Should you sell your primary residence or turn it into a rental property?

There are two main ways for homeowners to get value out of their current properties. First, you can sell the home and get your equity out of it. However, a less conventional strategy is becoming more popular in our area: converting your primary residence into a rental. 

There are some fantastic pros to converting your primary residence into a rental. For example, you’ll have a steady stream of passive income you can use to invest in other areas. Rents have been rising all over the country, so you might be able to make more money from your rental than you think. Phoenix had the fastest-growing lease price per square foot, up 18.8% since this time last year, and Mesa was close behind at 15.3%. Plus, if you keep your property, you will get to benefit from the natural appreciation of its value. 

There are also many tax benefits to rentals. Unlike primary residences, there are a lot of deductions that rentals may qualify for, including advertising, repairs, cleaning, and maintenance. However, the most important tax benefit is the depreciation expense. This is an exemption for general wear and tear, and it could make all of your rental income tax-free. 

"The decision to convert your home into a rental depends on your situation."

Unfortunately, there are some cons to turning your primary residence into a rental. Maintaining a rental can be a full-time job unless you pay a property management company to do it for you, but that can cost about 8% to 10% of the monthly rent. Also, you forfeit the ability to exempt yourself from capital gain taxes when you eventually sell. You can get around this using a 1031 exchange, but you’d have to use the funds to purchase another investment property, so your options are limited. 

In addition, you're still responsible for the maintenance of the house, which can be an additional expense, so make sure that the income from rent covers all of the expenses that you foresee on the house. 

The truth is that whether or not it makes sense to convert your primary residence into a rental depends on your situation. If you’d like to discuss the topic further, don’t hesitate to call or email me. I’d love to talk things over with you.