To Sell Or Rent -  Will The 2 Out Of 5 Rule Apply To You? 

As a Portland home owner, you are sure to have considered your options in the event that you might have to move someday. Would you choose to sell? Would it be more profitable to rent your home for awhile and let it appreciate in value? 

There are more than a few things to think about here, so let's take a quick look and consider some finer points that might influence your decision. 

1. Consult your CPA & consider whether the Two Out Of Five Rule will apply to you. If you rent for too long, you may lose your capital gains exemption (up to $250K for single, $500k for joint tax filing status) What is the two out of five rule? 

   
   
   "Primary Residence vs Investment Property
   
   The home sale exclusion tax break is only applicable to the sale of a primary residence. In order to be legally considered a primary residence, as opposed to an investment property, is that the seller has lived in the property themselves for at least two out of the last five years.
   
   Do the 2 years need to be consecutive?
   
   The two years of on-site residency do not need to be consecutive. For example, a property owner might live in a house for a year, then move and rent it out for 3 years, then move back in for another year before selling; the property would still qualify as a primary residence.
   
   The seller does not need to be living in the property at the time of sale in order to claim the home sale exclusion. They just need to have lived there for a minimum of two out of the last 5 years."  From Two Out Of Five Rule
    
2. Access is paramount when listing a property for sale:  With tenants in place, access to the home for showings and open houses will be limited, usually requiring 24 hr notice for potential buyers to see the home. 
3. The condition of your property will likely decline during the rental phase, and warrant $$$ for refresh prior to selling.
4. Consider the cost of property management. Depending on your plans, you may consider hiring a property manager. Property managers handle the rental on the landlords behalf, for a fee. Generally, expect to pay around 10% of the rental income to a property manger. If you decide to DIY, remember to consider landlord tenant laws, time, energy and money it will consume to perform the property management duties. 

5. Do your due diligence and find out whether you will be required to pay tenant relocation fees when/if you decide to sell. Different states, counties and municipalities have different rules surrounding tenant relocation fees. In Portland, depending on the situation, these fees can run upwards of $4500 plus deposits. When an owner of a rental home decides to sell, they must clear contingencies, prove the buyer is to be an owner-occupant (not investor), and then give 90 day notice to the tenant. Most buyers won't want to wait 90 days or adopt a tenant in a rent back. https://www.portland.gov/phb/rental-services/renter-relocation-assistance

Sam Densmore/Realtor/Inhabit Real Estate  08/05/2024, All Rights Reserved