Should I Rent or Sell My House When I Move? A Framework for Making the Right Decision

I have a 3.1% interest rate on my mortgage. For months, I was convinced that renting my home when we eventually moved was a no brainer.

Then I ran the actual numbers.

As a CERTIFIED FINANCIAL PLANNER™ who works with busy professionals navigating major life transitions, I've had this exact conversation dozens of times in the past year. The low interest rate environment of 2020 and 2021 created a unique situation where many homeowners feel almost obligated to hold onto their properties as rentals.

But here's what I've learned: a low interest rate is not a wealth building strategy. It's one variable in a much more complex equation.

This guide walks you through the same framework I use with clients to determine whether renting or selling makes sense for your specific situation.

Question 1: What Is Your Property's True Net Cash Flow?

This is where the dream of passive income meets reality.

Most homeowners look at comparable rents, subtract their mortgage payment, and think they're making money. That's not how rental properties work.

Here's what you need to account for:

Property Management Fees: 8 to 10% of monthly rent if you're moving away. On $2,500/month rent, that's $200 to $250 gone immediately.

Vacancy Costs: Budget 5 to 8% annually. That's roughly one month of lost rent every two years, plus turnover costs.

Maintenance and Repairs: Expect 1 to 2% of property value annually. On a $400,000 home, that's $4,000 to $8,000 per year. HVAC systems fail. Roofs leak. Water heaters break. And unlike when you live there, you can't just "make do."

Landlord Insurance: Runs 15 to 25% higher than standard homeowner's insurance.

Property Taxes and HOA Fees: These don't go away and often increase faster than you can raise rent.

Capital Expenditures: Budget for major replacements like roofs (every 20 years) and HVAC (every 15 years).

Here's a realistic example:

Monthly rent: $2,500 Monthly mortgage (PITI): $1,800 Property management (9%): $225 Vacancy reserve (6% annually): $125 Maintenance reserve (1.5% annually): $417 Landlord insurance premium difference: $50

Total monthly costs: $2,617Net monthly cash flow: Negative $117

This is the reality for many homeowners with low interest rates in markets where rent hasn't kept pace with home price appreciation.

The bottom line: If your true net cash flow is negative or barely break even, you're not building wealth. You're subsidizing someone else's housing while taking on all the risk.

Question 2: Do You Qualify for the Section 121 Exclusion?

This is the most financially significant question, and almost no one thinks about it until it's too late.

Section 121 of the Internal Revenue Code allows you to exclude up to $250,000 in capital gains if you're single, or $500,000 if you're married filing jointly, when you sell your primary residence.

The requirement: you must have owned and lived in the home as your primary residence for at least two of the five years preceding the sale.

If you bought your home in 2020 or 2021, you're likely sitting on substantial appreciation. In many markets, homes have appreciated 30% to 50% or more. For someone who bought a $350,000 home that's now worth $525,000, that's $175,000 in gains.

Under Section 121, if you sell now while it's still your primary residence, that entire $175,000 is tax free.

Convert it to a rental and sell three years later? You'll owe capital gains tax on every dollar. At a 15% federal rate (plus potential state taxes and the 3.8% net investment income tax), you could owe $30,000 to $40,000 in taxes on that same sale.

If your rental generates $200/month in positive cash flow, it would take 15 years just to make up for those taxes.

For most busy professionals with significant appreciation, the tax free sale wins by a landslide.

Question 3: How Much Time and Energy Do You Have for Landlord Responsibilities?

This is the least quantifiable question but often the most important one.

I don't care how good your property manager is. You will have headaches.

I've watched successful professionals earning $200,000+ per year spend hours dealing with tenant issues, maintenance emergencies, and property management problems. Late night calls about broken air conditioning. Disputes over security deposits. Coordinating repairs from miles away.

Here are the realities most people don't consider:

You're running a business. Even with a property manager, you're the CEO. You make final decisions on major repairs, tenant selection, rent pricing, and legal action.

Tenants are harder on properties than owners. Expect more wear and tear, deferred maintenance, and the occasional bad tenant who causes real damage.

You can't sell when you want. Need to access equity quickly? Selling with a tenant in place means waiting for the lease to end, paying them to leave early, or selling at a discount to an investor.

Ask yourself honestly: do you want to be in the landlord business? It's not passive income. It's a part time job with unpredictable hours.

Question 4: Do You Understand Passive vs. Active Loss Limitations?

This is the most misunderstood tax concept among high earning professionals.

Many believe that owning rental real estate will reduce their taxable income through depreciation deductions. They've heard real estate creates "paper losses" that shelter W2 income from taxes.

For most of you, that's wrong.

Rental real estate generates passive income or losses. Your job generates active income. The IRS treats these separately.

Passive losses can only offset passive income. They cannot offset your W2 wages, business income, or investment income (with very limited exceptions).

The only way to deduct rental losses against active income is to qualify as a Real Estate Professional. This requires spending more than 750 hours per year in real estate activities, representing more than 50% of your working time.

If you're working full time in your career, you're not qualifying for Real Estate Professional Status. Those depreciation deductions get suspended and carried forward until you have passive income to offset or you sell the property.

This doesn't mean rental real estate is a bad investment. The tax benefits are just much more limited than most people think, especially in the early years when you might have negative cash flow.

Question 5: What Is Your Opportunity Cost?

Let's say your rental property generates positive cash flow of $300 per month. That's $3,600 per year. On a property with $150,000 in equity, that's a 2.4% cash on cash return.

What else could you do with that $150,000? Invest in diversified index funds with expected long term returns of 7 to 10%. Pay off higher interest debt. Use it for a down payment on your next home. Invest in your business or career.

Real estate has unique benefits like leverage and tangible ownership. But it also has concentration risk (all eggs in one basket), illiquidity (can't access money quickly), and operational demands.

Being a landlord works well for some people in some situations. But for many busy professionals, there are simpler, more tax efficient, more liquid ways to build wealth.

Additional Considerations

Your next mortgage: Lenders only count 75% of rental income toward qualifying income, and many require two years of rental history. This could limit your purchasing power.

Liability exposure: You're exposed to lawsuits from tenant injuries, fair housing violations, and property condition issues.

Market concentration: Your equity is tied to one property in one market. If that local economy struggles, your investment suffers.

The emotional factor: There's value in a clean break. Closing this chapter and moving forward without lingering attachment and responsibility.

So What Am I Doing?

My wife and I decided we will sell.

We have substantial appreciation qualifying for the Section 121 exclusion. Taking $150,000+ in tax free gains is worth more than years of marginal rental income. Our projected cash flow was barely positive. Neither of us wants to be landlords. We can redeploy our equity into diversified investments without unclogging toilets.

For us, this decision was clear. For you, it might be different.

How to Make Your Decision

Here's what I recommend:

Step 1: Run the real numbers. Build a detailed cash flow projection that includes all the costs we discussed. Be conservative. If you're not clearly cash flow positive by at least $200 to $300 per month, renting is probably not worth it.

Step 2: Calculate your potential Section 121 exclusion. Get a realistic estimate of what your home would sell for today. Subtract your original purchase price and any major capital improvements. If that number is substantial, the tax free sale might be worth more than years of rental income.

Step 3: Honestly assess your time and risk tolerance. Are you actually willing to be a landlord? Can you afford to cover the mortgage if you have extended vacancies or non paying tenants?

Step 4: Consider your overall financial plan. Does being a landlord align with your wealth building strategy, or is it a distraction from more effective approaches?

Step 5: Talk to a financial professional. This is a complex decision with tax, cash flow, risk, and opportunity cost implications. A CERTIFIED FINANCIAL PLANNER™ professional can help you model different scenarios and make the choice that fits your specific situation.

The Bottom Line

A low interest rate is not a reason to become a landlord if the fundamentals don't work.

For many busy professionals who bought homes in 2020 and 2021, selling and taking advantage of the Section 121 exclusion will create more wealth, with less stress and better tax efficiency, than trying to be an accidental landlord.

But the right answer depends on your specific numbers, your tax situation, your risk tolerance, and your lifestyle preferences.

Run the analysis. Make an informed decision. And don't let a low mortgage rate guilt you into a part time job you don't actually want.

Sometimes the smartest financial move is walking away from what looks like a "no brainer" on paper.

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