If you own rental properties, this guest post may resonate with you. It’s about what to do with a property once it has served its purpose: 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—most controversially—simply leave it empty.
For most of my career writing about real estate, I’ve focused on buying properties and building wealth. But as we get older, the question of when to simplify 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.
John’s Rental Property And Wealth Situation
John owns a San Francisco rental property that will be vacant on November 1, 2025, after his tenants gave notice. He bought the home years ago for $1.8 million and invested roughly $200,000 in upgrades. Today, he estimates it could sell for $2.6–$2.75 million.
The good news is that the property is free and clear—no mortgage. However, carrying costs still add up. Property taxes alone are about 1.24% 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.
The home currently rents for $8,200 a month, with market rent closer to $8,500, generating $102,000 a year in potential income. But John is tired of tenants and the stress that comes with managing rentals. John is strongly considering selling or leaving it empty. He believes his home will appreciate handsomely over the next decade due to the tech boom.
Further, John invested in several private AI companies 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.
The Four Main Options For The Rental Property
Although John can afford to leave his San Francisco rental property empty, he must first consider these four more optimal financial choices.
1) Rent It Out Again
John could re-tenant the property for $8,200 – $8,500 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—creating timing conflicts and potential headaches.
In 2028, John plans to relocate his family back to Charlottesville, Virginia, to be closer to his mother. Ideally, he’d like to sell all his rental properties before the move. But if the new tenants haven’t left by then, he’ll either have to become a long-distance landlord or hire a property manager.
2) Sell And Pay Capital Gains Taxes
John sold another property in July 2025, so he has already used his $500,000 tax-free primary residence exclusion until July 2027.
If he sells now, he faces about $500,000 in capital gains. At a combined 33.2% federal and California tax rate, plus ~5% in commissions and transfer costs (~$130,000), he estimates he’d owe around $300,000 in taxes and fees. A painful number, but one that would free up roughly $2.4–$2.5 million in net cash for other uses.
With Treasury bonds yielding over 4%, 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 – 40% in appreciation over the next decade may cause a lot of regret.
3) Sell Via a 1031 Exchange
A 1031 exchange 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—exactly what he’s trying to avoid.
4) Move Back In
By moving back into the property for at least two years, John could eventually sell it tax-free under the primary residence exclusion. But doing so 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.
The Temptation To Leave The Rental Empty
Now that we’ve covered the most sensible financial options for John’s rental property, let’s consider a fifth choice: leaving the property vacant.
With a healthy net worth and a comfortable income, John is tempted to keep the house as a “quiet asset,” free of tenants, while he decides whether to move back in or sell at a more favorable time. This is what wealthy foreigners do who buy up U.S. real estate as a place to park assets and keep them empty.
The annual carrying cost of about $30,000 is manageable, but the opportunity cost of forgoing $102,000 in annual rent is significant.
With the AI tech boom, 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.
How Wealthy Do You Need To Be To Comfortably Leave a Rental Empty?
John’s numbers provide a rare window into what it takes financially to luxuriously hold a high-value property with no cash flow. Here’s how to think about it, both for John and for any landlord weighing a similar decision.
1. Annual Carrying Costs vs. Net Worth
John’s holding cost of $30,000 a year is about 1.1% of the property’s $2.7 million value. Whether that’s “affordable” depends on what share of his total net worth it represents.
- At a $2 million net worth, $30,000 equals 1.5% of wealth—a noticeable bite.
- At a $5 million net worth, it’s 0.6%—easier to stomach.
- At a $10 million net worth, it’s just 0.3%—much easier to stomach.
- At a $20 million net worth, it’s just 0.15%—a rounding error that isn't noticeable.
For most landlords, if the carrying cost is under 0.5% 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.
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’d rather forgo the rent to avoid the hassle, that calculation is ultimately moot.
2. Carrying Costs vs. Passive Income
Another worthy metric is whether your passive income—dividends, bond interest, other rentals—can easily cover the cost.
- With $300,000 a year in passive income, $30,000 is only 10% of that income.
- With $60,000 a year, it’s 50%, which feels far riskier.
A helpful rule of thumb: if carrying costs are under 10% of passive income, you have the “luxury gap” to leave a property idle indefinitely.
3. Opportunity Cost: The Rent You’re Giving Up
Finally, weigh the lost rent. John’s property could fetch about $102,000 a year in rent.
- For a $2 million net worth, that’s a 5.1% yield—hard to ignore.
- For a $5 million net worth, it’s 2%—still meaningful.
- For a $10 million net worth, it’s about 1%—easier to justify if peace of mind matters more than incremental return.
- For a $20 million net worth, it’s about 0.5%—almost insignificant for the benefit of peace of mind.
Example Comfort Levels
| Net Worth | Annual Carrying Cost ($30K) as % of Net Worth | Lost Rent ($100K) as % of Net Worth | Comfort Level |
|---|---|---|---|
| $2M | 1.5% | 5% | Tough unless income is very strong |
| $5M | 0.6% | 2% | Manageable if passive income covers it |
| $10M | 0.3% | 1% | Comfortable “luxury choice” |
These ratios give any landlord a framework for deciding when leaving a property empty is a sensible trade-off for freedom and flexibility.
Lessons for Fellow Rental Property Investors
If you’re facing a similar crossroads, here are a few takeaways from John's experience so far:
- Taxes Drive Timing. The IRS’s primary residence exclusion and 1031 exchange rules can save hundreds of thousands of dollars, but they dictate your calendar. Plan your sequence of sales early.
- Lifestyle Over IRR. A spreadsheet might tell you to hold for higher returns, but if a property causes stress or limits your freedom, selling can be the smarter long-term move.
- Simplicity Has Value. Carry costs on a vacant property may not break you, but they weigh on you over time, financially and mentally. The simpler your life is, the less of a desire you'll have for selling a rental property.
- 1031 Exchanges Are Powerful but Binding. They’re great for investors committed to real estate, but they don’t fit well if your goal is to downsize or exit the landlord role.
Final Thoughts
John admits that paying about $300,000 in taxes and fees to sell when he could simply rent or hold feels extreme. He could hold onto the property until death so his kids could benefit from the step-up in cost basis and pay no taxes. At the same time, selling would simplify his life and bring him one step closer to his goal of relocating to Charlottesville to care for his mom.
For other landlords, the takeaway is clear: if your carrying costs and lost rent are a small fraction of your net worth and passive income, you may one day earn the rare privilege of keeping a property empty purely for peace of mind.
But if those numbers still feel significant, the math will likely push you toward either renting for income, selling for liquidity, or exchanging for a more strategic property.
Readers, What Would You Do?
If you were in John's shoes, which path would you choose?
- Rent it out for $8,500 a month and keep the income stream alive?
- Sell now and pay the taxes and commission for a cleaner, simpler life for the next two years?
- Move back in to reset the primary residence exclusion clock, but go through an inconvenience and lifestyle downgrade?
- Execute a 1031 exchange to defer taxes but stay in the landlord game?
- Leave it empty and just pay the carrying costs for simplicity given his high income and net worth.
I’d love to hear your thoughts! Have you ever considered leaving a rental vacant even when you could rent it for strong income? At what wealth or income level would you feel comfortable doing so? John’s case shows that while financial freedom creates options, every option carries its own trade-offs.
Suggestions To Build More Passive Wealth
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