Should I Sell My House or Rent It Out?

They say the only constant is change, and that definitely applies to the world of real estate. There are many ways you could end up with two properties on your hands — maybe you’re buying a new family home and leaving an old one behind, maybe two households are combining, or perhaps you inherited a property. Whatever the reason, it’s important to decide what you’re going to do with the property you won’t be living in: Do you want to rent or sell your house? Read on for helpful tips on deciding what to do with your second home.  

Defining a second home

For the purposes of this article, we’re defining a second home as the one you don’t plan on living in (not necessarily the one you bought most recently).

Why rent out your second home?

1. The move is temporary: If you plan to return at some point in the future, renting out your home might be the way to go. Consider what’s called the breakeven horizon, which is a calculation that helps you decide whether it makes more sense to rent or buy, based on how long you plan to live somewhere.
2. Home values are increasing: If you can expect the value of the home to increase soon, leasing your home could help you take advantage of that appreciation before you sell.
3. You can’t afford to sell: If you’re underwater on the mortgage, it probably doesn’t make sense to sell. Turning your second home into a rental can buy you some time to gain equity.
4. There’s a strong rental market: In your area, if the rent you would earn can cover more than the cost of the mortgage (and ideally include property management fees), it might make smart financial sense to lease your home.
5. Property management is attainable: If you can afford the monthly property management fees (or have the time to manage the property on your own), renting can be a good choice. Don’t forget to factor in maintenance costs.
6. You would be on the hook for capital gains taxes: Depending on how long you’ve owned the home and how long you’ve personally occupied it, you may own capital gains taxes if you sell now. Renting can give you time to make a selling plan that minimizes tax implications.

Why sell a second home?

1. The move is permanent: If you’re relocating to a new city, it may make the most sense to sell the home. It can be challenging to manage a rental property from afar, especially if you don’t have plans to return to the area.
2. You have equity tied up in the home: Often, homeowners need to sell their existing home to afford the down payment on a new home.
3. It’s a hot sellers market: If homes in your market are selling quickly and for high prices, it may be the perfect time to complete a sale of a second home. Check out the best times to list in your area.
4. You’re not interested in being a landlord: Overseeing a rental property can be stressful and time consuming, and if the rent you’d be able to charge wouldn’t cover both your mortgage and property management costs, it might make sense to sell instead of becoming a DIY property manager.

What are the taxes due on a second home?

Property taxes: Of course, you’ll still be on the hook for any property taxes that are due while you’re the owner of a home, whether you’re living in it or renting it out.  

Tax implications on rental homes: Make sure to speak to your accountant about tax rules for renting or selling a second home before you make your decision. 

Capital gains taxes: Depending on how long you’ve lived in the house and other applicable factors, you may be subject to capital gains taxes.

Selling or renting your home if it needs repairs

When repairs matter: In general, the condition of the home matters less to potential renters than buyers. So, if the home could use some work, it might make more sense to rent the property than make all the upgrades necessary to sell.

Big-ticket items: Regardless of whether you rent or sell your home, you’ll want to address issues with your home’s major systems, like the roof, furnace, water heater, and electrical panel.