Real Estate: Sell or Rent?

To Sell or to Rent Out? That is the Question.


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There’s also the deductible from depreciation. To get this figure, divide your property’s fair market value at the time you start renting it out (excluding the cost of land) by 27.5 years—the recovery period for residential rental properties. For example, an Oahu home worth $550,000 divided by 27.5 years gives you a $20,000 tax deduction from your rental income.

… If you’re financially able to make payments on two homes, at least for a few months. There’s no guarantee that your rental will be occupied continuously. Renters may be uprooted for any number of reasons, leaving you with two mortgages to pay while you look for new tenants.

… If you’re Handy Andy and are ready for emergency repair calls 24/7. How comfortable are you with making basic home repairs? Do you have a list of favorite contractors you can call in a crunch? Wakumoto said he got around that issue by telling his renters that he, “charged lower than the market rate for rent, and, in some cases, I never raised the rent, as long as they did minor repairs. If they were going to call me for every little thing, like, oh, the towel rack fell down, then forget it, they weren’t going to work out.”

… If you’re not handy and think that 10 percent of the rent is a small price to pay for a good night’s sleep, you may want to consider hiring a property manager. Property managers can be hired for selective tasks, such as finding tenants, or for the whole shebang, doing everything from advertising the property, checking prospective tenants’ financial backgrounds, collecting rent and paying the bills. If you give a property manager total responsibility, make sure you get a monthly statement of income and expenses so you can keep track of where your money goes.

The biggest factor in the rent-or-sell decision is what’s going on in your life right now. According to Hedburg, “There’s no one-size-fits-all. It depends where you are in your life cycle, what’s important to you and which option fits more of what you want in your life.”


Doing Your Homework

To rent or to sell? One way to figure which option is right for you is the purely financial equation—which one pays better? Some advisors, such as Forbes, suggest that you divide your rental income by the expected sale price of your home. This will give you the investment yield. Compare this to the yield on long-term Treasury bonds, which pay interest semiannually (as of early March, the rate on a 30-year bond was 4.73 percent).  If your yield is less than the T-bond, Forbes says you’re better off selling. An online calculator, at, will do the number crunching for you, but, if you use it, you have to do some homework. To figure out if renting is worth it, you’ll need to know:

Your expected annual rent.
A quick survey of the classified ads will give you a hint.

Annual taxes:
On a rental, you will continue to pay property taxes.
Like any business, you’ll need a general excise tax license and will pay a 4 percent general excise (G.E.) tax. How often you file depends on how much taxes you’ll pay—semiannually if your taxes are $2,000 or less, quarterly if $4,000 or less and monthly if $4,000 or more.

If you sell, you’re subject to a capital gains tax. The good news is that you may be exempt from this tax if the difference between the price you paid for your home and the probable selling price is $250,000, if you’re single, or $500,000 if you’re married. If you earn more than that, then you’ll pay 15 percent in federal taxes and 7.25 percent in Hawai‘i state taxes.

Other annual costs:
These include capital improvements, i.e., work that prolongs the life of the building or adds to its value, such as roof replacement and exterior painting.

Monthly fees not paid by tenant:
These could include anything from electric to cable bills, landscaping, water and condo fees.

Likely sale price of your home:
Peruse to see what homes are selling for in your area. If you’re working with a realtor, he or she will be able to tell you actual sale prices.

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