Blog > Rent it or sell it? Running the numbers on a Silicon Valley home
property nerd guide · sellers
Keeping your Silicon Valley home as a rental can look appealing, especially with a low Prop 13 tax base. Here's a plain framework for comparing rent against sale, plus the California rent cap, just-cause and security deposit rules every new landlord should know.
By the Property Nerds® of the Boyenga Team at Compass · NextGenAgents™
state rent cap
yearly maximum
just cause after
deposit limit (most)
the short version
Rent isn't the same as return
The monthly rent is only the first line. What matters is what's left after vacancy, upkeep, management, taxes and insurance, and how that compares with what your equity could do if you sold.
For many long-time owners, the appeal is real: a low Prop 13 tax base, a home that may keep appreciating, and steady income. Renting the home out isn't a sale, so your assessed value stays where it is. But you also become a landlord under California's tenant protection laws, you lose the homeowners' exemption once it's no longer your main home, and the clock starts on your federal home-sale tax exclusion.
the framework
Seven numbers to run
- Gross rent. What the home would rent for, based on comparable leases, not hopes.
- Vacancy. Time between tenants, plus time to prepare the home.
- Maintenance and reserves. Routine upkeep plus savings for roofs, systems and appliances.
- Property management. A manager's fee, or your own time if you self-manage.
- Property tax. Your current bill, without the homeowners' exemption's $7,000 reduction in taxable value.
- Insurance. A landlord policy, which differs from a homeowners policy.
- Opportunity cost. What the equity could earn elsewhere after the costs and taxes of selling.
worked example
An illustrative year of rental income
Here's a made-up example for a home that's paid off. Every figure is a placeholder, not a market estimate.
| Rent ($6,000 a month × 12) | $72,000 |
| Vacancy (one month, placeholder) | −$6,000 |
| Property management (placeholder) | −$5,000 |
| Maintenance and reserves (placeholder) | −$7,000 |
| Property tax on a low Prop 13 base (placeholder) | −$6,000 |
| Landlord insurance (placeholder) | −$2,500 |
| Net operating income, before income taxes | $45,500 |
| Equity in the home (placeholder) | $2,000,000 |
| Net income as a share of equity | About 2.3% |
Illustration only. It leaves out mortgage interest, income taxes, depreciation and future appreciation. The last line is the number to compare with what that equity could do elsewhere, a question for your financial advisor.
side by side
Keep and rent vs. sell now
| Consideration | Keep and rent | Sell now |
|---|---|---|
| Cash in hand today | — | ✓ |
| Ongoing rental income | ✓ | — |
| Keep your Prop 13 base on this home | ✓ | — |
| Use Prop 19 to move your base (55+) | — | ✓ |
| Home-sale exclusion stays available | For a limited time | ✓ if you qualify |
| Landlord duties and tenant rules | ✓ | — |
| Share in future price changes | ✓ | — |
the rules
California's rent cap and just-cause basics
The Tenant Protection Act of 2019, known as AB 1482, took effect January 1, 2020. For covered homes, it limits rent increases over any 12 months to 5% plus the change in the cost of living, with a maximum of 10%. After a tenant has lived in the home for 12 months, most evictions require a "just cause," such as nonpayment, a serious lease violation, or the owner moving in or taking the home off the rental market.
Some homes are exempt, including units built in the last 15 years (on a rolling basis). A single-family home or condo is exempt only if it isn't owned by a real estate investment trust, a corporation or an LLC with a corporate member, and the landlord has given the tenant written notice that the tenancy isn't subject to the Act's rent limits or just-cause rules. Skip that notice and the protections generally apply.
Cities can go further. The California Attorney General lists local rent rules in San José, Mountain View and East Palo Alto, among others, though they cover specific types of buildings. Check the rules for your city before you sign a lease.
property nerd note
Since July 1, 2024, under AB 12, most residential landlords can collect a security deposit of no more than one month's rent. A landlord who is a natural person, or an LLC whose members are all natural persons, and who owns no more than two residential rental properties with no more than four units in total can collect up to two months' rent. Additional protections apply to service members. Deposits must be accounted for within 21 days after move-out.
the tax clock
Renting first can change your exit
The federal exclusion of up to $250,000, or $500,000 for married couples filing jointly, requires that you owned and lived in the home for two of the five years before the sale. If you lived there at least two years, then moved out, you generally have about three years to sell and still meet the use test. Depreciation you claim as a landlord after May 6, 1997 can't be excluded. And if you're 55 or older, Prop 19 only works when you sell, so renting the old home means your next home is assessed at its full price.
nextgenagents™
How the Boyenga Team helps
Run both sides
We estimate today's sale value and a realistic rent, so you can compare the two with real inputs.
Lease it right
If you decide to rent, our leasing services can help you price, prepare and lease the home.
Sell when the time is right
As NextGenAgents™, we'll keep an eye on your tax-clock dates and the market, so you can sell on your timeline.
talk to a property nerd
Rent or sell? Let's put real numbers on it.
Start with your home's value, then ask us about a rent estimate and our leasing services.
faq
Rent it or sell it: FAQ
Will renting my home out trigger a property tax reassessment?
No. Reassessment happens when a home sells or changes ownership. Renting it doesn't, but you lose the homeowners' exemption once it's no longer your main home on January 1.
How much can I raise the rent each year?
If your home is covered by AB 1482, increases over any 12 months are capped at 5% plus the change in the cost of living, up to 10%. Local rules may be stricter, and some homes are exempt.
How big a security deposit can I collect?
For most landlords, one month's rent since July 1, 2024. Some small landlords who are natural persons can collect up to two months' rent.
Can I rent the home and still use the $250,000 or $500,000 exclusion later?
Often, if you sell while you still meet the two-of-five-year ownership and use tests. Depreciation after May 6, 1997 isn't excludable, and some rental periods can reduce the exclusion, so ask your CPA.
Can I use Prop 19 if I keep my current home as a rental?
No. Prop 19 requires the sale of your original home.
Sources: California Attorney General, Landlord-Tenant Issues, Rent Caps, and Know Your Rights guides on tenants and security deposits (oag.ca.gov) · IRS Publication 523 (irs.gov) · California State Board of Equalization, Proposition 19 and Homeowners' Exemption (boe.ca.gov) · California Legislative Analyst's Office property tax primer (lao.ca.gov). General information, not legal, tax or investment advice.