If you’re lucky enough to own property in Los Angeles, you’ve probably considered cashing in on the immense demand for homes—both to rent and buy. But what’s the best way to maximize your ROI?
Choosing whether to rent your property to generate income each month or sell it for a lump sum to reinvest can be a life-changing decision. So, before you alter your financial future, it’s important to consider all of the factors impacting your home’s value and how each decision affects your current financial situation.
In this article, we’ll let you know when it makes sense to sell and when renting is the better option—and if you can’t decide on your own, our free rental consultation can help you make the right choice.
When It’s a Good Time to Sell
For many property owners, selling feels like the better choice because it’s faster and easier than renting. Once you sell the property, you’re free.
However, selling your property also means it no longer has the ability to appreciate in value, which may limit your portfolio’s upside—or cost you money in the long run if your next investment isn’t successful.
Here’s when selling is a good option to consider.
Record-high sale prices in Los Angeles driven by low inventory, high demand, and favorable financing
If home prices are soaring and there aren’t a lot of properties on the market, you could be in a prime position to sell for top dollar. Low inventory means buyers are competing, and that can lead to higher offers and faster sales that help position your next investment for success.
A hot market is especially valuable for higher-end properties where extremely limited inventory and higher-budget buyers who’ll pay more for what they want can lead to significantly high sale prices that exceed rentability.
Significant property appreciation since purchase, allowing you to realize built-up equity
Since 2019, LA home values have gone from $600,000 to over $950,000—nearly a 60% increase in just 6 years. If you’ve owned your property for more than a few years, it’s likely worth far more than you spent on it.
Selling the property lets you cash in on all that added equity, allowing you to reinvest it into a new investment property, upgrade your current living situation (if selling a secondary property), or diversify your portfolio outside of real estate. Plus, if it’s your primary residence, you can explore cheaper markets outside of LA to stretch your money further.
But beware of capital gains tax—selling a rental property without reinvesting the money into a property of equal or greater value can lead to significant tax implications that eat into your gains.
Your property is successfully occupied or rent-ready, but you don’t want to manage a tenancy
Most buyers, especially investors, want a property that’s move-in ready or already generating income. Older houses that need work can be a turn-off and hurt both your property’s sale value and its time on the market.
If your property is or has been a rental previously, consider selling it between tenancies or during a successful tenancy. That way, you can appeal to investors who can see the immediate value of the property (either by assuming the market-rate tenancy or renting it quickly) and homeowners who want to start living the LA lifestyle as soon as possible, increasing your sellability and helping you earn top dollar.
When It’s a Good Time to Rent
If you’re looking for more upside, renting your property may be superior to selling.
When the math makes sense, renting lets you retain your assets while growing your wealth. It takes a bit more work (or professional help) to make renting viable, but if the conditions work out, it’s a great asset to any portfolio.
Here’s what to consider.
High rental demand in your specific area of LA
A successful rental property needs a consistent flow of high-quality renters. Fortunately, LA’s high property values mean people are always looking for rentals, providing a consistent demand across the entire county.
However, some areas like Echo Park and Silver Lake particularly excel as rentals due to strong rental demand from young professionals and creatives who move around often looking for new work and inspiration—and renting a new property each time.
A need for a consistent, long-term monthly income stream rather than a one-time profit from selling
Selling gives you a lump sum, but renting provides mostly-predictable, recurring income. If you like the idea of passive cash flow and long-term wealth building, holding onto the property and renting it out could be a better fit for your financial goals.
If you’re not ready to be a landlord and want to minimize rental income disruptions, our full-service LA property management can help.
You have the margins available to rent at a proper rate
A profitable rental comes down to two things: your expenses and your property’s income potential. If you can command a rental rate that’s higher than all your expenses—mortgage, property tax, insurance, etc—you can make renting profitable overall.
However, it becomes even more important to choose the right tenants so depreciation due to wear and upkeep costs doesn’t eclipse your profit margins. Luckily, professional tenant placement makes finding great tenants easier.
Things to know when considering renting
Unless you have a high-value, unique property with a smaller rental market or simply don’t want to stay invested in the Los Angeles market, it’s a good idea to consider renting your property instead of selling. After all, unlike selling, renting your property lets you add value to your portfolio through monthly income—as long as the math makes sense and you turn a profit at the end of the year.
However, these added benefits come with some added risks and additional considerations you need to know to make the right choice and help position your rental property for success.
The rental market sets the price, not your personal expenses like mortgage, property tax, or insurance
Many property owners make the mistake of basing their property’s value or rental price on their expenses—mortgage, property tax, insurance, etc—not its actual market value. If you list it for too much just because you need to cover your costs, you risk losing even more in vacancy costs.
Instead, work with a team of local experts to get an idea of your property’s rental value (with or without cost-effective improvements they recommend) and measure that against your expenses. If the numbers don’t add up, renting may not be right for your property.
Calculate the daily cost of vacancy by considering lost rent and ongoing expenses to understand the true impact of an empty unit
Effective pricing isn’t just listing your property for as much as it can possibly earn—it’s a balance between maximum income and minimum vacancy time.
Every day your property’s vacant, you’re losing money—both from missed rent you could be collecting and utilities, maintenance, and mortgage payments. So instead of fixating on making your property the highest rental rate in the market, consider whether the difference between top-market and fair-market rates is worth the amount of time your property will stay vacant.
For example, if your property’s worth $2,500 per month and you want $2,750 a month, you’ll actually lose money over the course of a 6-month lease if it’s vacant for only two more weeks due to the higher rental rate. However, the exact balance depends on the price difference and lease term, so you can use a rental rate comparison calculator for more accurate insights.
Be well-versed in local rent control laws and tenant protection ordinances specific to Los Angeles and other California cities
LA has some of the strictest rent control and tenant protection laws in the country. You’ll need to know what you can and can’t do (or hire someone who does) when it comes to raising rent, handling evictions, and protecting tenant rights—or you could land in legal trouble that destroys your profitability.
Determine your property’s competitive rental rate with a self-serve and professional rental analysis
Before you commit to leasing your property, you should start by determining your home’s rental value—that way, you know whether it’s worth becoming a landlord.
Pricing your rental isn’t easy to do on your own, but between searching for similar properties on rental sites and getting a free online rental analysis, you should be able to get an idea of your rental’s earning potential. Once you know your expenses and your approximate potential income, it’s easier to figure out whether to take the next steps.
But free tools only give you an idea of your rental’s value—and you don’t want to jump into becoming a landlord without concrete data. That’s why your next step is to get a professional rental analysis that’s far more accurate and helps you make a decision with confidence.
At RentalHouse, we provide expert evaluations that don’t just stop at the numbers—we factor in everything, from local demand to rental control laws to your investment goals. We’ll give you the answers that only 40+ years of property management experience can provide, helping you decide whether owning rental property is right for you.
Make The Right Investment Decision with Expert Insight from RentalHouse
Making the right choice between selling or renting your LA property isn’t black and white; it depends on your financial situation, current market conditions, and your long-term plans. Each situation is different, which is why it’s important to have local market experts like RentalHouse on your side.
At RentalHouse, we can help paint a clear picture of your property’s rental value to help you decide whether your property’s a good fit for the rental market or if it’s better to sell and move on to your next project.