A new job, a desire to live somewhere else, or the opportunity to seize your dream home can create an agonizing decision: Should I sell my house or rent it out? If you go the rental route, you could get stuck with a property that becomes too expensive or time-consuming to manage. But selling too soon can be just as risky, causing you to forfeit sizable equity in a fast-appreciating property. Take it from two investors who have experienced both sides of the coin:

Bad renters turn investment sour

Greg Kurzner, a leading real estate investor in Atlanta, bought and renovated a home in Stone Mountain, Georgia a few years ago. Several agents asked if he was interested in selling, but he decided to rent it out.

He had trouble attracting tenants with decent credit and rental histories, so after the house sat empty for a few months, he relaxed his criteria and got a tenant. Everything seemed OK for three months, and then the problems started: late rent, excuses, and finally, a drawn-out eviction.

When Kurzner got possession of the house, he found that all of the brand-new fixtures and hard work he had put into it was ruined.

“I let my hope override my common sense and made a costly decision to rent a home to an unqualified tenant rather than have a vacant house and no rent,” he says. Kurzner eventually sold the property, but not until he had spent another $12,000 in repairs to fix what his tenant had damaged.

A missed $185k opportunity

TJ Sayers, a real estate investor in Birmingham, Alabama, owns a company that typically buys 50-60 properties per year, many of which become rentals. To this day, he still regrets selling a property that was his old personal residence.

He bought the house in 2010 for $105,000 and lived there until 2017, when he sold it for $185,000. At the time, he owed around $80,000. After commissions and closing costs, he profited about about $85,000. Today, the property would sell for $225,000, and Sayers could have rented it for $1,250 per month for the last three years.

“If I had used all of the rent to pay down the mortgage, I would only owe around $40,000 today, so I would have $185,000 in equity (minus commissions and closing costs) if I still owned the property,” he says.

List vs. lease: How to navigate the dilemma

To help you avoid a regrettable decision, we took the biggest factors investor property specialists advise factoring into your “lease versus list” dilemma. We sorted them into two camps: signs you should rent, and signs you should sell. You may check boxes in both categories, but if you’re lucky one will outweigh the other and you’ll gain clarity on next steps.

Signs you should rent out your home

2020 hasn’t done many favors for the economy as a whole, but the housing market has remained surprisingly strong through it all — and that includes rentals. Although many landlords have felt the brunt of missed rent payments and eviction moratoriums, rent price growth has been strong in many cities. One survey found that nearly 66% of landlords, investors, and property managers are optimistic about the state of the rental market as we head into the new year.

According to Apartment List’s National Rent Report of 2021, the mid-size cities of Boise, ID (9.7%); Chesapeake, VA (8.8%), and Fresno, CA (7.9%) have seen some of the highest growth in rental prices.

Monique Walker, a top real estate agent and investment property specialist in Phoenix, Arizona, has seen a spike in rental demand in her market, which has prompted more owners to list their properties on VRBO or Airbnb.

“It’s a business venture that’s growing in popularity, and many property owners are seeing a lot of success,” she says.

“Particularly in urban areas, in luxury areas, around colleges, and in up-and-coming neighborhoods, the rents have been really strong.”

Rental demand can also spike in communities with booming job growth or new developments. After Amazon decided to set up its headquarters in Seattle in 2010, the median rental rate in the city skyrocketed 41.7% over the following seven years. For a sense of how that compares to other cities, the national median rental rate increase over that same timeframe was just 17.6%.

To help gauge the rental demand in specific parts of the country, Apartment List publishes market-specific reports for dozens of the biggest U.S. cities, including San Francisco, Chicago, and Orlando. And Apartment Guide’s October 2020 Rent Report details the state of the rental market, including rent trends and price fluctuations across the country.

You’ve always wanted to own rental property.

Being a landlord isn’t for everyone, as it comes with its fair share of hassles and obligations. That said, if the idea of renting out and managing properties has always appealed to you, the personal interest and passion could help increase your chances of success. As with any endeavor, there’s a big difference between being forced into it and choosing it willingly.

Jimmy Moncrief, a multi-family real estate investor and bank credit officer, wrote a blog post about why he loves being a landlord. In addition to helping him build wealth and save for retirement, rental investments have also enabled him to involve his family in his day-to-day work, afford to take more family vacations, tackle challenges that ultimately deliver more skills and knowledge, and do the rewarding work of keeping properties up and running for the tenants who need them.

You have a personal attachment to the house.

Maybe you’ve been forced to relocate due to a job transfer, family demands, or some other uncontrollable circumstance, but don’t want to permanently give up your property. Particularly if the house has unique characteristics that are hard to come by — like a stunning view, a storied history, a one-of-a-kind layout, or just a personal appeal that can’t be easily found elsewhere — turning it into a rental could be a fiscally sound way to keep ownership until you’re ready to return.

Your house offers appealing amenities to renters.

Even if it no longer meets your needs, your property could be someone else’s dream home. If it offers features that set it apart from other rentals and make it more appealing to renters, it may be in your best interests to maintain ownership. Close proximity to a park, a finished basement with a walk-out, or a peaceful and private backyard could all be enticing characteristics that attract tenants.

ApartmentGuide dug into what renters really want in a 2018 survey. Topping the list are the two obvious factors: location and price. But once those are checked off, renters are also hunting for a place that’s pet-friendly (19%), accessible for seniors or people with disabilities (18%), or is good for families (13%).

In Walker’s experience, short-term renters are most focused on things like the number of bedrooms, availability of a swimming pool, and spectacular views of the surrounding areas. For long-term renters, the items on their wish lists emulate what home buyers are looking for: proximity to work, a quality school district, a desirable lot and location. Newer or well-maintained fixtures, appliances, flooring, and other core components of the home are also of heightened importance to long-term renters.

You’re confident you could make a profit.

The question of whether it makes fiscal sense to rent out a property comes down to number-crunching. Sayers provides an example of when the numbers support the decision to rent out a house:

Let’s say your $250,000 home will rent for $2,500 per month or $30,000 per year. If your mortgage payment is $1,250 per month and your property taxes and insurance total $400 per month, then you would “cash flow” $850 per month (assuming you didn’t hire a property manager and had no repairs, maintenance or vacancies). That means under ideal circumstances, you would make $850 per month. By renting the property, it would take you over seven years to make the $75,000 that you could likely get from selling.

“Again, this is in an ideal scenario, and you should factor in 7%-8% each for vacancy and maintenance expenses,” says Sayers. “So in reality, it would take quite a bit longer to get the $75,000. However, in seven years, you would have much more equity in the property, because your tenants would have been helping you pay down the mortgage over time.”

Signs you should sell your home

In some situations, it might make more financial and logistical sense to let go of a house altogether — especially in times of economic uncertainty. In SimplyWise’s recent survey of more than 1,000 American adults, one in 10 respondents said they are considering selling their home to free up liquid assets. Read on for some signs that you should consider cashing out.

It’s a “seller’s market.”

In a seller’s market, low housing inventory meets robust buyer demand. House hunters have limited supply to choose from, which means if you decide to sell, your home will receive a lot of attention — provided that you’ve priced and marketed it well. When buyers are plentiful and you could potentially maximize value with a bidding war, selling becomes a more attractive option.

To keep tabs on your local housing market, go to your local Realtor association website and check for the most recent month’s market report. Check for stats like inventory changes year over year (the lower the drop in inventory, the better — unless you’re also looking to buy), and how fast houses have appreciated over the last five to 10 years. If you have several years of strong price growth behind you, it could be a good time to cash out.

You couldn’t charge enough rent in relation to the home’s value.

Kurzner points out that as homes increase in price, they become less desirable as rentals because the return of rent goes down. It’s all about the gross rent multiplier (GRM), which is the ratio of the price of real estate to the rental income it generates. For example, you can likely rent a $100,000 home for $1,000 per month (1% GRM), but you probably wouldn’t be able to rent a $200,000 house for $2,000.

“The higher the value, the flatter the rent curve becomes,” explains Kurzner.

You don’t have enough liquid cash on hand.

Sayers says that for renting to make sense, you need to have enough liquid cash to maintain the property, property taxes, and mortgage payments in the event of a vacancy.

“When a rental property becomes vacant, not only do you lose rental income, but you still have to pay for the normal property expenses and any mortgages, and in most cases there are capital expenditures needed to get the property in shape to rent again,” he explains. “If you don’t have a solid cash position that allows you to make all of these payments and upgrades, then I would recommend selling rather than renting your house out.”

Walker recommends having at least $10,000 in discretionary income at your disposal when renting out a property. If you’re short of that, selling may be the safer option.

You’ve got a ton of equity to cash in on.

If you need cash for a down payment on your next home and you have a big chunk of equity in your current home, selling will likely help you reach your goals faster than renting.

According to CoreLogic’s Homeowner Equity Insights report, the average homeowner has gained close to $10,000 in home equity over last year. That earned equity translates into more profit for sellers.

However, calculating your potential profit involves more than just subtracting what you owe from the estimated sale price. You’ll also need to consider any necessary repairs and maintenance, as well as roughly 10% in commissions and closing costs. To determine whether it makes sense to sell, it’s important to understand the fees involved with selling, and then plug your numbers into our Net Proceeds Calculator to get an estimated profit.

The age of your property raises maintenance costs and concerns.

There is always some degree of regular maintenance to be expected when you manage a rental, Faucets leak. Water heaters get cranky. Ant colonies invade. But according to the National Association of Homebuilders, a property’s average annual maintenance costs skew higher for older homes.

Source: (National Association of Homebuilders)

The easiest properties to manage are those that are newer or have been well-maintained and updated. If your property is older and still has a lot of the original components, like the HVAC system, roof, and appliances, it may not be worth the future expense of renting it out.

Walker currently has five older properties on the market that are selling for this very reason: The homeowners would rather unload their houses as-is in the current hot market than run the risk of big expenses on the horizon.

You’re not thrilled about becoming a landlord.

Renting out a property can be a good source of cash flow, but that profitability comes at a price. Ongoing maintenance and repairs are part of the package. You can hire a property management company to find quality tenants and field 2 a.m. phone calls when the heater sputters out on a sub-zero night. But the cost (an estimated 8%-12% of the monthly rental value) will cut into your monthly profits. And if you decide to handle the management on your own, Kurzner warns that you could face some legal and operational risks.

The crux of a landlord’s obligation is to keep a “warranty of habitability,” which means providing a rental property that is safe, clean, and fit to live in. At a minimum, habitability entails offering these basic essentials:

• Safe drinking water
• Hot water
• Heat during cold weather
• Functioning electricity
• Adequate ventilation
• Smoke and carbon monoxide detectors
• Functioning bathroom and toilet
• Sanitary premises, including the removal of insect or rodent infestation
• Locking doors and windows to protect against intruders
• Conformity to current building codes

Landlords are also responsible for performing any necessary maintenance and repairs to the property, as well as handling all taxes, utilities, insurance, and financials. They also must adhere to all federal, state, and local rules and regulations.

If all of that sounds daunting and you’re unwilling to take on the extra time, expense, and risk associated with owning a rental property, selling may be the better option.

It’s just not a ‘good’ rental.

Sometimes, the rental stars align and a property is a landlord’s dream: It rents easily to reliable tenants, has low operating costs with no major or expensive issues, and yields good returns. But that’s not always the case.

Kurzner has owned rental homes that proved to be too much of a hassle and a cash drain, leading him to sell them rather than keep them in his portfolio. “Generally, if the home that is rented constantly has issues with vandalism, bad tenants, costly maintenance or excessive HOA or other hassles, it can be better to sell that home and buy a different property.”

To rent or to sell: It all comes down to numbers

While it’s always good to do your own research, you can also reach out to a well-regarded professional real estate agent to get their opinion on the local market factors, whether your house would make a good rental, and the value of your home.