Should I Sell or Rent my House Out? Key Factors to Help You Decide

A new job, a desire to relocate, or the opportunity to seize your dream home can create an agonizing decision: Should I sell my house or rent it out? If you decide to rent, you could get stuck with a property that becomes too expensive or time-consuming to manage. But selling can have its own downsides, in the form of forfeited equity or rental income. We spoke with two investors who have experienced both sides of the coin to help you navigate the pros and cons of selling your home vs renting it.

A tale of two owners

Renting regrets: bad renters turn investment sour

Greg Kurzner, a leading real estate investor in Atlanta, 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

TJ Sayers, a real estate investor in Birmingham, Alabama, owns a company that typically buys 50-60 properties per year, many of which they turn 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.

Selling your home or renting it out: How to navigate the dilemma

Our two agents each reached an opposite choice, yet each came to regret the decision. To help you understand the best course of action for you, we’ve sorted the most important factors in this dilemma into two camps: signs you should rent, and signs you should sell. You may check boxes in both categories, but seeing where you stand can help you make your decision.

Signs you should rent out your home

The housing market has remained strong throughout the last few years, including rentals. One report found that rental prices are expected to rise 7.1% in 2022, thanks to a combination of increased demand and limited supply. And that’s after a nationwide average increase of 14% in 2021!

In some cities, increases were even higher on a year-over-year basis, meaning the market conditions where you live are an important factor in this decision. Rents rose 33.5% in New York City,and 31.4% in Tampa, Florida in the course of 2021, for example, according to ApartmentList.

Even in a hot rental market, not every house is a prime candidate for a lucrative rental. Before veering into landlord territory, be sure to run your property through the “rental litmus test” to ensure that it makes financial and logistical sense to take on a tenant. Below are just some of the signs that it might be a good idea to rent your property.

1. Demand for rentals is high in your area

Monique Walker, a top real estate agent and investment property specialist in Phoenix, Arizona, has seen a spike in rental demand in her market, which has prompted more owners to list their properties on VRBO or Airbnb.

“Particularly in urban areas, in luxury areas, around colleges, and in up-and-coming neighborhoods, the rents have been really strong,” she says.

Rental demand can also spike in communities with booming job growth or new developments. After Amazon decided to establish its headquarters in Seattle in 2010, the median rental rate in the city skyrocketed 41.7% over the following seven years, compared to 17.6% nationally for the same time period.

To help gauge the rental demand in specific parts of the country, Apartment List publishes market-specific reports for dozens of the biggest U.S. cities, including San Francisco, Chicago, and Orlando.

2. You’ve always wanted to own rental property

Being a landlord isn’t for everyone, but if the idea of renting out and managing properties has always appealed to you, that passion could help increase your chances of success.

Being a landlord has lots of advantages. Renting properties can help you build wealth and save for retirement. But there are also some less tangible benefits, such as taking more time for vacations, learning new skills, and taking on exciting challenges. Some landlords may also find it rewarding to provide stable and secure housing to people who need it.

3. You have a personal attachment to the house

Maybe you’ve been forced to relocate due to a job transfer, family demands, or other circumstance, but you don’t want to permanently give up your property — and maybe have plans to return at some point down the line. Turning it into a rental can be a fiscally sound way to keep ownership until you’re ready to return.

4. Your house offers appealing amenities to renters

Even if it no longer meets your needs, your property could be someone else’s dream home. If it offers features that set it apart from other rentals and make it more appealing to renters, it may be in your best interests to maintain ownership.

According to Apartments.com, the most popular amenities renters look for include ample parking, outdoor spaces, and walkability.

In Walker’s experience, short-term renters are most focused on things like the number of bedrooms, availability of a swimming pool, and spectacular views of the surrounding areas.

For long-term renters, the items on their wish lists emulate what home buyers are looking for: proximity to work, a quality school district, a desirable lot and location. Newer or well-maintained fixtures, appliances, and flooring, are also of heightened importance to long-term renters.

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:

Let’s say your $250,000 home will rent for $2,500 per month, or $30,000 per year. If your mortgage payment is $1,250 per month and your property taxes and insurance total $400 per month, then you would have a cash flow of $850 per month (minus additional costs, such as vacancies and maintenance).

That may seem like a healthy profit, but is it worth the work of renting the property out versus selling it now?

Let’s say by renting the property, it would take you a little over seven years to make the $75,000 that you could likely get from selling it today. That seven-year wait may not make sense for your financial situation. Though keep in mind that you’ll also gain more equity over that seven years, increasing your overall profit from selling the home later.

“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. In SimplyWise’s 2021 survey of more than 1,000 American adults, one in 10 respondents said they are considering selling their home to free up liquid assets. Here are a few signs you should consider cashing out.

1. It’s a “seller’s market”

In a seller’s market, low housing inventory meets robust buyer demand. House hunters have limited supply to choose from, which means if you decide to sell, your home will receive a lot of attention, which can maximize your value.

To keep tabs on your local housing market, go to your local Realtor® association website and check for the most recent month’s market report. Check 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.

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 of 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

Sayers explains that you need to have enough liquid cash to maintain the property and pay property taxes and mortgage payments in the event of a vacancy. If you don’t, 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 you need cash for a down payment on your next home and you have a big chunk of equity in your current home, selling will likely help you reach your goals faster than renting.

According to CoreLogic, the average homeowner has seen their equity increase by 31.1% from Q3 2020 to Q3 2021. That earned equity translates into more profit for sellers.

However, you’ll also need to consider any necessary repairs and maintenance, as well as roughly 10% in commissions and closing costs. To determine whether it makes sense to sell, plug your numbers into HomeLight’s Net Proceeds Calculator to get your estimated profit.

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

5. The age of your property 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, ant colonies invade. But according to the National Association of Homebuilders, a property’s average annual maintenance costs skew higher for older homes. Property owners should expect to pay upward 6% of a home’s value per year in maintenance if the home was built before 1960.

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 the current 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: maintenance, repairs, finding new tenants, adhering to regulations, paying taxes, and more.

One option for landlords who wish to be more hands-off is to hire a property management company. They can find quality tenants and field 2 a.m. phone calls when the heater sputters out on a sub-zero night. But they cost an estimated 8%-12% of the monthly rental value, which will cut into your monthly profits.

And if you decide to handle the management on your own, which about half of landlords do, Kurzner warns that you could face some legal and operational risks.

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. It’s just not 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.

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 help give you an answer.

And 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.

“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 the value of your home.

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