Why You Should Rent vs. Sell Your Honolulu Property
Homeowners decide to sell their properties for a number of different reasons. They might be downsizing during retirement or looking for a larger property to accommodate a growing family. Many Honolulu homeowners move out of the city for work or family reasons, or to fulfill their military orders.
When your circumstances change, it’s easy to assume that you must sell your property. However, you have another option. You could rent it out to tenants and hold onto the asset. This provides you with a lot of financial and tax benefits.
Keeping a Tangible Asset
All investing experts speak at length about the importance of diversifying your investment portfolio. There’s no better way to diversify than by holding a piece of real estate. A home is a tangible asset, which means it’s a real thing, not a stock or a bond or a mutual fund. The real estate market is not as volatile as the stock market, and you won’t have to worry about the same level of risk. Even during down markets, you still have a house.
Earning Rental Income
Another benefit to renting out your property is that you will have monthly rental income. When you sell a property, you collect the proceeds from that sale, and you’re done. You can re-invest that money, but you won’t earn any more off the property that you sold. When you rent a home out to a tenant, you will continue to collect a monthly income for as long as you have a tenant in place.
Reducing Your Mortgage Debt
If you sell your house today, your mortgage is paid off and you can only access the equity you currently hold. However, if you rent the property out, you’ll allow your equity to continue growing. The rental income you receive will pay down your home loan, getting you closer to a zero balance every month. If your home is already paid off, that’s even better. You can still collect that cash flow while your property appreciates in value.
Tax Benefits with Rental Property
There’s a good chance you’ll pay a capital gains tax when you sell your property and pocket the profit. With a rental home, you can take advantage of many tax advantages. For example, you can write off any of the professional services you pay for, such as your property management fees. You can also deduct the cost of maintenance at tax time. There’s also the gift of depreciation. The IRS estimates your property has 27.5 years of useful life. You’ll divide the value of your house by those 27.5 years and declare a depreciation expense on your taxes. Other possible deductions include property taxes, insurance, and association maintenance fees. You can greatly reduce your tax liability, and leave you in a stronger financial position. And in cases where you may have a negative monthly cashflow, the tax advantages may be enough to offset your negative monthly balance
These are just a few of the good reasons to rent out your home instead of selling it. Your decision will depend on the strength of the sales market and the rental market, but we encourage you to talk to us when you’re trying to decide what to do. Contact us at HappyDoors Property Management, and we’ll discuss how we can help you earn more by renting instead of selling your Honolulu property.