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Should You Sell or Rent Out Your Home – Nine Considerations for Homeowners

Written By Gary S. Williams, CFP®, CRPC®, AIF® April 23, 2019

You’ve decided to move. Your next thought might be: “Is it smarter to sell or rent out my home?” Owning a rental property can prove to be a savvy financial move. Who doesn’t want a steady source of income while building equity in an appreciating property?!

But before you decide you want to be a landlord, here are some questions to ask yourself:

1. Do you need the equity for a down payment or to pay for the new home?

If so, your decision is easy: sell. In other words, if you don’t have resources outside of the home equity to purchase the new home, you may not have the option to convert it to a rental property. While a home equity loan or line-of-credit may be an option, you need to consider your overall debt levels.

2. Do you have a positive cash flow?

While rental income may sound great, it’s easy to forget there’s no guarantee that you’ll receive it every month. You’ll need other income sources, or a cash reserve, to cover costs during vacant months, or if the tenant pays late — or not at all, and you have to initiate eviction proceedings.

3. Is there a strong demand for rentals in the area?

At a minimum, you’ll need to charge enough rent to pay your monthly expenses. If demand is strong, you’ll stand a better chance of keeping your home consistently rented. Check with local rental professionals or a website like to research the current rental market.

4. How will you manage the property?

If you’re relocating out of the area, you may need assistance with managing the property. Your options range from hiring a service provider on an as-needed basis to paying a percentage of the rental revenues with a property manager. If you plan on self-managing, consider the stress, time and resources required. For example, if the tenant leaves the home in disarray, are you prepared to serve as the general contractor?

5. Is future appreciation likely?

No one has a crystal ball, but home prices usually go through distinct cycles. Is your home in an area with depressed prices, or are prices at all-time highs? If the prices are low, that may be an argument for renting it out until prices recover.

6. Are you prepared to take on the liability?

As a landlord, you also have additional potential liability to be concerned with. For example, if someone gets hurt in your rental, you may be held liable. To limit your financial exposure, you’ll want to switch from a regular homeowner’s policy to a landlord policy and likely increase your umbrella policy. You’ll also need to learn and abide by the Fair Housing Rules and all state/local regulations. Contact your property and casualty agent and attorney for guidance.

7. How will this impact your income tax situation?

With changing tax laws, you need to find out how the rental income, and offsetting expenses and depreciation, will impact your bottom line. Check with your accountant.

8. Will you lose your ability to sell the home without paying taxes?

If your home has appreciated in value, the Home Sale Tax Exclusion can allow you to avoid capital gains. However, to maintain the exemption, you’ll need to limit how long you rent it out, or you may need to return to live in it for a period of time to re-qualify.

9. Can the sale proceeds help with retirement savings and diversification?

Per a recent CNBC article, most Americans haven’t saved enough for retirement. If you own other real estate, reinvesting the equity into a diversified portfolio may help you balance your investments.

As you can see, this is a big decision that has many points to consider. A financial planner can help you understand the pros and cons based on your unique situation so you can make an informed decision.

Let the CERTIFIED FINANCIAL PLANNER™ professionals at Williams Asset Management help with your wealth management needs. Whether you need comprehensive and holistic financial planning or investment management, we can help!  We are fee-based, independent financial advisors located in Columbia, the heart of Howard County, Maryland.  Schedule your complimentary consultation today by calling (410) 740-0220!

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