August 12, 2024  JohnHart Real Estate and Harout Keuroghlian

Is it better to rent out or list homes for sale in California? You’d be surprised how much this question comes up. There’s no denying that property is a solid investment. But when you’ve generated enough wealth to consider retiring your primary residence to an investment property, it’s time to make that crucial choice. Is it more lucrative to keep your home and rent it out to tenants? Or would you make more money by listing it on California’s competitive housing market? Ultimately, you need to decide for yourself. But we’re happy to share our knowledge so you can move forward with the confidence of an informed decision. 

Eviction Restrictions

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Arguably the most important factor to consider when mulling over whether to rent out properties versus list homes for sale in California is the state’s rigid eviction restrictions. California law heavily supports tenants in matters of eviction. Just look at all the horror stories of tenants refusing to vacate a premises. Therefore, renting out a single-family home in the Golden State comes with unique risks. Tenant rights in California make it exceedingly difficult to force a renter to vacate your property, regardless of your rights as a homeowner. This fact alone draws a major strike against renting out single-family homes instead of listing homes for sale in California markets. 

Capital Gains Tax Exemptions

The state has a very generous capital gains exemption in place designed to help property owners listing their homes for sale in California. How generous? On a primary residence, single filers can look forward to a $250K exemption. Married couples can double that for a $500K exemption. If you’re unfamiliar with the capital gains exemption, it basically means that you won’t need to pay taxes on gains you make through the sale of your property. 

Property Condition

A little wear and tear is to be expected when you open your home to tenants. It’s just that sometimes the wear and tear isn’t that little. You can go back and forth with your tenants about security deposits, or even try to put them on the hook for additional damages. But whether they pay or not, you’ll need to repair your home before you put it on the market or rent it out to your next tenant. Some property owners opt to spare themselves the headache by simply listing their homes for sale in California markets with high housing demand. Otherwise, there is the very real risk of watching as repairs devour your gains from a sale. 

The Annual Increase in Value of Homes for Sale in California

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Currently, housing markets across California radically favor home sellers. But the best case scenario we’ll see in home value increases over the next year will be 4%. As we write this, the median home price in California is around $800K. This means that, in the best-case scenario, waiting a year to list your homes for sale in California would net you an additional $25K on an $800K home. You’d be shocked how quickly maintenance and repairs to tenant wear and tear can eat up a $25K gain. 

These aren’t the only factors worth considering when determining whether to rent out or list your homes for sale in California markets. Some owners have made lucrative income from leasing their single-family homes. But the matter requires careful consideration. Because once you hand control over to a tenant, it’s not always easy to get it back! If you’d like to discuss your specific situation, please reach out to me and let's have a chat!