If you own rental properties, this post may resonate with you. It\u2019s about what to do with a property once a tenant gives notice: keep renting it out, sell and pay capital gains taxes, sell via a 1031 exchange to defer taxes, move back in to avoid taxes, or\u2014most controversially\u2014simply leave it empty.<\/p>\n
For most of my career writing about real estate, I\u2019ve focused on buying properties and building wealth. But as we get older, the question of when to simplify<\/em> becomes just as important. John, a longtime reader, is facing this very crossroads. His situation offers a useful case study for anyone deciding whether to hold, rent, cash out, or landbank.<\/p>\n John owns a San Francisco rental property<\/strong> that will be vacant on November 1, 2025, after his tenants gave notice. He bought the home years ago for $1.85 million<\/strong> and invested roughly $180,000<\/strong> in upgrades. Today, he estimates it could sell for $2.7 million<\/strong>.<\/p>\n The good news is that the property is free and clear\u2014no mortgage. However, carrying costs still add up. Property taxes alone are about 1.24%<\/strong> of a $2.3 million assessed value (~$25,000\/year), and with insurance, utilities, and basic maintenance, total holding costs are around $30,000 a year<\/strong>.<\/p>\n The home currently rents for $8,200 a month<\/strong>, with market rent closer to $8,500<\/strong>, generating $102,000 a year<\/strong> in potential income. But John is tired of tenants and the stress that comes with managing rentals. He is strongly considering selling or leaving it empty, believing his home will appreciate handsomely over the next decade due to the tech boom.<\/p>\n Further, John invested in several private AI companies<\/a> during the pandemic that have since grown to roughly eight times their original combined value. More importantly, his seven-figure public stock portfolio is also up ~100% since January 1, 2020. So maximizing rental income is no longer a financial necessity for him.<\/p>\n Although John can afford to leave his San Francisco rental property empty, he must first consider these four more optimal financial choices.<\/p>\n John could re-tenant the property for $8,200 \u2013 $8,500<\/strong> a month and continue collecting strong cash flow. The risk is that if he later decides to move back in or sell, tenants might still be in place\u2014creating timing conflicts and potential headaches.<\/p>\n In 2028, John plans to relocate his family back to Charlottesville, Virginia, to be closer to his mother. Ideally, he\u2019d like to sell all his rental properties before the move. But if the new tenants haven\u2019t left by then, he\u2019ll either have to become a long-distance landlord or hire a property manager.<\/p>\n John sold another property in July 2025, so he has already used his $500,000<\/strong> tax-free primary residence exclusion<\/a> until July 2027.<\/p>\n If he sells now, he faces about $500,000<\/strong> in capital gains. At a combined 33.2%<\/strong> federal and California tax rate, plus ~5%<\/strong> in commissions and transfer costs (~$130,000), he estimates he\u2019d owe around $300,000<\/strong> in taxes and fees. A painful number, but one that would free up roughly $2.4\u2013$2.5 million<\/strong> in net cash for other uses.<\/p>\n With Treasury bonds yielding over 4%<\/strong>, John longs for a simple, risk-free way to earn money. At the same time, he owns an ideal single-family home that can comfortably house a family of four or five in the heart of a new tech boom. Potentially missing out on another 30 \u2013 40%<\/strong> in appreciation over the next decade may cause a lot of regret.<\/p>\n A 1031 exchange<\/a> would allow John to defer the taxes if he reinvests the proceeds into another rental property. But this strategy means buying a replacement property and continuing to deal with tenants\u2014exactly what he\u2019s trying to avoid.<\/p>\n By moving back into the property for at least two years, John could eventually sell it tax-free under the primary residence exclusion. Even though there\u2019s no mortgage interest to deduct, the SALT cap deduction limit to $40,000<\/strong> from $10,000<\/strong> under the One Big Beautiful Bill Act<\/a> should help reduce John\u2019s taxes.<\/p>\n But moving back in would mean giving up the rental home his family currently enjoys. That said, the timing would work if he really plans to relocate back to Virginia in 2028. He has time to give his 45-day notice to his landlord and arrange for the movers.<\/p>\n Now that we\u2019ve covered the most sensible financial options for John\u2019s rental property, let\u2019s consider a fifth choice: leaving the property vacant.<\/p>\n With a healthy net worth and a comfortable income, John is tempted to keep the house as a \u201cquiet asset,\u201d free of tenants. This way, he has minimal headache and maximum flexibility on when to sell when he moves to Virginia.<\/p>\n The annual carrying cost of about $30,000<\/strong> is manageable, but the opportunity cost of forgoing $102,000<\/strong> in annual rent is significant.<\/p>\n With the AI tech boom<\/a>, John is long-term bullish on San Francisco real estate. In 20 years, he believes the property will surely be more valuable than it is today. If mortgage rates continue to trend lower, he believes the pace of annual appreciation will surpass the property’s carrying costs.<\/p>\n John\u2019s numbers provide a rare window into what it takes financially to luxuriously<\/em> hold a high-value property with no cash flow. Here\u2019s how to think about it, both for John and for any landlord weighing a similar decision.<\/p>\n John\u2019s holding cost of $30,000 a year<\/strong> is about 1.1%<\/strong> of the property\u2019s $2.7 million<\/strong> value. Whether that\u2019s \u201caffordable\u201d depends on what share of his total<\/em> net worth it represents.<\/p>\n For most landlords, if the carrying cost is under 0.5%<\/strong> of total net worth, leaving a property vacant starts to feel like a lifestyle choice rather than a financial mistake. John can afford to wait months, if not years for the perfect tenant to come along and not cause him trouble.<\/p>\n John should also consider the lost income from not renting, along with the carrying costs. A similar calculation could be made to quantify the impact. However, since John has already decided he\u2019d rather forgo the rent to avoid the hassle, that calculation is ultimately moot.<\/p>\n Another worthy metric is whether your passive income<\/a>\u2014dividends, bond interest, other rentals\u2014can easily cover the cost.<\/p>\n A helpful rule of thumb: if carrying costs are under 10%<\/strong> of passive income, you have the \u201cluxury gap\u201d to leave a property idle indefinitely.<\/p>\n Finally, weigh the lost rent. John\u2019s property could fetch about $102,000<\/strong> a year in rent.<\/p>\nJohn\u2019s Rental Property And Wealth Situation<\/h2>\n
The Four Main Options For The Rental Property<\/h2>\n
1) Rent It Out Again<\/h3>\n
![\"Rent](\"https:\/\/i2.wp.com\/financialsamurai.com\/wp-content\/uploads\/2025\/09\/san-francisco-rent-various-sources-2025.png\")
2) Sell And Pay Capital Gains Taxes<\/h3>\n
3) Sell Via a 1031 Exchange<\/h3>\n
4) Move Back In<\/h3>\n
The Temptation To Leave The Rental Empty<\/h2>\n
![\"New](\"https:\/\/i2.wp.com\/financialsamurai.com\/wp-content\/uploads\/2025\/09\/SF-NYC-LA-rent-2025.png\")
<\/figure>\nHow Wealthy Do You Need To Be To Comfortably Leave a Rental Empty?<\/h2>\n
1. Annual Carrying Costs vs. Net Worth<\/h3>\n
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2. Carrying Costs vs. Passive Income<\/h3>\n
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3. Opportunity Cost: The Rent You\u2019re Giving Up<\/h3>\n
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Example Comfort Levels<\/h3>\n