Is it better to sell my home or rent it out when I move?

It depends on: cash flow as a landlord (does rent cover mortgage + all expenses?), your tax situation (do you qualify for the $250K/$500K primary residence exclusion?), and local appreciation potential. Low-rate mortgages with positive cash flow and gains over the exclusion limit favor renting. Deeply negative cash flow with exclusion available favors selling.

How does the $500,000 capital gains exclusion work?

Section 121 allows married couples to exclude up to $500,000 of capital gain from a primary residence sale ($250,000 for single filers) if you owned and lived there 2 of the last 5 years. Converting to rental risks losing the exclusion: after 3 years of full-time rental use, the exclusion is lost even if you later move back.

What is a realistic cap rate to expect on a rental?

For single-family residential rentals in most US markets, a 4-6% cap rate is typical. Below 4% means relying on appreciation. Above 6% indicates strong rental income relative to value. Cap rate does not include mortgage payments — your actual cash-on-cash return depends on your specific financing.

What is a 1031 exchange and can I use it on my home?

A 1031 exchange defers capital gains taxes by reinvesting proceeds from an investment property into another like-kind property. You cannot 1031 a primary residence directly. However, after converting your home to a rental and holding it 1-2 years, you may qualify. A qualified intermediary must hold the funds, replacement must be identified in 45 days, and closed in 180 days.

Rent vs Sell Your Home Calculator

Q: What are the hidden costs of being a landlord?

Key hidden costs: vacancy (3-8% of annual rent), property management (8-12%), maintenance (1-2% of home value/year), landlord insurance (15-25% more than homeowner insurance), and professional services. A professional estimate reduces gross rent by 35-50% to get realistic cash flow.

You're moving — should you sell your current home or rent it out? Compare net proceeds invested vs. rental cash flow, see a 5-year wealth projection for each path, and understand the critical tax implications including the capital gains exclusion and depreciation clock.

Sell vs Rent: Quick Comparison

Current Home Value

Remaining Mortgage Balance

Current Mortgage Rate

Years Remaining on Mortgage

yrs

Estimated Market Rent

Annual Property Tax

Annual Homeowner Insurance

Selling Cost

If You Sell: Net Proceeds

$143,000

After $280,000 payoff and $27,000 costs

Monthly Gross Cash Flow (Rent)

$42

Rent − Mortgage − Tax − Insurance − Maintenance

Monthly Mortgage (P&I)

$1,438

3.5% on $280,000 · 24yr remaining

Cap Rate

3.95%

Annual NOI ÷ Property Value

SELL Path

Net proceeds: $143,000

Invested at 7.0% for 5 years: $200,565

Clean exit, no landlord responsibilities, no concentration risk

RENT Path

Monthly cash flow: $42/mo

5-year total wealth: $178,655

Positive cash flow + appreciation potential

Advanced

5-Year Comparison, Landlord Costs & Market Timing

Full 5-year wealth projection at each path, realistic landlord cost breakdown, and appreciation vs selling timing analysis

Vacancy Rate

Property Management Fee

Maintenance (% of value/yr)

Annual Rent Growth

Annual Home Appreciation

Investment Return (if selling)

Sell Path: 5-Year Wealth

$200,565

$143,000 proceeds at 7.0% for 5 years

Rent Path: Cash Flow (5yr)

-$129,542

Cumulative net cash flow over 5 years

Rent Path: Property Equity (5yr)

$308,196

At 4.0% appreciation + amortization

Rent Path: Total Wealth (5yr)

$178,655

Cash flow + equity at end of year 5

Advantage

$21,910

Selling is better

Pro

Tax Analysis, Cash Flow vs Appreciation & 1031 Exchange

Capital gains exclusion, depreciation clock, negative cash flow math, and 1031 exchange chain strategy

Original Cost Basis

Years Lived in Home

yrs

Tax Filing Status

Marginal Income Tax Rate

The tax decision is one of the most important factors in sell vs rent. Timing matters.

Capital Gain

$150,000

$450,000 value − $300,000 basis

Primary Residence Exclusion

$500,000

Married — must live in home 2 of last 5 years

Taxable Capital Gain (if sell now)

$150,000 gain − $500,000 exclusion

Estimated Capital Gains Tax

At 15% long-term rate on $0 taxable gain

Annual Depreciation Deduction

$13,091

$360,000 / 27.5 years (if renting)

Annual Tax Saving from Depreciation

$3,142

At 24.0% tax rate

Warning: Exclusion Clock Is Ticking

You currently qualify for the $500,000 exclusion. If you convert to rental, the clock starts. After 3 years of renting, you lose the exclusion entirely — even if you move back. Selling now saves you $75,000 in potential capital gains tax.

Depreciation Recapture Risk

If you rent for 5 years and then sell, the IRS recaptures depreciation at 25%. 5 years of depreciation ($65,455) would trigger ~$16,364 in recapture tax. The annual depreciation tax saving ($3,142) must be weighed against this future recapture.

How to Use This Rent vs Sell Calculator

This calculator helps homeowners who are moving decide whether to sell their current home or keep it as a rental property. It is specifically about the decision you face when leaving a home — not the rent vs buy decision (which is a separate question for someone choosing housing). The key is comparing the wealth you build on each path over 5 years.

Quick Section: Core Comparison

Enter your current home value, remaining mortgage balance, current rate, and years remaining. Then enter your estimated market rent, property tax, and insurance. The calculator immediately shows your net proceeds if you sell (after payoff and selling costs), your monthly cash flow if you rent it out, your cap rate, and a side-by-side 5-year wealth projection for each path.

Advanced: 5-Year Projection, Landlord Costs, and Market Timing

Open the Advanced tier to enter vacancy rate, property management fee, maintenance percentage, rent growth rate, appreciation rate, and expected investment return on sale proceeds. The 5-Year Comparison tab projects total wealth at each path including cumulative cash flow and home equity for the rental path. The Landlord Costs tab shows a realistic annual income statement with all expenses itemized. The Market Timing tab provides guidance on when appreciation potential justifies a negative cash flow rental.

Pro: Tax Analysis, Cash Flow vs Appreciation, and 1031 Exchange

The Tax Analysis tab is critical — it shows whether your primary residence exclusion is available now, what happens to that exclusion if you rent first, annual depreciation deductions and their eventual recapture, and the estimated capital gains tax. The Cash Flow vs Appreciation tab illustrates when a negative cash flow rental beats a low-appreciation positive cash flow property. The 1031 Exchange tab walks through the strategy of converting your home to a rental and using a 1031 exchange to defer capital gains when you eventually sell.

Key Formulas

Net Sale Proceeds = Home Value − Mortgage Balance − (Home Value × Selling Cost %)

Monthly Gross Cash Flow = Effective Rent − Mortgage P&I − Tax − Insurance − Maintenance − Management

Effective Rent = Monthly Rent × (1 − Vacancy Rate)

Cap Rate = Annual NOI ÷ Property Value × 100

Annual NOI = (Gross Rent − Vacancy − Management − Maintenance − Tax − Insurance)

Annual Depreciation = (Home Value × 80%) ÷ 27.5 years

Taxable Capital Gain = Sale Price − Cost Basis − Primary Residence Exclusion

The primary residence capital gains exclusion is one of the most valuable tax benefits in real estate: $250,000 for single filers and $500,000 for married filing jointly, available when you have lived in the home for at least 2 of the last 5 years. Converting to a rental starts the 5-year clock — after 3 years of full-time rental use, the exclusion may be lost entirely even if you move back.

Example: David and Maria Decide in Phoenix

Scenario: $480,000 home, $270,000 mortgage at 3.25%, 22 years remaining, $2,900/mo estimated rent

Home Value	$480,000
Mortgage Balance	$270,000
Net Sale Proceeds (6% selling cost)	$181,200
Monthly Mortgage (P&I)	$1,387
Estimated Market Rent	$2,900
Monthly Gross Cash Flow	$847/mo (before mgmt, maintenance)
Monthly Cash Flow (full costs)	~$320/mo positive
Cap Rate	4.8%
5-Year Rent Path Wealth	~$385,000 (cash flow + equity at 4% appreciation)
5-Year Sell Path Wealth	~$253,000 ($181,200 at 7% investment return)

David and Maria have a 3.25% mortgage — well below current market rates. Their positive cash flow and significant built-in equity advantage from the low rate make renting clearly superior on a 5-year analysis. They choose to rent out the property and move on.

Frequently Asked Questions

There is no universal answer — it depends on three factors: (1) your cash flow as a landlord (does rent cover mortgage + all expenses?), (2) your tax situation (do you qualify for the $250K/$500K primary residence exclusion?), and (3) your local market appreciation potential. If you have a low-rate mortgage, positive or near-positive cash flow, and your gain is over the exclusion limit, renting is often superior. If cash flow is deeply negative and you qualify for the full exclusion, selling is usually better.

Section 121 of the tax code allows married couples filing jointly to exclude up to $500,000 of capital gain from selling a primary residence ($250,000 for single filers). You must have owned and used the home as your primary residence for at least 2 of the last 5 years. The key risk when converting to a rental: after 3 years of full-time rental use, the exclusion is lost even if you meet the 2-year ownership test. If you have a large gain, sell before converting.

Cap rate measures net operating income as a percentage of property value, independent of financing. For single-family residential rentals in most US markets, a 4-6% cap rate is typical. Below 4% typically means the property relies on appreciation to be a good investment. Above 6% usually indicates strong rental income relative to value. Note: cap rate does not include mortgage payments — your actual cash-on-cash return depends on your specific financing.

Many new landlords underestimate costs. Key hidden costs include: vacancy (3-8% of annual rent), property management (8-12% if you don't self-manage), maintenance and repairs (budget 1-2% of home value annually), landlord insurance (15-25% more than homeowner insurance), and professional services (accountant, attorney). Also budget for major capital expenses: HVAC replacement ($5-10K), roof ($8-20K), water heater ($1-3K). A typical professional estimate reduces gross rent by 35-50% to get realistic cash flow.

A 1031 exchange allows you to defer capital gains taxes by reinvesting proceeds from one investment property into another "like-kind" investment property. You cannot use a 1031 exchange on your primary residence. However, if you convert your home to a rental property (and use it as an investment), you may qualify for a 1031 after a seasoning period — generally at least 1-2 years of rental use. The replacement property must be identified within 45 days and closed within 180 days. A qualified intermediary must hold the funds throughout the exchange.