Sell your home vs. rent it out: The decision is complicated

[Pelican Press 0]

Sell your home vs. rent it out: The decision is complicated

A ‘For Rent’ sign is posted near a home on February 07, 2022 in Houston, Texas.

Brandon Bell | Getty Images

Many Americans are sitting on low-interest-rate mortgages and could face a decision when it’s time to move: sell or rent out their existing property. That choice could be tricky, especially for those eager to buy another home.  

Roughly 6 in 10 existing fixed-rate U.S. mortgage holders had an

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during the fourth quarter of 2023, according to the latest figures from the Federal Housing Finance Agency. By comparison, the average 30-year fixed-rate mortgage was around 7% in May.

However, renting out your old home while buying another “gets very, very complicated, which is why most people don’t do it,” said Keith Gumbinger, vice president of mortgage website

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Homeownership has become increasingly unaffordable amid higher interest rates and soaring home values. That makes qualifying for a second mortgage *******, especially without tapping equity from your original property, Gumbinger said.

The typical down payment for first-time homebuyers was 8% in 2023, compared to

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, based on transactions from July 2022 to June 2023, according to a survey from the National Association of Realtors.

Plus, if you’re using rental income to qualify for the second mortgage, lenders typically only consider 75% of your proceeds, Gumbinger said.

Renting out your home isn’t ‘easy money’

You also need to consider whether you have the time or ******* to manage a rental property, said certified financial planner Kashif Ahmed, president of ********* Private Wealth in Bedford, Massachusetts.

“Be careful about wanting to be a landlord,” he said. “It’s not the panacea you think it is.”

Be careful about wanting to be a landlord. It’s not the panacea you think it is.

Kashif Ahmed

President of ********* Private Wealth

Ahmed, who owns rental property in Austin, Texas warned that some first-time landlords don’t consider the costs of ongoing maintenance, lower rents or vacancies, among other expenses.

Plus, you’ll typically pay about 25% more for

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compared to your standard homeowners policy, according to the Insurance Information Institute.

“It’s not easy money,” after factoring in the stress and added costs, Ahmed added.

The capital gains tax break is a ‘huge factor’

If your original home has significant equity, you’ll also need to consider the

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Married couples filing together can earn up to $500,000 on the ***** without owing capital gains taxes and single filers can make $250,000.

But there are

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to qualify.

Renting your home starts the clock for the “residence test,” which says the home must be your primary residence for 24 months of the five years before the *****. The 24 months don’t need to be consecutive.

“It’s a huge factor,” said CFP David Flores Wilson, managing partner of Sincerus Advisory in New York. “Those numbers go into projections.”

Of course, the choice to sell your first home or rent it out ultimately hinges on your financial plan, and cash flow changes can affect retirement and other goals, he said.

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