Sell or Rent? How to Decide the Best Move for Your Investment Property

If you own a few investment properties, you’ve probably asked yourself:

💭 Should I sell this property now and cash out, or keep renting it for long-term gains?

It’s not a one-size-fits-all answer, and the decision has major tax and financial implications. Whether you’re thinking about selling to take advantage of home price appreciation or debating whether it’s smarter to keep collecting rental income, there are key factors you should evaluate before making a move.

Let’s break down:
✔️ The tax implications of selling vs. renting
✔️ How to determine if it’s time to sell or hold
✔️ What factors can maximize your return on investment

1️⃣ Selling Your Investment Property: Pros, Cons & Tax Implications

If home values in your area have skyrocketed, selling might feel like a no-brainer—but before you list your property, consider the tax hit and other financial factors.

Pros of Selling:

✔️ Cash Out on Appreciation – If your property has gained significant value, selling allows you to lock in your profits.
✔️ Avoid Future Repairs & Maintenance – Older rental properties can become expensive to maintain.
✔️ Reinvest in New Opportunities – Selling gives you capital to reinvest in a higher-performing property or another asset.

Cons of Selling:

❌ Capital Gains Taxes – If you sell at a profit, expect to pay capital gains tax (details below).
❌ Loss of Passive Income – Once you sell, that rental income disappears.
❌ Closing Costs & Agent Fees – Expect to pay 6-8% of the sale price in fees & commissions.

Key Tax Implications When Selling:

📌 Capital Gains Tax (Short-Term vs. Long-Term)

If you owned the property for less than a year, you’ll pay short-term capital gains tax, which is taxed like regular income (up to 37%).
If you owned it for more than a year, you’ll pay long-term capital gains tax, which ranges from 0% to 20% depending on your income.

📌 Depreciation Recapture Tax

If you’ve claimed depreciation on the property, the IRS recaptures that when you sell, and you could owe up to 25% in taxes on the depreciation amount.

📌 1031 Exchange to Defer Taxes

Want to sell but avoid capital gains tax? A 1031 exchange lets you sell your property and reinvest in another like-kind property—deferring your tax bill.

Pro Tip: Selling without a tax strategy could cost you tens of thousands in taxes—consulting with a real estate tax professional is a must!

2️⃣ Continuing to Rent: Is It the Smarter Long-Term Play?

If you own a property that cash flows well, it might make sense to keep renting it out—especially if your long-term returns beat what you’d get from selling.

Pros of Holding & Renting:

✔️ Steady Passive Income – Monthly rental income can be more reliable than stock market investments.
✔️ Property Appreciation – If home values are still rising, your property may be worth even more in a few years.
✔️ Tax Benefits – As a landlord, you can write off mortgage interest, depreciation, property taxes, and repairs.

Cons of Holding & Renting:

❌ Tenant Risk – Vacancies, non-paying tenants, or damage can impact cash flow.
❌ Maintenance Costs – Older properties = higher repair costs over time.
❌ Market Fluctuations – Rent growth isn’t guaranteed, and property values can dip.

Pro Tip: If your rental property’s cash flow covers expenses and generates a solid return, it’s often better to hold onto it—especially if property values are rising!

3️⃣ Key Factors to Consider: Should You Sell or Keep Renting?

Not sure which move makes the most sense? Ask yourself these questions:

1. Is Your Rental Cash Flow Positive?

✔️ Add up your rent minus mortgage, property taxes, insurance, and maintenance costs.
✔️ If you’re making strong positive cash flow, renting may be the better option.
✔️ If your rental barely breaks even or loses money, selling could make more sense.

2. How Much Has Your Property Appreciated?

✔️ If your property has increased in value by 30-50% or more, it might be a prime time to sell.
✔️ If it’s only increased slightly, holding onto it may generate a better long-term ROI.

3. Do You Need to Free Up Capital for New Investments?

✔️ Selling might be a good idea if you can reinvest into a property with a better return.
✔️ 1031 exchanges allow you to defer capital gains tax by reinvesting in another property.

4. Is the Rental Market Strong in Your Area?

✔️ If rents are climbing and vacancy rates are low, you might want to hold onto the property.
✔️ If rents are flat or declining, and homes are selling fast, selling might be the smarter play.

4️⃣ The Bottom Line: Should You Sell or Rent?

SELL IF:
✔️ You have massive equity and want to cash out.
✔️ You’re barely breaking even or losing money on the rental.
✔️ You want to upgrade to a better investment property using a 1031 exchange.

KEEP RENTING IF:
✔️ Your cash flow is strong & passive income is steady.
✔️ Your property is appreciating in value.
✔️ You want to keep gaining tax benefits & growing wealth long-term.

Need help deciding? Let’s strategize together! Whether you’re looking to sell at the peak or reinvest in another property, I can help you analyze your options and maximize your investment strategy.

📅 Schedule a Free Real Estate Investment Strategy Call
📩 Email me at: Shaina@MontCoLiving.com

Let’s build your real estate portfolio the right way—without leaving money on the table!