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Is It Better to Sell a Paid Off House or Use It as a Rental?

The mortgage is the largest debt most people have and when it is paid off, it can open up a world of opportunities for the owner of a house. If you pay off your mortgage and decide that you no longer want to live in the property, you could rent it out or sell it. Making the right decision requires you to look at your long-term goals.

Income Stream vs. Lump Sum

    You have to determine whether you want a long-term stream of income or a lump sum. If you sell the house, you will get a lump sum of money to use as you wish. By comparison, when you rent the property, you will receive a regular payment every month. If you are on the verge of retirement, you may want a regular monthly payment that can supplement your retirement income. If you would rather take your money and use it for some other purpose, like buying another house, selling is the best option.

Capital Gains Taxes

    Consider the impact of capital gains taxes on your decision. When you sell your home, you could have to pay capital gains taxes on it. If you have not lived in the property for two out of the past five years, you will have to pay capital gains taxes. If you have not lived in the property and you want to avoid paying capital gains taxes, renting may be the superior choice.

Work

    You also have to factor in the amount of work that it will take for each option. If you want to sell the house, you can hire a real estate agent and let him do the work for you. Once the house is sold, you never have to deal with the property again. By comparison, if you rent the property, you will have to periodically find new tenants, repair the property and deal with problems associated with it. If you do not want to deal with the hassles of property ownership, selling it might be better.

Tax Breaks

    If you decide to rent the property, you can also take advantage of some tax breaks. For example, when you own a rental property, you can depreciate the value of the building over the course of 27.5 years. This allows you to take a large deduction for the loss of use of the property. You can also deduct any expenses that you incur as a result of owning the property. For example, the marketing costs for the property and the repair costs can be deducted.


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