows up to $250,000 in tax-free gains if you are single or up to $500,000 if you are married. It is important to consult a CPA to understand how this applies to your situation.

Many homeowners choose to sell their home to take advantage of the tax-free capital gains rather than turning it into a rental property. However, if owning rental property is part of your long-term strategy, it can be a worthwhile option if approached carefully. Rental properties come with their own set of responsibilities and costs, including property management, vacancies, and repairs. These can add up quickly and should be planned for in advance.

Consult with professionals. If you’re considering this path, you should speak with legal and insurance professionals. Setting up the proper legal entity, such as an LLC, can offer protection. Proper insurance coverage is also essential. A property manager can help alleviate the emotional stress associated with managing a home, especially when it holds personal significance.

It is also important to think long-term. Owning a rental property makes more sense if you are committed to holding it for at least five years, ideally seven to ten. This timeline gives the investment time to stabilize and appreciate in value. If your goal is to build passive income for retirement, owning multiple properties may be worth considering. But the first step is removing emotional ties and treating the home purely as an investment.

If you’ve lived in the home and built equity, turning it into a rental may not align with the principles of good investing. A tenant will rarely treat the home with the same care. For this reason, it may be better to sell and then purchase a separate property specifically for investment. Options like multifamily units often make more financial sense than maintaining a large single-family home with a pool.

The key is to make your decision based on clear goals, not sentiment. With the right strategy and timeline, you can create a solid plan that supports your financial future. If you have questions or need guidance navigating the current market, I’m here to help. You can contact me at (602) 738-9943 or send an email to jason@thepenroseteam.com. I look forward to hearing from you.