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Moving To Assisted Living— Sell the House Or Rent It Out?

To “Sell-It” or “Rent-It”— That Is The Question

The good news is that we are all living, on average, much longer than our ancestors did! The downside is that our bodies and minds sometimes cannot keep up with the demands of independent, modern living, so we look to assisted living communities for help. I experienced the transition when my then 92-year-old grandma could not shop and care for herself any longer. We found a great community that cared for her well.

As the owner of a thriving property management company located on the Florida Gulf Coast, I am at the “center of the world” for desirable places where people choose to retire. This desirability is accompanied by an older average population, so the issue of what to do with a house or condominium unit when someone moves to assisted living is one that I deal with regularly as the owner of Real Property Management of Sarasota & Manatee.

Some Thoughts From Someone Who’s Been There, Done That 

From my perspective, having lived out both the personal and professional sides of the scenario, there are two fundamental questions to consider when pondering whether to “Sell-It” or “Rent-It”:

  1. Do you need/want cash immediately, or over time?
  2. Do you want to keep the property in the estate to pass it on to the eventual heirs?

Of course, if you need the money to cover the cost of the transition, then sell the house — end of story! However, many seniors and their families realize that once they sell the property, it is out of the estate forever. And once they spend the money, it too is gone forever. What if there was a way to keep the property in the family and still generate income towards assisted living expenses?

When Leasing May Make More Sense Than Selling

Sometimes taking a lump-sum of cash, as is typically the case in a sale (especially if there is a good deal of equity in the property), can lead to adverse tax consequences. (You need to check with a qualified tax expert on this.) From a tax perspective, it is often more advantageous to take smaller passive income payments, like monthly rents, than it is to cash out all at once. (Again, you really need to discuss your particular financial situation with a qualified tax expert.)

If you don’t have a dire need for a lump sum up front, maintaining the property as a rental provides the dual benefit of keeping the property in the estate, and also providing income for long-term care.

Something Else To Consider

The amount of equity you have in the property can also help you to make your sell vs. rent decision. For example, let’s suppose that you have $100,000 equity in a house. That amount of capital gives you something to play with. If you need the cash to make the transition to assisted living, selling might be a no-brainer.

On the other hand, if you don’t need the money right away, you may choose to hold on to an appreciating asset and turn it into a rental for regular income. You always have the option of selling the property in the future if your financial picture changes.

Reversing it, suppose you only have $10,000 equity. Is $10,000 from a sale enough to make a difference in your finances? If the mortgage payments are low enough, compared to what the house might generate in rental income, keeping a low-equity property as a rental may make sense if it can generate monthly income. Of course, as the property appreciates over time, it can always be sold at a later date.

Often Overlooked Benefits Of Owning Rental Real Estate

Many inexperienced landlords fail to appreciate the additional benefits gained by converting what was once your personal residence into an income producing investment property. Consider the following:

  • Tenants provide the cash for the mortgage payments – no out of pocket. They basically buy the house for you.
  • The ability to reduce taxes (and increase returns) with depreciation write-offs.
  • Expensing items like repairs, and leasing and management fees.
  • The ability to leverage existing equity through credit-lines and mortgages.
  • The advantages of tax-deferment through IRS Section 1031 exchange rules when you sell the property.

A comprehensive overview of the benefits of rental ownership is beyond the scope of this article, but it is something that you should discuss with your financial advisor.

Your Next Step

Moving yourself or a loved one into assisted living always involves mixed emotions. The decision about whether to keep the home as a rental or to sell it can be tough. Always remember that being the owner of a rental property does not mean that you have to involve yourself with tenants, and the day-to-day management of the property.

A professional property manager can handle all of the operational issues: repairs, rent collection, bookkeeping, etc., so that your only concern is cashing your rent check every month.

If you would like to discuss the leasing and management process and what you could expect as a landlord, I make myself available to you. You can contact me here, or you can leave me a message at 941-216-0005, and I will return your call. Also,  for more information, please download our free guide, “Your Guide to Finding the Best Sarasota Area Property Manager.”

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.

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