Should I sell my house or rent it out? When you’re moving up, keeping the old place as a rental can sound like free money. Sometimes it is a smart move. Often it isn’t. Keeping a rental is a little like taking a second part-time job: worth it if you want the job, exhausting if you don’t. Answer these four questions first.
1. Do you need the equity for your next down payment?
If your next purchase depends on the money tied up in your current home, selling may be your only real option. A bridge loan or home equity line can help in between, but both are debt. I cover the timing options in How to Sell and Buy a Home at the Same Time in NC.
2. Can you qualify for both mortgages?
Keeping the old home means carrying its mortgage while you take on a new one. Lenders usually count only part of the expected rent toward your income, and they may want a lease or other proof. Ask your lender to run both payments before you decide.
3. Do you really want to be a landlord?
Repairs, tenant calls, empty months between tenants and turnover costs all come with the territory. In North Carolina, landlords must keep a rental fit and habitable under the Residential Rental Agreements Act. A property manager can take that work off your plate, but their fee comes out of the rent. If you’d rather look at it as an investor, start with my investor’s guide to buying a rental property in Cary.
4. What happens to your tax break?
If you’ve owned and lived in the home as your main home for at least two of the five years before you sell, you may be able to exclude up to $250,000 of gain, or up to $500,000 if you’re married filing jointly (IRS Topic 701). Rent it out too long and you can lose that window. Depreciation you take as a landlord can also be taxed when you sell. Talk to a CPA about your situation before you sign a lease.
Should I sell my house or rent it out? A simple way to compare
Put the two options side by side on one page. Under “sell,” write your expected net proceeds after selling costs and what that money does for your next purchase. Under “rent,” write the expected rent, minus the mortgage, taxes, insurance, repairs, vacancy and any management fee. If the rent column is thin, or depends on everything going right, that’s your answer. If it’s strong and you want the job, keeping it may make sense. If you’re weighing a sale later in life, I cover that in should you sell your house and rent in retirement.
The market piece: sell your house or rent it out?
Homes in the Raleigh-Cary metro took a median 59 days to sell in September (Realtor.com via FRED). If you sell, price it right from day one; my post on pricing your home to sell explains how.
Sell your house or rent it out? Know your number first
I’ve seen both answers to “should I sell my house or rent it out?” work. The mistake is deciding on a hunch. Start with a free broker’s opinion of value based on actual recent sales, then email me to book a free 15-minute strategy call to compare your options.
General information, not tax, legal or lending advice. A broker’s opinion of value is not an appraisal.
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Mike Hall, The Triangle Real Estate Professor, is a broker with First Flight Realty in Cary, NC, and an NCREC-approved real estate instructor.
