This is one of the questions that most divides real estate investors: what is the best way to monetize a home, selling or leasing? Discover the respective advantages and disadvantages and tips on how to make the most of each of these options.

As with other real estate questions, there is no "turnkey" answer that fits all doors. Each case is different. Therefore, I will approach this topic by talking about several perspectives that can help you formulate the most appropriate choice.

Time and place are crucial

What seems appropriate at one time will not be so at another. When considering the advantages and disadvantages of each option, you will have to consider the dynamics of the real estate market at that moment , for the location of your property, or even at the level of the respective neighborhood.

The imbalance between supply and demand generates opportunities that must be seized. If in a given location, there is a shortage in the rental market, you can try the rental option with a higher rent. Otherwise, the sale may be the best choice. Obviously, the lease option is always temporary, being only conditioned by the term of the contract.

It is essential to know the latest real estate dynamics in the area of your property, eg. when a rental ad disappears shortly after it goes "on the air", it's a sign that the market is willing to pay more.

The same is true for selling a home. When prices are abnormally high, if you don't seize the opportunity then, it could take years before a similar opportunity arises. You have to be aware of the occurrence of a certain special moment:

This comes after a long period of appreciation in the real estate market. Economic cycles follow one another and after each positive cycle, a negative cycle follows . A contraction in the economy, a disruption in the real estate supply, a rise in interest rates, or any other dramatic event, could be the trigger that triggers the cooling of real estate dynamics and the beginning of a negative cycle.

Knowing how to foresee the moment of reversal of a positive cycle is the key to choosing the right moment to sell well, or to retain a property.

Advantages and Disadvantages of Selling vs.

Sell your home - Advantages

1 - The first is obvious: the financial inflow is large and makes it possible to embrace new investments and new opportunities, desirably more profitable and generating greater financial gains.

2 - As a house ages, new maintenance or repair needs arise. The 10-year and 20-year cycles (the latter with greater impact) are indicators of potential spending and bad surprises. So, if your house approaches the end of such a cycle, get ready to spend more money , which is like losing money. Selling a house under these conditions may be the most correct option and that frees you from worries about unexpected expenses . Of course, if you opt for a long-term lease, you can always negotiate with the tenant to share expenses that involve larger investments, such as renovating the kitchen or bathrooms, painting, or even changing the plumbing.

Selling a house - Disadvantages

1 - The first and not to be overlooked for many homeowners is the loss of real estate value that can carry emotional value. Human beings have a special relationship with property and the loss is more harmless for some than for others.

2 - Selling a house during a negative cycle is always bad , although it can be justified, due to financial or other difficulties. So, avoid doing it and, if possible, resist this impulse, waiting for the cycle to reverse and for more favorable moments. Leasing while waiting is an advisable option.

3 - There are tax expenses associated with the sale of a house that can be penalizing. When you sell a house and receive a large amount, you will be subject to capital gains tax. See below.

Renting a house - Advantages

1 - If the time is right to rent, if the property is in good condition and if the tenant's choice is judicious, he will be able to keep the property without losing its equity value , as long as the rent value is higher than the devaluation of the property. House.

2 - It is a good way to ensure extra income with high predictability, as long as you choose a lease model (request for a deposit or rent in advance) that avoids the risk of contract cancellation.

Renting a house - Disadvantages

1 - The first is the tax disadvantage , what appears to be a net income always ends up being eroded by the payment of taxes and other legal expenses.

2 - One of the biggest disadvantages in leasing your house has to do with the risk of wear / damage / vandalism of the property or of goods used in the decoration. One of the ways to be careful is through the chosen lease model. Asking for a high deposit amount (proportional to the level of risk associated with the tenant) or asking for several rents in advance (you can ask for up to 3, 6 or more rents in advance) and deduct these amounts in case there is a need for repairs or replacement of any well damaged.

tax expenses

Selling a house - What are the tax expenses?

The amount received from the sale of a home is liable to capital gains tax . However, you may be exempt from paying this tax , if you reinvest the value of the capital gains, within a period of up to 36 months after the date of sale of the house, or if you have purchased another one up to 24 months before.

How to calculate the added value?

Capital gains = Selling value of the house - Amount for which you purchased it - Deductible charges (eg brokerage commission)

The amount subject to IRS taxation is 50% of the value of capital gain calculated above.

The exact amount of tax payable depends on the tax situation of each taxpayer, since the amount calculated for the capital gain is added to the remaining income for that tax year. It is on this total amount that the tax payable will be levied, depending on the level and the respective IRS rate.