Selling Vs. Renting Vs. Flock: What to Do With Your Property

Published July 12, 2022

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Do you have a rental property but aren’t sure what to do with it? You’re not alone. Thousands of new property owners enter the market every year (whether accidentally or intentionally), and it’s not always clear which direction to go.Do you sell the home, pay the taxes, and move on with your profit? Do you hire a property management company to rent it out? Or do you realize that’s not working out and manage it yourself? Or do you take a different approach and trade your property for units in a portfolio of homes?Each option has its pros and cons, and you won’t find a one-solution-fits-all answer. Don’t worry, though — we’re here to walk you through what each of your choices looks like and what you can expect. After reading this article, you’ll be ready to take action on your property with confidence.

Selling Vs. Renting Vs. Flock

Selling Your Property

Selling your property and moving on might seem like the path of least resistance, but it’s unfortunately riddled with unexpected challenges, obstacles, and fees.Here are some of the costs you can expect when selling a home:

Lost rent (for months while you sell the home)
Capital gains tax
Depreciation recapture tax
Brokers fees (as high as 6%)
Closing costs
Home repairs
Home staging
Mortgage payoff

It’s a lot.For example, if you’re a married couple filing jointly with a taxable income of $200,000, a capital gain of $100,000 could cost you $15,000 in taxes. And that’s just for the capital gains tax — not all the other fees.Once you’ve finished selling your home, it’s gone for good. You’ll get a lump sum of cash that you can use however you please. Plus, you don’t have to worry about any headaches like property management, tenants, rent collection, maintenance, and repairs.However, now might not be the best time to sell your home. Current market conditions create a high tax liability for rental property owners. If the market conditions aren’t right, you could sell your home for less than it’s worth, or you lose out on significant appreciation. You’ll also lose the consistent rental income.And there’s no guarantee you’ll even be able to sell your home (depending on where it’s located). If you do sell the house, your new lump of cash won’t appreciate and is vulnerable to rising inflation. Plus, you might only end up with 1/3 of the equity in your home after you factor in the costs of selling a home.Now, what do you do with this cash? You could put it into an index fund, but the dividends from these tend to be small compared to the income you’d expect from a rental property.

Continuing to Rent Your Property

Homeowners that want to hold on to their investment, reap the ongoing rewards of appreciation, and earn steady monthly income often opt to rent their property. Short-term and long-term rentals properties can be a great way to boost your income, but they’re not passive income — far from it.Rentals take time, energy, and capital. You’ll need to constantly update and maintain your property, market and lease it, and keep tenants satisfied. In the end, owning a rental property (especially multiple properties) can end up looking more like a full-time job than a part-time side hustle.Many first-time landlords start with a do-it-yourself (DIY) mindset but end up hiring a property management company to handle the nitty-gritty work. This ends up eating into your profits (often by as much as 10%), and it doesn’t completely eliminate your day-to-day and week-to-week time commitment towards your rental.Plus, it’s not a risk-free investment strategy. If the local market tanks, you could be stuck with an asset that’s losing value. One of the best-case scenarios in that situation would be to work hard to maintain tenants so that you can break even month after month. It’s not a good place to be.Renting your property has big upside potential, but it’s a significant time commitment. It can be a great source of income for some property owners and a huge headache for others — it all depends on your availability, experience, and expectations.

Exchanging Your Property for Units in a Partnership

Fortunately, renting and selling your property aren’t your only options anymore. Another opportunity is to exchange your rental property for units in a portfolio of homes through a 721 exchange.The 721 exchange is a little-known section of the Internal Revenue Code (IRC) that lets you defer taxes of a sale by contributing property to a partnership in exchange for partnership interest. This option allows you to:

Earn passive income
Diversify your investment
Capture upside potential
Improve liquidity of your assets
Defer expensive capital gains and depreciation recapture taxes
Avoid home-selling fees
Hand-off home management responsibilities (all of them, forever)

A 721 exchange helps you leave the burden of homeownership behind without losing out on the investment potential. You’ll still receive ongoing income from your investment, and you’ll be able to capture upside appreciation potential (without upfront taxes), too.And unlike with renting your property, you won’t have to manage any maintenance or tenants — that’s the responsibility of the partnership’s manager now. This is a true tax-efficient transition to passive income and ownership.When you exchange your rental property with Flock, you join a larger portfolio of homes, helping diversify your investments. Instead of putting all your eggs in one basket, Flock gives you exposure to real estate in different cities and neighborhoods.Plus, you get to keep the equity from your home. You won’t pay the hefty upfront fees and taxes associated with selling your rental property that typically eats up to 1/3 of its value.

What to Do With Your Property

We can’t tell you what to do with your property, but we can welcome you to the Flock. Share a few details about your property, and we’ll offer you a free, no-obligation home value estimate within 24 hours. If you like what you see, we’ll visit your home, confirm the details, make adjustments, and give you a final offer price.We make the exchange seamless. You get ownership in the portfolio and receive quarterly income — we take over property management. When the time comes, you can redeem your units piece-by-piece or all at once — or stick around and continue to earn passive income while letting your investment appreciate.It’s up to you.

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