When you’re ready to move out of your home, you have two main options: sell your house or rent it out. Both will likely earn you money – one in the short-term, the other in the long-term.
While many are intrigued by the idea of earning passive income by renting out a house, being a landlord comes with a number of costs and responsibilities that are easy to overlook. But if you’re willing to put in the money and effort, you can collect additional income for many years.
Selling your home is a faster way of cashing in on your equity, allowing you to use your proceeds for a down payment right away. But you might be missing out on a profitable long-term investment – especially if the rental market is hot in your area.
Before you decide, understand the realities of both selling and renting out a house. And remember – it ultimately comes down to what’s best for you and your lifestyle.
Want an expert opinion? A local real estate agent is a great resource to help you understand how much your home is worth, what the local rental market is like, and whether now is a good time to sell.
Our friends at Clever Real Estate can quickly connect you with top local agents so you can start inquiring about your options. And if you decide you do want to sell, a Clever partner agent will list your home for just 1.5% – significantly lower than the standard 3% commission.
Should I Sell or Rent My House?
|When to Sell Your House
|When to Rent Your House
|You need cash for a new home
|You plan to move back someday
|You don’t want to be a landlord
|Rental demand is high in your area
|You don’t have enough cash for upkeep
|You want passive income
|Your home doesn’t make a good rental
|Home values are expected to increase
You May Want to Sell Your Home If…
You Need Cash for a New Home
If you plan to purchase a new house, you may need to sell your home to raise the money for a down payment. Depending on the type of mortgage you choose, your lender may require a down payment of up to 20% of the purchase price. If you don’t already have a down payment saved up but need to buy a new house, selling your home might be the best option.
You Have No Desire To Be a Landlord
Being a landlord takes time and patience. Even if you hire a property manager to handle the bulk of the responsibilities, you’ll still have your fair share of headaches along the way.
There are also legal and operational risks, and it may be necessary to hire an accountant, tax preparer, or other professional. If you aren’t comfortable with the realities of being a landlord, it might be better to sell your house.
You Don’t Have Enough Cash to Cover Carrying Costs
Retaining a home as a rental property instead of selling it means you need enough cash on hand to pay for your new home and your rental. Rental income may cover your mortgage payment, but don’t forget about the other regular costs that keep your rental up and running.
This includes taxes, insurance, unexpected maintenance costs, and other expenses that will come out of your pocket as a landlord. Consider selling if you don’t have extra cash on hand to cover ongoing repairs, maintenance, and carrying costs.
The Home Isn’t a Good Rental
Some houses just aren’t well-suited to the rental market. If your home is in poor condition or in a bad location, it may be difficult to find tenants willing to pay market value — or the market value may be low. This is especially true if the home is likely to attract vandalism, bad tenants, or other issues that will make it difficult to lease. In these cases, it may make more sense to sell the house and invest the proceeds elsewhere.
|💸 Earn More When You Sell 💸
If you decide it’s better to sell your home, don’t miss out on opportunities to earn more from your sale.
Our friends at Clever Real Estate pre-negotiate low 1.5% commissions with agents in your area, so you can skip the traditional 3% listing fee. Sellers who list with a Clever agent save an average of $7,000!
You May Want to Rent Your House If…
You’re Only Making a Temporary Move
If you’re moving away but plan to come back and don’t want the hassle of buying and selling a house multiple times, consider renting it out instead. Just be sure you understand the risks and responsibilities of being a landlord before making this decision.
Demand is High for Local Rentals
If demand for local rentals is high, renting your house might be a no-brainer. If you’re able to charge rent that covers your mortgage payment, your carrying costs and turns you a sizable profit, renting will be to your advantage.
On the flip side, if demand for rentals is too low, you may have higher vacancy rates or insufficient monthly income.
Research online to gauge demand for rentals in your area. If there are more renters than houses available, it may make sense to rent out your home rather than sell it.
You Want Rental Income
Passive income can be a great way to make money, whether you’re using it to cover your cost of living, investing it, or rolling it into other investment properties. If you plan to keep the home long-term and you want to generate income that will cover mortgage payments, renting makes sense. This is especially true if you have good tenants who pay on time and take care of the property.
Keep in mind, though, that renting a property can result in damages that ultimately reduce the property’s value and require costly repairs.
What’s more, lenders often only look at up to 75% of rental income as part of your overall income — and the additional income may still not be enough to cover two mortgage payments. So depending on your needs, passive income generated by your rental may not meet the mark.
Home Values Are Expected To Increase
If you’re thinking of selling in the next few years, you may want to hold off if home values are expected to increase in your area. This is especially true if you don’t have much equity built up and would have to pay a significant amount in commissions.
Of course, you never know exactly what’s going to happen with the housing market. But, if your real estate agent expects home values to rise, it may be worth renting the property until that time.
Our friends at Clever offer a free online home value estimator, so you can check out how much your home is worth. Then you can connect with a Clever agent who can help you sell for top dollar when it’s the right time to sell!
💰 How Much Is Your Home Worth?
Before listing your home, find out how it compares to others in your local market.
How Much Can I Rent My House For?
How much you can rent a house for depends on the location, amenities, and condition of the property.
To get an idea of how much rent you could charge, look at comparable properties — or comps — in the area or consult with a real estate agent. When evaluating comps, look at factors like location, square footage, and number of bedrooms and bathrooms.
You can also use an online rent estimator like the Zillow Rental Manager tool. Just enter in your address and some information about the property, and it will give you a possible rent range.
Pricing is important because a successful rental requires getting the property leased out quickly and avoiding vacancies. Your rates should be competitive but earn enough each month to cover carrying costs.
If you find that the rental estimate for your property is too low to cover your costs, it may be better to sell.
Costs of Selling vs. Renting a House
Costs of Selling a House
Even though selling your home can result in a profit, there are a number of out-of-pocket costs you’ll encounter along the way. Most sellers can expect the following costs:
- Home Improvements: Before selling your house, you may need to make some repairs or updates to get top dollar. Depending on the extent of work needed, this could cost a few hundred dollars or even a few thousand.
- Agent Commissions: Real estate agent commissions can cost up to 6% of the final sales price. On a $400,000 home, you could end up paying close to $24,000 in commissions.
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- Staging: If you want to stage your house to help it sell faster, the typical cost ranges from $749 – $2,823. Cost depends on your home’s size, location, and whether or not you need to rent furniture and decor.
- Utilities: You’ll have to continue paying utilities (electricity, water, trash, etc.) while the house is on the market. Depending on the season and size of your house, these costs can add up quickly — especially if you’re already making payments on a new home.
- Mortgage Payoff: If you have a mortgage on the property, you’ll need to pay it off in full when the house is sold.
- Closing Costs: Closing costs associated with selling a house are typically paid by the seller, and may include things like title insurance, escrow fees, and loan origination charges. Closing costs can range from 1-2% of the final sales price, excluding commissions. On a $400,000 sale, you could be looking at $4,000-$8,000 in additional costs.
- Taxes: You may have to pay taxes on proceeds from the sale of your house. That said, you may qualify for a capital gain exclusion of $250,000 for individuals and $500,000 for married couples. Consult with a tax professional to determine how much you’ll be taxed if you sell your home.
Costs of Renting Out a House
A home’s rental price should be high enough to cover all of the monthly carrying costs and, ideally, turn a profit. However, operating costs for rentals can be high. Expect the following expenses:
- Mortgage Payments: If you have a mortgage on the property, you’ll need to continue making monthly payments.
- Property Taxes: You’ll still be responsible for paying property taxes on a rental property.
- HOA Fees and Utilities: If your house is part of a homeowners association (HOA), you’ll need to continue paying HOA dues while it’s being rented out. These typically range from $50-$200 per year. In some cases, landlords also pay for utilities, such as water and trash.
- Ongoing Maintenance and Repairs: As a landlord, you are responsible for maintaining the property and making necessary repairs. This may include things like fixing a broken window or repairing a leaky faucet, but can be a significant expense — especially if you own multiple properties.
- Homeowners and Landlord Liability Insurance: Landlord liability insurance is a special type of policy that protects you in the event a tenant is injured while on the premises or if they damage the property. You may also need to purchase additional homeowners insurance to cover the risks associated with renting out the home.
- Property Management Fees: Hiring a professional property manager isn’t always necessary, but it may be worth considering if you don’t live near the property or don’t have the time to deal with day-to-day management issues. Property managers typically charge 8-10% of the monthly rent, resulting in an $80-$100 monthly fee on a $1,000/month rental.
- Marketing to Tenants: If you don’t work with a property management company, you may encounter costs associated with marketing the rental property to potential tenants. This could include things like advertising on rental websites, placing signs in the yard, or distributing flyers in the neighborhood.
- Accounting and Legal Fees: Some property management companies take care of accounting and legal work associated with being a landlord. However, this is not always the case, and you may need to pay an accountant or attorney.
- Vacancies: Even if you do everything right, there’s always a chance your rental property will sit vacant for a period of time. It’s important to have a cushion in your budget to cover the mortgage payments during these periods.
If you can’t break even by renting your home (or you’re just not ready to take on the hassle), sell with an experienced agent who can get you top dollar for your home and save you tons on commission. Our partners at Clever Real Estate can connect you with local agents who charge a low 1.5% listing fee.
Rent vs Sell Calculator
Wondering whether it makes more sense to rent or sell your house? The National Association of Rental Property Managers has this handy calculator that estimates how much money you’ll make over the next 5 years if you rent your home.
Then use a home sale proceeds calculator like this one on Zillow to learn how much you’d make by selling your home now.
In most cases, you’re choosing between two outcomes: a steady stream of passive income over time, or a larger sum of sale proceeds on hand right away.
💰 How Much Is Your Home Worth?
Before listing your home, find out how it compares to others in your local market.
FAQs About Renting vs Selling
Can you rent out a condo?
In most cases, you can rent out a condo. But you’ll want to check with your homeowner’s association (HOA) first. It isn’t uncommon for HOAs to place restrictions on short-term and long-term rentals. If you’re planning to buy a condo as a rental property, read the HOA covenants carefully. Learn more about what to expect as a landlord.
Can I rent out a house I just bought?
If you bought a house with cash, yes. If you have a mortgage, you will need to contact your lender. If your home is part of a homeowner’s association (HOA), be sure to look into your covenants first to stay compliant. It isn’t uncommon for HOAs to limit rentals in some form or another. Learn more about renting out your house.