Should I Sell My House or Rent It Out?

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. 

If you’re feeling torn, you’re in good company. A recent Zillow analysis found that the share of “accidental landlords” — homeowners who tried to sell but ended up renting the place out instead — is at a near-record high, with 2.3% of rental listings on Zillow falling into this group.

Whatever the reason, it’s important to decide what you’re going to do with the place you won’t be living in: Do you want to rent or sell it? Read on for helpful tips.  

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?

Keep in mind that there are tax considerations when you rent out a home. Be sure to consult a tax expert about your particular situation before you make any final decisions. Check out this article on understanding capital gains on the sale of a second home for a primer.

Let’s look at a few scenarios for which you might consider renting:

• 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. 
• 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.
• You can’t afford to sell: If you’re underwater on the mortgage, it might not make sense to sell. Turning your second home into a rental can buy you some time to gain equity.
• 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 financial sense to lease your home.
• 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.
• 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 owe capital gains taxes if you sell now. Renting can give you time to make a selling plan that minimizes tax implications.

Will rent cover the cost of ownership?

If the rent you can expect to collect doesn’t cover the costs of keeping the home, you may want to consider selling. The equation is straightforward:

Rent - mortgage + property tax + insurance + maintenance + vacancy + management.

Tip: To get an idea of how much rent you could expect, use Zillow’s Rent Estimate Calculator.

Why sell a second home?

Keep in mind that there are also tax considerations when you sell a home. It makes sense to consult a tax expert about your particular situation before you make any final decisions on selling as well. Check out this article on understanding capital gains on the sale of a second home for a primer. 

Let’s look at a few scenarios for which you might consider selling:

• The move is permanent: If you’re relocating somewhere far away, it may make more sense to sell the home. Managing a rental property from a distance can be a challenge, especially if you don’t have plans to return to the area.
• 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.
• It’s a hot sellers market: If homes in your market are selling quickly and for high prices, it may be a great time to sell your second home. Check out the best times to list in your area. Consider discussing the market with an agent in your area. 
• 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.

Selling or renting your home if it needs repairs

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.