If you own a rental property, this guest post may resonate with you. Once its purpose is achieved, it’s about how to deal with the property: rent it out, sell it and pay capital gains taxes, sell it through 1031 exchange to delay taxes, return it to avoid taxes, or (most controversially) leave it empty.
Throughout most of my career, I have focused on buying properties and building wealth. But as you get older, When will it be simplified Become equally important. Long-term reader John is facing this crossroads. His situation provides useful case studies for anyone who decides to hold, rent, cash out or Landbank.
John’s rental property and wealth status
John owns a San Francisco rental property that will be vacant on November 1, 2025, after his tenant issued a notice. A few years ago, he bought the home for $1.8 million and invested about $200,000 in upgrades. Today, he estimates it will sell for $2.75 million.
The good news is that the property is free and has no mortgage. However, the carrying costs still add up. Property tax alone is approximately 1.24% of the assessed value (approximately $25,000), and the total cost of holding is approximately $30,000 per year for insurance, utilities and basic maintenance.
The home currently has a rent of $8,200 per month and a market rent of close to $8,500, generating $102,000 in potential income per year. But John was tired of the pressure of tenants and managing rents. John strongly considered selling or leaving it blank. He believes his home will be appreciated in the next decade due to the technological boom.
Additionally, John invested in several private AI companies during the pandemic, which had an original value of about eight times its original value. More importantly, his seven-figure public equity portfolio has also increased by about 100% since January 1, 2020. Therefore, maximizing rental income is no longer a financial necessity for him.
Four main options for renting properties
Although John has the ability to leave his San Francisco rental property empty, he must first consider these four best financial options.
1) Rent again
John can releas the property for $8,200 to $8,500 a month and continue to collect strong cash flow. The risk is that if he later decides to move back or sell, the tenant may still be in place, creating a conflict of timing and potential headaches.
In 2028, John plans to move his family back to Charlottesville, Virginia to get closer to his mother. Ideally, he wanted to sell all of his rental properties before moving. But if the new tenant hadn’t left at that time, he would either have to become a long-distance landlord or hire a property manager.
2) Sale and pay capital gains tax
John sold another property in July 2025, so he has used $500,000 of duty-free junior residence to exclude in July 2027.
If he sells it now, he will face approximately $500,000 in capital gains. He estimated that he would owe about $300,000 in taxes and fees at a 33.2% federal and California tax rate plus about 5% commission and transfer costs (about $130,000). It’s a painful number, but can release about $24,000-2.5 million in other uses of cash net cash.
With Treasury output exceeding 4%, John longs for a simple, risk-free way to make money. Meanwhile, he owns an ideal single-family home that comfortably accommodates a family of four or five families, the center of a new technological boom. Another 30% to 40% of the appreciation may be missed over the next decade, which may cause a lot of regrets.
3) For sale through 1031 Exchange
If John reinvests the proceeds to another rental property, the 1031 exchange will allow John to postpone his taxes. However, this strategy means buying alternative properties and continuing to deal with tenants, something he is trying to avoid.
4) Return
By moving back to the property for at least two years, John can eventually sell it tax-free with the exclusion of the primary residence. But doing so would mean giving up the rental home his family currently prefers. That said, if he really plans to move back to Virginia in 2028, the time will work. He has time to issue a 45-day notice to the landlord and arrange for porters.
Temptation to empty the rent
Now that we have covered the wisest financial choices for John’s rental property, let’s consider a fifth option: Make the property vacant.
With healthy net worth and comfortable income, John easily kept the house as a “quiet asset” without a tenant, and he decided whether to move back or sell in a more favorable time. This is what wealthy foreigners do, they use our real estate as a parking asset and keep it empty.
A book cost of about $30,000 per year is manageable, but the opportunity cost of preventing an annual rent of $102,000 is high.
With AI Tech Boom, John is bullish on San Francisco real estate in the long term. He believes that in 20 years, the property will certainly be more valuable than it is today. If mortgage rates continue to drop, he believes that the pace of annual appreciation will exceed the property’s book cost.
How rich do you need to be rich to comfortably empty your rent?
John’s numbers provide a rare window into what is needed economically luxury Own high-value properties without cash flow. This is a way to consider this for John and any landlord weighing similar decisions.
1. Annual carry cost and net assets
John’s holding fee $30,000 per year It’s about 1.1% of the property’s value of $2.7 million. Whether this is “affordable” depends on his share All It represents the net value.
- exist Net worth $2 million$30,000 equals 1.5% of wealth, which is a noticeable bite.
- exist Net worth $5 millionit is 0.6% – the stomach is more fragrant.
- exist Net worth $10 milliononly 0.3% – easier to enjoy.
- exist Net assets of $20 milliononly 0.15%, which is an insignificant rounding error.
For most landlords, if the loading cost is insufficient 0.5% of total net worthleaving property vacancy starts to feel like a lifestyle choice rather than a financial mistake. John was able to wait for months, if not years, the ideal tenant would show up without causing him trouble.
John should also consider the loss of income for not renting, as well as the costs on the books. Similar calculations can be performed to quantify the impact. But, since John has decided that he would rather give up on the rent to avoid trouble, the calculation is ultimately meaningless.
2. Carrying costs and passive income
Another valuable indicator is whether your passive income (bond interest, other rents) can be easily paid.
- Passive income is $300,000 per year, and $30,000 accounts for only 10% of the revenue.
- $60,000 per year, which is 50%, and feels much higher risk.
A useful rule of thumb: If the cost of carrying is insufficient 10% of passive incomeyou have a “luxury gap” to leave the property indefinitely.
3. Opportunity Cost: The rent you gave up
Finally, weigh the lost rent. John’s property rents about $102,000 per year.
- for Net worth $2 millionthat’s one Yield is 5.1%– To ignore.
- for Net worth $5 millionit is 2%– Still meaningful.
- for Net worth $10 millionis about 1%– It is easier to prove whether it is important or not is the unquestionable return.
- for Net assets of $20 millionis about 0.5%– To the greatest extent, it is to benefit the inner peace of mind.
Example comfort
| net worth | Annual book cost ($30K) is a percentage of net worth | Lost rent ($100,000) is % of net worth | Comfort level |
|---|---|---|---|
| $2 million | 1.5% | 5% | Unless the income is strong, it’s hard |
| $5 million | 0.6% | 2% | If passive income covers it, it can be managed |
| $10 million | 0.3% | 1% | Comfortable “luxury choice” |
These ratios provide a framework for any landlord to leave property in a blank space which is a wise trade-off of freedom and flexibility.
Lessons from leasing property investors
If you are facing a similar crossroads, there are some gains from John’s experience so far:
- Tax drive timing. The IRS’s primary residence exclusion and 1031 exchange rules can save hundreds of thousands of dollars, but they determine your calendar. Plan your sales order as early as possible.
- IRR’s lifestyle. Spreadsheets may tell you to keep higher returns, but if property creates stress or limits your freedom, then selling may be a smarter long-term action.
- Simple and valuable. The cost of carrying on vacant property may not ruin you, but over time, financially and spiritually, they will both weigh you. The simpler your life is, the less you desire for renting a property.
- 1031 AC is powerful but binding. They are great for investors dedicated to real estate, but they are not suitable if your goal is to narrow down or exit the landlord role.
The final thought
John admits that when he could simply rent or hold it, he paid about $300,000 in taxes and fees. He can keep the property until death so that his child can benefit on a cost basis without paying taxes. Meanwhile, selling will simplify his life and bring him closer to the goal of moving to Charlottesville to take care of his mom.
For other landlords, the point is clear: If your book expenses and rent losses are a small part of your net worth and passive income, you may one day win the rare privilege of leaving your property empty for peace of mind.
But if these numbers are still important, math may drive you to rent income, sell liquidity, or exchange more strategic properties.
Reader, what would you do?
If you were wearing John’s shoes, which path would you choose?
- rent $8,500 per month and keep the revenue stream?
- Sell now And pay taxes and commissions for cleaner, simpler living for the next two years?
- go back Resetting the main residence excludes clocks, but reducing inconvenience and lifestyle?
- Perform 1031 exchange Delay taxes but stay in the landlord game?
- Leave it empty Given his high income and net worth, he only needs to pay the book fee.
I would love to hear what you think! Even if you can rent a rent, have you ever considered renting it? What wealth or income levels do you feel comfortable with? John’s case shows that while financial freedom creates choices, each option comes with its own trade-offs.
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