Investing is a great idea for those who have the time and the ability. Investing in Real Estate is not for everyone.
The best answer is: it all depends. Michael, your best bet is to sit down with an agent and a tax advisor and figure out whats best for you.
This is what the IRS (check reference below) says: "To exclude gain, a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The ownership and use periods need not be concurrent. The two years may consist of 24 full months or 730 days. Short absences, such as for a summer vacation, count as periods of use, but longer breaks, such as a one-year sabbatical, do not. The taxpayer also must not have excluded gain on another home sold during the two years before the current sale."
As always, check with a knowledgeable tax professional that specializes in real estate.
This question has many variable. Mansur spelled them out very well. It really depends on your financial stablility in regards to the property in question. Are you moving out of the area? If so you will need to interview a couple of property management companies and get their opinion. I would also speak with a CPA to get the tax advantages and disadvantages. Know what to expect. Whatever you decide to do, you want to be well informed so there won't be any unpleasant surprises down the road. Good luck!
Also remember, lots of tax advantages to renting - you can depreciate the home, which adds to the bottom line - the depreciation (I believe 26.5 years straight line) is deducted dollar for dollar from any taxes you owe - lets say your home has a value of $400K, with the land as 25% of the value your yearly deductiion for depreciation will be $11,321 per year, or almost a grand a month - thats why investors are always talking about after tax dollars - if you are in a 35% bracket thats $ 330.00 per month added to your income in real dollars. If you have more questions, call a good tax advisor - we Realtors just dabble in tax advantages - hope you do well!!
You've received some great responses.
I recommend "The Millionaire Real Estate Investor" by Garry Keller, Dave Jenks, and Jay Papason.
Excellent primer! email@example.com More information on the website
As a Realtor, a past property manager, and a current lord, I can relate to your situation.
You should take into account what your local market is like. Here in Illinois, we are currently in a buyer's market. Sellers are taking a loss because our most of our market is saturated with homes. If you havenâ€™t had a complimentary CMA done on your home, you should consult a real estate agent to see what price range your home would be in, and have them look at excess in inventory, or need for your type of home.
You should also have your agent look up past market trends in your area. Holding on to your home, renting it at a break even price, and taking any tax deductions, if applicable, could be worthwhile if your home area tends appreciate.
Most important is taking a look at your financial situation. Is the home paid off? Can you afford to, and are you willing to, hold on to it until it is paid off so that your only expenses insurance, property taxes and maintenance?
My advice is to take a look at your personal situation, consult a tax professional and a real estate professional. Feel free to contact me if you would like more information. 217-979-1805 or RosaDavisson@Remax.net
Best wishes to you, Rosa Davisson
Mansur is right on.
Here is an in-depth "Smart Money" article on the pros and cons of renting v. selling. This should answer basically any question you have and help you make a decision. http://www.smartmoney.com/home/selling/index.cfm?story=rentorsell
Best of luck!
Also you must also consider the actual costs of maintaining a rental property. (One way to do this is to look at the maintenance expenses you had in the past year in the house to get a rough idea.) Are you considering those when you mention that you will only break even?
There are many other tax-related factors (that you should speak to a tax professional about) that you should consider also like depreciation and additional tax deductible costs. If you are a high income individual the benefits of these alone could make it worth owning a rental property even if you have negative cash flow. And if you qualify as a real estate professional, there are even more benefits. Make sure you consult with a tax professional. (Ensure that you hire one that really understands real estate.)
Also, regarding costs of owning a rental property, as you can already imagine, it is worth the money to hire a good CPA, if you don't already have one.
Hope this helps!
Let us know if you have more specific questions.