Should I Sell or Rent My House Out? Key Factors To Help You Decide

5. You’re confident you could make a profit

Deciding to rent out a property comes down to number-crunching. Sayers provides an example of when the numbers support the decision to rent out a house:

“In seven years, you would have much more equity in the property, because your tenants would have been helping you pay down the mortgage over time,” Sayers explains. Plus, you’d likely gain even more market equity in the home, as Sayers would have on his missed opportunity rental.

Signs you should sell your home

In some situations and time periods, it might make more financial and logistical sense to let go of a house. Here are a few signs you should consider cashing out.

1. Your home is in a “seller’s market”

A seller’s market happens when there are more buyers than homes for sale. With fewer listings to choose from, buyers are more likely to compete for available homes, giving your property more attention and helping you get the best possible price.

To monitor your local housing market, visit your local Realtor® association website and check out the most recent month’s market report. Look for stats like inventory changes year-over-year. The lower the drop in inventory, the better (unless you’re also looking to buy). Plus, if your area has seen several years of strong price growth, it could be a good time to cash out.

In summary, where you live can make a big difference in how much leverage you have in today’s housing market. If you’re in a seller’s market, you have more negotiating power, but you should still price your home realistically to maximize interest.

2. You couldn’t charge enough rent in relation to the home’s value

Kurzner points out that as homes increase in price, they become less desirable rentals because the return on rent goes down. It’s all about the gross rent multiplier (GRM), the ratio of the price of real estate to the rental income it generates. 

For example, you can likely rent a $100,000 home for $1,000 per month (1% GRM), but you probably wouldn’t be able to rent a $200,000 house for $2,000.

“The higher the value, the flatter the rent curve becomes,” explains Kurzner.

3. You don’t have enough liquid cash on hand

If you decide to hold on to your property, Sayers explains that you need to have enough liquid cash to maintain it, paying property taxes and mortgage payments in the event of a vacancy. If you don’t have the funds, renting might not be right for you.

“When a rental property becomes vacant, not only do you lose rental income, but you still have to pay for the normal property expenses and any mortgages,” he explains. “And in most cases, there are capital expenditures needed to get the property in shape to rent again.”

Walker recommends having at least $10,000 in discretionary income at your disposal when renting out a property. If you’re short of that, selling may be the safer option.

4. You have other priorities for the equity you’ve built

If buying your dream home is your next move, selling is often the better choice. Purchasing a new home comes with upfront costs, including a down payment, closing costs, and moving expenses. Selling lets you turn the equity you’ve built in your current home into cash to help cover those costs. In fact, homeowners with mortgages have built up an average of approximately $295,000 in home equity.

But note that if ever you choose to sell, you’ll also need to consider any necessary repairs and maintenance, as well as roughly 10% in commissions and closing costs.

»Learn more: Selling your home could give you the cash you need for what’s next. Try our Net Proceeds Calculator to estimate how much you could receive after paying off your loan and other selling costs.

5. Your home’s age raises maintenance costs and concerns

There is always some degree of regular maintenance to be expected when you manage a rental. Faucets leak, water heaters get cranky, and ant colonies invade. 

Home maintenance costs can run anywhere from $4,000 to $22,000 a year, depending on your home’s age, size, location, features, and overall condition. As a general rule of thumb, financial experts recommend setting aside 1% to 4% of your home’s value each year for maintenance and repairs so you’re prepared when unexpected fixes pop up.

The easiest properties to manage are those that are newer or have been well-maintained. If your property is older and still has a lot of the original components, like the HVAC system, roof, and appliances, the costs of upkeep and eventual replacement, which can be expensive, may make renting less appealing.

Walker constantly sells older properties for this very reason. The homeowners would rather unload their houses as-is in a hot market than run the risk of big expenses on the horizon.

6. You’re not thrilled about becoming a landlord

Renting out a property can be a good source of cash flow, but that profitability comes at a price: maintaining and repairing household amenities, finding new tenants, adhering to regulations, paying taxes, and more. If you handle all of these on your own, which nearly half of all landlords do, Kurzner warns that you could face some legal and operational risks.

Of course, you have the option to hire a property management company to do away with the stress. They can find quality tenants and field 2 a.m. phone calls when the heater sputters out on a sub-zero night. However, they cost an estimated 8% to 12% of the monthly rental value, which will cut into your profits.

The crux of a landlord’s obligation is to provide a rental property that is safe and fit to live in, including safe drinking water, heat and hot water, smoke and carbon monoxide detectors, secure doors and windows, and a sanitary unit, to name a few.

If all of that sounds daunting and you’re unwilling to take on the extra time, expense, and risk associated with owning a rental property, selling may be the better option.

7. Your home just isn’t a “good” rental

Sometimes, the rental stars align, and a property is a landlord’s dream. It rents easily to reliable tenants, has low operating costs, and yields good returns. But that’s not always the case.

Kurzner has owned rental homes that proved to be too much of a hassle and a cash drain, leading him to sell them rather than keep them in his portfolio.

“Generally, if the home that is rented constantly has issues with vandalism, bad tenants, costly maintenance or excessive HOA or other hassles, it can be better to sell that home and buy a different property,” he says.

Rent-to-own: A viable alternative

A rent-to-own arrangement can be a great middle ground if you’re still on the fence about selling or renting. Here are a few reasons why some homeowners choose this option: 

• You get more time to decide: You keep ownership of the home while testing the market, so you don’t have to commit to selling right away. 
• You can earn rental income in the meantime. The monthly rent can help cover your mortgage, property taxes, insurance, and other ownership costs while you figure out your next move. 
• You may attract more committed tenants. Since rent-to-own tenants hope to buy the home someday, they’re often motivated to pay rent on time, take care of the property, and improve their finances so they can qualify for a mortgage.

Questions to ask to understand your core financial goals

Before deciding whether to sell or rent out your home, take a closer look at what you’re trying to accomplish financially. Ask yourself these questions:

• Do you need cash now or a steady income stream? One of the biggest factors to consider is whether you need a large amount of money upfront or prefer ongoing income over time. Selling gives you a lump sum that you can use toward a down payment on your next home, pay off debt, fund major expenses, or invest elsewhere. Renting, on the other hand, can provide a steady monthly income stream, but you’ll need to wait over time to see those returns. 
• How much equity do you have in your home? Your home’s equity can play a major role in your decision. If your home is worth significantly more than what you owe on your mortgage, selling could give you access to a sizable amount of cash. However, if you have little equity or owe more than your home is worth, selling may not leave you with much money after paying off your loan and closing costs, making holding onto the property worth considering. 
• How much risk are you comfortable taking on? Selling offers more certainty: once the deal closes, you get your money and move on. Renting can be a way to build wealth over time, but it also comes with responsibilities and risks, including finding reliable tenants, handling repairs, covering maintenance costs, and dealing with changes in the rental market. Consider whether you’re comfortable managing those challenges before turning your home into a rental property.

A tale of two owners

Whether you should sell your house or rent it out depends on several factors. These include your potential rental income compared to expenses, the work you want to put into it, your potential profit if you sell, and other goals you have. It’s certainly a difficult decision, even for experts. Here are two stories of how renting vs. selling didn’t work out as planned.

Renting regrets: Bad renters turn investment sour

Kurzner recalls a time when he bought and renovated a home in Stone Mountain, Georgia, a few years ago. Several agents asked if he was interested in selling, but he decided to rent it out.

He had trouble attracting tenants with decent credit and rental histories, so after the house sat empty for a few months, he relaxed his criteria and secured a tenant. Everything seemed OK for three months, but then the problems started: late rent, excuses, and finally, a drawn-out eviction.

When Kurzner regained possession of the house, he found that all of the brand-new fixtures and hard work he had put into it were ruined.

“I let my hope override my common sense and made a costly decision to rent a home to an unqualified tenant rather than have a vacant house and no rent,” he says. Kurzner eventually sold the property, but not until he had spent another $12,000 in repairs to fix what his tenant had damaged.

Seller’s remorse: A missed $185k opportunity

Meanwhile, Sayers owns a company that typically buys 50 to 60 properties per year, many of which are turned into rentals. To this day, he still regrets selling one particular property.

He bought the house in 2010 for $105,000 and lived there until 2017, when he sold it for $185,000. At the time, he owed around $80,000 on the mortgage. After commissions and closing costs, he profited about $85,000. In the current market, the property would sell for about $225,000. And if Sayers had kept it, he could have rented it for $1,250 per month for the last three years.

“If I had used all of the rent to pay down the mortgage, I would only owe around $40,000 today, so I would have $185,000 in equity if I still owned the property,” he says.

Should you sell your home or rent it out: It all comes down to numbers

You’ll weigh many factors in your “rent vs. sell” decision, but they all boil down to the same basic concept: how much you’ll earn by selling versus how long it will take you to make that same amount by renting the property. Once you have those numbers, you can decide if the monthly income is worth the potential hassle of renting out a house.

To help determine those numbers, you can use the National Association of Residential Property Managers’ Rent vs. Sell Calculator. All it needs is some information on your mortgage, taxes, and desired rental rate to give you an insightful answer.

When deciding, don’t forget about costs such as insurance and taxes. Property taxes can be high depending on where you live. However, landlords can also deduct some of their operating costs from their taxable income each year, such as maintenance and repairs, insurance premiums, and mortgage interest.

Get an Estimate on Your Home's Value

One factor in deciding whether to sell your home or rent it out is the potential value you might get by selling. Our Home Value Estimator uses your property information and local housing market data to  deliver an accurate home value.

Get Estimate

“When deciding whether to sell your home or rent it out, start with what your goals are, what you would do with the proceeds if sold, and what you will do to manage the house if you rent, and then proceed accordingly,” suggests Kurzner.

While it’s always good to do your own research, you can also reach out to a well-regarded professional real estate agent to get their opinion on the local market factors, whether your house would make a good rental, and how much your home is worth.

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