Sell or Rent Out Your Home? How to Decide


Whatever your reason may be for wanting to relocate, selling is typically on the agenda. However, you might not necessarily have to give up title to the property in favor of another home. While selling is certainly a popular and viable option, you may also want to consider the possibility of retaining ownership of the home and renting it out instead.

Of course, such a decision is a big one and should be done only after careful consideration of your financial situation and your willingness to become a landlord.

Here are some considerations to make.

Can You Afford to Keep the Home?

Of course, the first consideration you need to make is whether or not your finances can support carrying two homes, even if the one you’re moving out of will be collecting rent to pay the mortgage and other costs associated with home ownership.

Perhaps you won’t even need to carry a mortgage on the initial property if you’ve managed to build up enough equity to pay off whatever outstanding balance remained on the mortgage. If not, you’ll need to have a detailed chat with you mortgage specialist to see if holding two mortgages is even possible.

What Kind of Rent Can You Expect?

If you can afford to keep two homes, the next thing you should consider is whether or not the home will make a sound investment. Identify what the conditions of the local market are where the home is located. Will it be easy to rent out? If so, how much can you expect to rent it out for? Your real estate professional will be able to access a list of comparable properties in the area and the price that they have been rented for over the past six months to help you come up with this number.

Will that monthly rental cover all your expenses, including the mortgage, property taxes, insurance, HOA fees, and utilities? Will you be making a profit, break even, or be in the red each month? Make sure it’s a sound investment before you decide to keep the place rather than let it go.

If your expenses will be adequately covered, keeping the home can be a great way to build your retirement fund. You likely won’t have to pay any taxes on the rental income if there are enough expenses associated with the investment property to offset it. Of course, you’d need to discuss this with an accountant to get the details on your specific situation.

How Much Will the Property Potentially Appreciate?

Take a look at the current market condition in the area and try to estimate where property values will go over the next few years. If you bought the house for a low price and the values in the area are steadily increasing, it might make sense to hold on to the property. Analyze comparable properties in the area to determine what the long-term value of homes in the neighborhood will look like in the near future.

Identify any trends in value, and whether they’re rising or declining. You obviously don’t have a crystal ball that will tell you exactly what will happen in the future, but making an educated analysis of the property values in the area with the help of a real estate professional can help you weigh the odds of which way the market is expected to go. 

What About Tax Deductions?

Rental income can be depreciated for tax purposes. A simplified calculation to help you determine what your tax breaks would be is to divide the purchase price of the home and the cost of major improvements made to the property (not including land value) by 27.5 years, which is considered the “recovery period” according to the General Depreciation System (GDS). This will give you a rough idea of what your annual depreciation would be.

If you bought the home for $300,000, for instance, and the land that it sits on is worth $50,000, you can deduct $9,090 in depreciation every year [($300,000 – $50,000) ÷ 27.5). Other expenses associated with holding the property may also be deducted, including property taxes, HOA fees, and repairs, as well as costs associated with operating the rental property, like property management fees.

Is There a Chance That You’ll Be Moving Back?

Perhaps you’re going on an assignment for work that’s taking you elsewhere for a few years. But after that, it’s up to you whether to stick around or go back to where you were before. Whatever the case may be, determine whether or not your move is a permanent one, or if there is a possibility that you may relocate back to the area. If there’s a chance that you’ll be moving back, it might make more economical sense to rent out your home and reclaim it when you return considering the costs associated with selling.

Are You Up For the Challenge of Being a Landlord?

In a perfect world, being a landlord would involve nothing more than finding a tenant and collecting rent checks each month. Unfortunately, there’s a lot more involved with operating an investment property. Some tenants may be tough ones to deal with, and may cause damage to your property or be a nuisance to neighbors. Perhaps they won’t pay you on time or miss a rent check completely.

Repairs will need to be made on the property from time to time, and regular maintenance will be required. At the end of the day, managing an investment property takes time and effort. If you’re not up for the task (especially if you’ll be living out of town), you might want to consider a property management company to take care of the business for you. However, these services come at a cost. Run the numbers to ensure that paying these firms won’t eat up too much of your profits.

The Bottom Line

There is certainly an opportunity to include an investment property in your financial portfolio when it comes time to relocate if you can swing oy. But it’s a huge decision that could should only be made with careful consideration and with the advice and guidance of your real estate agent and financial advisor.