Deciding whether to sell your home or turn it into a rental property is one of the most significant financial decisions a homeowner can face. Use the calculator below to compare the immediate gains of selling against the long-term potential of rental income.
Should You Sell or Rent Your Property?
When you move to a new home, the "accidental landlord" path often looks tempting. Why sell a great asset when you could have someone else pay off your mortgage? However, the math isn't always as simple as comparing your mortgage payment to the rent check.
The 1% Rule and Cash Flow
Real estate investors often look for the "1% Rule," which suggests that a property should rent for 1% of its purchase price. In today's high-value market, this is increasingly difficult to find. When calculating your potential rental, you must account for:
- Vacancy Rates: Your house won't be occupied 365 days a year. Budget at least 5-8% for turnover.
- Maintenance and CapEx: Roofs leak and HVAC systems fail. Setting aside 10% of gross rent for repairs is a standard safety net.
- Property Management: If you aren't managing it yourself, expect to pay 8-12% of monthly rent to a professional.
The Opportunity Cost of Equity
This is where most homeowners fail in their analysis. If you have $150,000 in equity sitting in a house, that is $150,000 that could be invested in the S&P 500 or other assets. If your rental only nets you $200 a month in cash flow, you are earning a meager return on that $150,000. Sometimes, taking the cash and "letting the money work" elsewhere is the superior financial move.
Tax Implications: The Section 121 Exclusion
One of the biggest arguments for selling is the IRS Section 121 exclusion. If the home has been your primary residence for 2 of the last 5 years, you can exclude up to $250,000 (single) or $500,000 (married) of capital gains from taxes. If you rent the house out for more than three years, you may lose this massive tax advantage, potentially costing you tens of thousands of dollars later.
How to Use This Calculator
To get an accurate picture, input your current market value and what you still owe. The "Monthly PITI" should include your Principal, Interest, Taxes, and Insurance. We compare the total wealth generated over 5 years—including appreciation and mortgage paydown—against the wealth you would generate if you sold the house today and invested the net proceeds into the stock market at your expected rate of return.