Run the numbers first
Before deciding, list what the home would earn and what it would cost to keep.
- Expected monthly rent, based on similar rentals nearby
- Mortgage principal and interest
- Property taxes and insurance, including a landlord policy
- Repairs and maintenance
- Vacancy, the months between tenants
- Property management, if you won't manage it yourself
- HOA dues, if they apply
A rental math example
Hypothetical example. Say the home rents for $2,600 a month. Your mortgage, taxes and insurance take most of that rent. Set aside money for repairs and vacancy and for a property manager, and see what’s left before income taxes.
That margin can disappear with one surprise repair or a few empty months. Make sure you're comfortable with the numbers in a bad month, not just an average one.
The tax questions
If you sell a home you've lived in, you may be able to exclude some or all of the gain from income tax, as long as you owned it and lived in it for at least two of the five years before the sale. Renting it out for long enough can cost you that exclusion.
Rental income, depreciation and expenses also have their own tax rules. A tax professional can show you how each option would affect you.
Insurance and your mortgage
A standard homeowners policy usually isn't designed for a rental. You'll likely need a landlord or dwelling policy, and your tenants should carry renters insurance for their own things. Review your policy and talk with your agent before you move out.
Your mortgage may also have occupancy terms that require you to live in the home for a period after closing. Review your loan documents, and ask your servicer if you're unsure.
Being a landlord
- Do I want to screen tenants and handle repairs?
- Can I cover the mortgage if the home is empty for a few months?
- Will I hire a property manager, and does the math still work?
- Do I know the local landlord and tenant rules?
- How does keeping this home affect buying my next one?
When selling makes more sense
Selling frees your equity, which can go toward a down payment, savings or paying off debt. It also removes the risk and work of a rental. If your next purchase depends on that equity, or the rental math is thin, selling is often the simpler choice. Your agent can estimate what your home might sell for, and you can compare that with the rental numbers side by side.
