Sell Your Paid-Off House or Keep It as a Rental? Here’s What Actually Works in 2025

You own a house outright. No mortgage. No monthly payments. Just a quiet asset sitting there, collecting dust-or maybe tenants. Now you’re stuck: do you sell it and walk away with a big lump sum, or keep it and turn it into a rental? This isn’t just about money. It’s about time, stress, risk, and your future. And in 2025, with interest rates still high and rental demand shifting, the answer isn’t what it was five years ago.

What You’re Really Deciding

Selling your paid-off house means turning equity into cash. You get the full sale price minus closing costs, realtor fees, and taxes. That cash can go into a new home, pay off debt, invest in the stock market, or fund retirement. Simple. Clean. Done.

Keeping it as a rental means turning your home into a business. You’ll collect rent every month, but you’ll also handle repairs, tenants, vacancies, property taxes, insurance, and maybe a property manager. You won’t see the full value of your house until you sell it-or until you refinance. And if the market drops? You’re stuck holding it.

Neither choice is right or wrong. But one will fit your life better than the other.

The Cash Advantage: Selling Now

In Los Angeles, a paid-off single-family home in a decent neighborhood can easily sell for $900,000 to $1.4 million. After fees (6% to the agent, $10,000 in closing costs, maybe $20,000 in prep), you’re looking at $750,000 to $1.2 million in hand.

That’s not just money. That’s freedom.

People who sell and move often use the cash to:

• Buy a smaller, lower-maintenance home and pocket the difference
• Pay off credit card debt or student loans
• Invest in dividend stocks or index funds with average annual returns of 7-9%
• Move to a cheaper state and stretch their savings further

One client I worked with in Culver City sold her 3-bedroom house for $1.1 million. She bought a condo in Santa Barbara for $680,000, put $300,000 into a diversified portfolio, and retired at 58. She didn’t have to deal with a leaky roof or a tenant who trashed the bathroom.

Selling gives you control. You lock in today’s prices. You avoid the risk of a market downturn. You don’t have to worry about being a landlord.

The Income Advantage: Turning It Into a Rental

Now, let’s say you keep the house. In 2025, a well-maintained single-family home in Los Angeles rents for $3,800 to $5,200 a month, depending on location and condition.

That’s $45,600 to $62,400 a year before expenses.

But here’s what most people forget: expenses eat up 40-60% of that. You’ve got:

• Property taxes: $8,000-$15,000/year (depending on assessed value)
• Insurance: $2,000-$4,000/year
• Maintenance and repairs: $4,000-$8,000/year (roof, HVAC, plumbing, paint)
• Vacancy: 1-2 months lost per year = $3,800-$10,400
• Property management: 8-12% of rent = $3,000-$6,000/year

After all that, you’re left with $15,000 to $30,000 net per year. That’s not bad-but it’s not $1 million either.

And here’s the catch: you’re not earning that money passively. You’re working. You’re on call for a broken water heater at midnight. You’re screening applicants, chasing late rent, dealing with complaints. If you’re 60 and want to travel, you can’t be the landlord.

Plus, the IRS doesn’t treat rental income like a gift. You’ll pay income tax on your net profit. And if you’ve lived in the house for at least two of the last five years, you could have avoided up to $250,000 in capital gains tax by selling as your primary residence. That’s a $250,000 bonus you lose if you turn it into a rental.

The Hidden Costs of Being a Landlord

Most people think being a landlord is easy. They see the rent checks. They don’t see the $12,000 HVAC replacement. Or the tenant who breaks the lease after six months and leaves the carpet stained with pet urine. Or the city inspector who fines you because the smoke detector is outdated.

Here’s what you can’t predict:

• A tenant suing you for discrimination
• A natural disaster-earthquake, wildfire-that destroys your property
• Local rent control laws changing overnight
• A new apartment complex opening nearby and dropping your rental value by 15%

And if you’re not in the area? You’ll need a property manager. That’s another 10% gone. And if your manager is bad? You’ll lose money faster than you can say “eviction.”

There’s a reason 80% of first-time landlords regret their first rental purchase. It’s not the money. It’s the stress.

When Selling Is the Clear Winner

Sell if:

• You’re retiring or planning to downsize
• You’re tired of home maintenance
• You want to move to a lower-cost area
• You’re not interested in managing tenants
• You can invest the proceeds at a better return than your home’s appreciation rate
• You’ve lived in the house for at least two years and want to avoid capital gains tax

There’s no shame in selling. A paid-off house is a financial gift. Use it to make your life easier, not harder.

When Keeping It as a Rental Makes Sense

Keep it if:

• You’re under 50 and have the time and energy to manage it
• You’re already investing in real estate and want to build a portfolio
• You believe your area will appreciate strongly over the next 10-15 years
• You can afford to cover a year of vacancy without stress
• You’re using the rental income to fund other investments

And if you do keep it? Do it right. Get a property manager. Set aside 10% of rent for repairs. Get landlord insurance. Know your local laws. And never let emotions cloud your decisions. A rental isn’t your home anymore. It’s a business.

What’s Happening in 2025? The Market Has Changed

Interest rates are still above 6%. That means fewer buyers. Fewer buyers mean slower sales. But it also means fewer new rentals. People can’t afford to buy, so they rent. Demand for single-family rentals is up 12% in Southern California since 2023.

But here’s the twist: rental growth is slowing. In 2022, rents jumped 18%. In 2025, they’re up 2-4%. That’s not inflation. That’s stabilization.

And property taxes? They’re climbing. California’s Prop 13 protections don’t apply to new owners, but if you keep your house, your tax bill still rises with inflation. In Los Angeles County, property tax bills for homes over $800,000 have jumped 15-25% in the last three years.

So if you’re thinking, “I’ll just wait until prices go back up,” you’re gambling. The market doesn’t always rebound. And you’re not getting paid while you wait.

The Emotional Factor

Let’s be honest: your house has memories. Your kids grew up there. You hosted holidays. You fixed the porch yourself. Selling it feels like letting go.

But so does becoming a landlord. You’re not living there anymore. You’re not making it your home. You’re just collecting rent.

Ask yourself: which version of you is happier? The one with $1 million in the bank and a quiet life? Or the one with a tenant complaining about the Wi-Fi and a $4,000 repair bill?

There’s no right answer. But there’s a better fit.

Final Decision Checklist

Before you decide, answer these:

1. How much cash do you need now? (If you need it for retirement, health, or debt-sell.)
2. Can you afford to lose one year of rent? (If not, sell.)
3. Do you enjoy fixing things and talking to strangers? (If no-sell.)
4. Is your area still growing? (If yes, and you’re young-rental might work.)
5. Have you lived there at least two of the last five years? (If yes-sell before converting to rental to save on taxes.)
6. Would you rather have time or money? (Time = sell. Money = rent.)

If three or more answers point to selling-sell. Don’t overthink it.

What Comes Next?

If you sell, talk to a financial advisor. Don’t just stash the cash in a savings account. Put it to work-index funds, bonds, a new home, or even a small business.

If you rent, hire a property manager. Don’t try to do it yourself unless you’re ready for the 3 a.m. calls. Get a professional inspection. Document everything. And set up a separate bank account just for rental income and expenses.

Either way, don’t wait. The longer you delay, the more you risk. The market won’t wait for you. And neither will your future self.