Pros and Cons of Renting Your Home Instead of Selling

Pros of renting out a house

Rising home prices have kept many would-be homebuyers on the sidelines, forcing them to continue renting or move in with family to help save money. In the third quarter of 2024, the U.S. homeownership rate dropped to 65.5%, the lowest in two years, according to the U.S. Census Bureau.

As Americans delay homeownership — the median age of a first-time homebuyer was 35 in 2023, compared to 29 in 1981 — the demand for single-family rentals is on the rise. Unless there’s a major correction in the housing market, the U.S. is expected to see an expanding pool of renters for years to come.

Many of today’s renters are looking for more space to raise their families, work from home, and enjoy the outdoors. If you own a detached single-family home, particularly one in a good school district, you could fetch a premium for your property if you choose to rent it out. Ahead, we’ll explore some of the other benefits of renting your home in lieu of selling.

Note: Before evaluating the pros and cons of renting your home, check with your mortgage and home insurance companies to find out if tenants are allowed. Contact your municipality and homeowner’s association (HOA) to see if regulations permit renting. 

Earn income and build equity

Renting out your house could be a money-making proposition if your property brings in more rent than your monthly mortgage payments, taxes, insurance, and other fees. Your home can generate a valuable revenue stream while allowing you to hang onto your asset longer so it can continue to appreciate and build equity.

While rent growth has slowed in recent months, it’s expected to pick up in 2025. RealPage forecasts that among the country’s top 50 rental markets, 50% will experience growth of 2% to 3%, 24% will see growth of 1% to 2%, and 18% will see growth of less than 1%.

Home value appreciation could be even more promising than rent growth. CoreLogic predicts home prices will climb 2.3% between August 2024 and August 2025. This expected rise in home prices points to a promising market for homeowners looking to increase their wealth through real estate.

Become a real estate investor

If you’ve ever contemplated becoming a real estate investor, then get started with your current home that you’re familiar with rather than buy an investment property at today’s high prices or a fixer-upper that needs work. Set aside the extra cash flow and additional equity for retirement or your next real estate transaction.

Keep your options open

Renting out your home gives you a fallback plan should you relocate for a job transfer or personal reasons. Your property will still be yours, so you won’t have to pay a higher price to return to your old neighborhood if things don’t work out in a new city.

Take advantage of rental property tax deductions

The IRS will want its share if your home generates rental income, but don’t overlook the tax breaks you’ll get as a landlord. Keep records documenting expenses just in case of an audit.

Consult a tax accountant to take full advantage of tax benefits and to see which apply to your situation. Deductions that can reduce your tax burden include mortgage interest on loans used to improve a rental property, fees paid for professional services, personal property for your rental such as appliances and furniture, or repair costs such as repainting or fixing plumbing issues.

Don’t overlook the cons of being a landlord

Being a landlord isn’t for everyone, so you should examine the pitfalls of tenants living in your home.

Foregoing cash for your new home purchase

Most people, when moving, need to sell their home to help them purchase their next one. You may need another source of cash for a down payment on your next home. Tying up capital might not make sense if you need to cash out the equity in your current home.

Handling tenant hassles

Dealing with tenants and their complaints may not fit into your busy schedule or comfort zone. If you don’t live nearby or prefer letting someone else handle the day-to-day issues, hire a property management company to take care of repairs and routine maintenance, screen applicants, collect rent, and even assist with evictions. Expect to pay 8% to 12% of the monthly rental value, but the cost may be worth the savings in time and aggravation. Search for property managers on websites like the Institute of Real Estate Management and the National Association of Residential Property Managers.

Even if you’re extremely thorough in your background check, you could run into difficult tenants. In the worst-case scenario, you might face a long and costly eviction process. Typically, this can run anywhere from $500 to $10,000, depending on factors like location, legal fees, and lost rent.

Be prepared for unexpected expenses

Although vacancy rates are relatively low, rentals do sit empty from time to time. You’ll need cash on hand to pay monthly costs (possibly including your mortgage on the house) while waiting for a new tenant to move in.

You’ll also need funds to fix malfunctioning appliances, leaky pipes, and other unexpected problems to maintain your home even though you don’t live there.

An uncertain future could cost you money

Although home prices might be going up today, the future is unknown, and your property value could decline if your neighborhood or the real estate market changes. So, you might have to rent your home for longer than you planned or sell for less than you could right now.

If you need the equity in your home for large unforeseen expenses, such as a huge hospital bill or major repair for your new home, it could take months to sell, or you might have to settle for a lower price if you require a fast sale.

Plus, selling a home with tenants further complicates matters. Tenant rights can cause legal and financial difficulties if violated. For example, in most states, you need to give tenants at least 24 to 48 hours notice before showing the property or letting in appraisers, inspectors, or repairmen. The tenant may have the right to remain in the home until the lease expires, so this could be a dealbreaker for prospective buyers who want to move in right away.

Crunch the numbers to compare profits or losses

Now that you’ve evaluated the pros and cons of renting out a house, it’s time to do some number-crunching to determine what’s best for your bank account.

Start with HomeLight’s Home Value Estimator

Begin with HomeLight’s Home Value Estimator to calculate your home’s worth. Enter your address and answer a few simple questions. We’ll pair your information with reliable housing market data to provide an initial estimate of your home’s current value.

Conduct a comparative market analysis

The next step is to conduct a comparative market analysis (CMA) to see how your home compares to other properties in your area. This analysis compares your house’s square footage, lot size, age, condition, number of bedrooms and bathrooms, location, renovations, upgrades, and other details to nearby recently sold properties.

While you can search websites like RealtyTrac to create your own CMA, reach out to a local real estate agent for a comprehensive analysis that provides the most accurate valuation. Many agents will provide you with a CMA for free in an effort to win your business, but others may charge a small flat fee.

Calculate net proceeds

Subtract your selling costs from your home’s worth based on the home value estimator and CMA. These include 3%–6% in agent commissions, prep and staging costs, and attorney fees. Don’t forget to deduct the amount you still owe on your mortgage.

If you can sell your house at a profit in a time frame that works for you and the drawbacks of becoming a landlord outweigh the benefits, then you might want to get your home ready to put on the market.

But if the numbers aren’t what you hoped for, perhaps it’s time to calculate the income potential and costs of renting out your house.

Set your rent price

As rent prices stabilize across much of the country, conducting thorough research is essential to determine an appropriate rent price. Check out comparable rentals to make sure your price is in line with the competition, or you won’t attract many potential tenants.

View nearby rentals on websites like RentCafe or Apartments.com, and review Zumper’s National Rent Report to stay up-to-date on market trends. You can also use HomeLight’s agent matching service to find a rental agent to help you market your property and set an accurate rent price. It’s 100% free to use, and it takes just a few minutes to get matched with up to three top-performing local agents who meet your needs.

Cover your costs

Make sure the rent covers your expenses, including the mortgage payment, property taxes, and insurance. Don’t overlook other possible costs for marketing, lawn care, property management, or fees if your neighborhood has an HOA. Reserve money for routine maintenance like servicing the HVAC system and unanticipated costly repairs such as a new roof. One rule of thumb suggests budgeting 1% of your home’s value for annual maintenance.

When crunching the numbers, remember to account for the tax deductions you can claim as a landlord.

Account for possible vacancies

In the third quarter of 2024, the national rental vacancy rate stood at 6.9%, according to the U.S. Census Bureau. The rate was still around the same rate as the second quarter of 2024 and the same period a year earlier (6.6%).

Vacancy rates vary throughout the country, so be sure to research vacancy rates in your area. Then, factor in expenses you’ll have to pay if your home has no tenants for any length of time.

If vacancy rates are particularly high where you live, you’ll want to focus on setting a competitive rent price, marketing your property effectively, and potentially offering flexible lease terms.

Can you make a profit?

To determine if renting out your house will be a profitable venture, take your annual rental income and subtract your expenses, as well as costs for repairs and possible vacancies. Don’t forget to factor in allowable tax deductions. Your house will continue appreciating so renting out your house might be a viable option if you break even or earn a profit.

Analyze the numbers along with the pros and cons

After compiling the numbers for both selling your home and renting it out, determine your profit from selling versus the time it will take to make that amount by renting. The National Association of Residential Property Managers’ Rent vs. Sell Calculator is a useful tool. Enter information about your mortgage, taxes, and potential rental rate to help make your decision.

Now that you’ve analyzed the numbers and considered the pros and cons of renting your home, you’ll be able to make the right choice for your situation.

If you can sell your home at a price that’s too good to pass up, HomeLight can put you in touch with a top agent in your area who can sell your property faster and for more money.

But if the time isn’t right to get the price you’re looking for or you’d like to earn rental income while your home appreciates, then holding on to your house as an investment property might be your preferred strategy.

Header Image Source: (Sarah Pflug / Burst)