Kari McCoy commentary: Sell now or rent out my home in California?

Question: Dear Kari, My husband just received a job transfer to another state. We have the means to rent out our current home while buying a home in our new area. This is quite the difficult decision for us, as we never thought of being in the rental business. We have friends that have made out quite well with their rental properties. Could you please offer some advice on this topic? Answer: Thank you for your fantastic question. I would first like to applaud both of you for not making a hasty decision. Thinking through the pros and cons of renting vs. selling can be a daunting task. Renting out your home is a good option if there's a chance you'll want to live in your home again at some point in the future. Owning a rental investment has the expectation of a long-term income source along with continuing to build on the home's equity. Let's look at some factors to consider: Are current home prices on the upward swing? Consideration of the local market conditions for the needs of rental homes. Advertising and weeding through all the rental applications, rental history and background checks. What is the going monthly rental rate for homes like yours? What's your home's condition? Will you be able to cover the mortgage if you are unable to rent it out for a couple of months? Will you be able to pay for all the property's upkeep and maintenance? Can you manage the property or are you going to pay a management company? Are you willing to rent through an agent and at what costs? Consider the mortgage payment, property taxes, insurance and other miscellaneous expenses. Possibility of home repairs, replacements and ongoing maintenance needed. When you are changing tenants, there are costs such as interior painting, carpet repair, general cleaning, etc. Can you afford a mishap such as the tenants not paying the rent on time? Very important to know all the tenant's rights along with the renting restrictions and the owner's disclosures. There is a chance the tenants may cause damage to your home. Being a landlord can be time consuming and an emotionally draining ordeal. How to evict a tenant who fails to pay and what are the possible legal fees involved? Other important considerations: If you are deciding to sell your home, be wise to consider the capital gains tax break. For instance, if your primary residence home has large equity, married couples filing jointly can earn up to $500,000 on the sale without paying capital gains taxes, and single filers can make $250,000. It is good to know you can rent your home for up to three years without losing the chance to sell it with incurring capital gains tax. This applies only in the event you have owned and lived in that home for two of the five years before the sale. Then most capital gains on the sale can usually be excluded. Renting your home starts the clock for the "residence test," which says the home must be your primary residence for 24 months of the five years before the sale. The 24 months do not need to be consecutive. In the event you no longer wish to rent out your current rental property, you can work with a 1031 Exchange to purchase another investment property for equal or higher value and defer paying capital gains tax on the profit. There really is no wrong answer. It all depends on your life circumstances, finances and personal choices. Contact a professional real estate agent and a tax advisor to fully understand the best decision for your particular situation. I wish you the best. This article is general information only and is not intended for legal advice. See your local attorney for legal advice. Kari McCoy owns the Kari McCoy Group, residential real estate at Lyon Real Estate. She can be reached by text or phone at 916-933-5274 or email her at sold@karimccoygroup.com. #00841588