California is not a cheap place to own property, that's no secret. Even amongst its steep competition from bigger-name cities, Pleasanton is a high-dollar destination for homes. Over the last few years, the local market has stayed mostly consistent and in the seller's favor. Just this past August, Realtor.com reported a $1.7 million average sale price on homes here, up 2.6% year over year.
So let's say you have a property here that you don't have any personal use for. Maybe you're moving away, recently inherited a property, or have other personal circumstances leading you to vacate your property. With the state of Pleasanton's local housing market, it can be tempting to sell and take the cash now.
But you do have a choice on your hands, to sell or rent your home. At Advantage Property Management Services, we've been on both sides of that equation and can say with full confidence that if you want to build your portfolio and your long-term wealth, turning your home into a rental property is the way to go. Here's why.
Should I Rent My House Out or Sell It?
In a city like Pleasanton with high property values, the market naturally extends to a very healthy rental market. The average monthly rental price here according to RentCafe is $2,787. This puts it ahead of bigger cities like Oakland, Long Beach, and even Los Angeles. It's also well above the national average of $1,739 for rental properties.
Rental demand is high here thanks to Pleasanton's beautiful neighborhoods and high quality of life. Choosing to sell might give you a nice short-term gain, but it will strip you of your ability to build property value through appreciation over time. California's real estate market's biggest benefit is reliable long-term appreciation. If you can establish cash flow then holding onto the property is a no-brainer, but your biggest concern should be appreciation and paying down your principal through rental income.
The Benefits of Renting Out Your Property
The choice between selling your home and renting it out might seem like a simple decision between one large sum of money and smaller amounts over time. However, the benefits of rental properties go a little deeper than this:
Potential for Passive Rental Income
First, the obvious one. Yes, every time your tenant would pay rent, you receive a return on your investment that builds over time. Handled correctly, this creates the opportunity to create a passive rental income stream that diversifies your portfolio. Added in with other investments or professional endeavors, you're able to create true financial freedom in your life by building up a wide range of income streams.
Turning your home into a rental property can be the start of that or a wise addition to your existing portfolio. There's a reason why real estate has always been one of the top investment options in America. Even if you still have a mortgage payment on your home, using cash reserves from the rent to pay it off will lead to long-term success down the road.
Tax Benefits
Property taxes are probably the next thing on your mind when deciding to sell or rent. The good news is there are some benefits you can derive from this as well. Just like with any other business, owning an investment property comes with its own share of tax deductions that you can take advantage of as the owner.
Costs that go into your rental business like mortgage payments, property management fees, and maintenance costs can be deducted as an expense come tax season. Even the typical property tax you would pay on your home every year can be deducted when the property is being used as a rental. If you're new to this, however, it's important to rely on tax professionals and a knowledgeable local property manager to make sure your financial reporting is all correct.
California also has a law specifically benefitting you for keeping your older property as a rental rather than buying a new one. Prop 13 limits yearly property tax increases to 2% each year. This is a huge advantage for owners who have had their property for longer periods by keeping their property tax base low.
Long-Term Appreciation and Wealth Building
Just like a typical stock investment, the longer you hold onto your property, the more potential it has to appreciate over time. Compared to stocks, however, real estate is one of the most reliable investment classes to hold onto. Property values naturally go up over time, especially in a stable and high demand market like Pleasanton. Utilizing your home as a rental will allow you to build the value of your investment over time while enjoying a steady income stream from it.
Mortgage
Principal paydown is a big benefit of owning a rental. If you still owe a mortgage on the property you're considering selling, any cash generated from the sale is going to go at least in part toward paying off the mortgage. By keeping it as a rental, you build equity every month and can slowly pay off the mortgage from the rent you generate from your tenants.
The Challenges to Prepare For With Rental Property
You might be thinking, how can a rental business truly be passive income? Isn't being a landlord a lot of work? You wouldn't be wrong there if you're managing the rental yourself. Landlords have a lot to worry about when self-managing. Just to name a few major responsibilities:
Conducting successful marketing for your rental to keep vacancy to a minimum and your rental income flowing
Navigating tenant screening and the rules surrounding background and credit checks so you find quality tenants who will take care of your home
Keeping up with routine maintenance, inspections, and major repairs when needed to keep your investment's value up and your tenants happy
Staying on top of rent collection and the proper handling of the tenant's security deposit
All that and much more, on top of staying in line with California's expansive landlord-tenant laws. It can be daunting on your own, even with the financial benefits. Luckily, that's where property management comes into play.
How a Property Management Company Can Help
Residential property managers like Advantage Property Management Services offer a solution to new and experienced landlords who want to take the load of managing their rental house off of their plate. They handle all the day to day operations on your behalf from marketing to move-outs. They also have the expertise needed for the Pleasanton market to keep your rental in line with the law and your income secure. This tends to lead to higher profit margins for you as an investor, making any property management fees well worth the cost.
The key to finding success with your property is finding the right team for the job. Don't rely on a real estate agent or a company that splits their time between real estate sales and property management. A real estate agent is always going to be more invested in the real estate side of the business, leaving you to pick up the slack. You want to hire a company that is truly full-service, and fully devoted in their time to managing your rental.
Make the Right Choice for Your Financial Future Today
While we are biased, we strongly believe that owning a rental property is the easiest way to build your net worth. This is easily verified by looking at property value trends over the past 50+ years. If you want to be wealthy, keep your property and rent it out.
If you're still on the fence, we're here to help. We want every property owner we consult with to make an informed decision about their properties and choose the option that is going to mean the most success for their financial situation.
For further assistance, start with our free Rent vs Sell Calculator to find out the difference in what you can get back from your investment.
You can also schedule a free consultation with us to get a detailed overview of your property's potential and if it makes sense to rent.
Talk to one of our experienced property management experts at Advantage Property Management Services today and make the right choice for your future.
