How the rent vs sell comparison works
If you own a property you could rent out or sell, there are two paths for the same equity. The calculator follows both for the same number of years and compares where you end up.
- Sell today: the value, minus the cost to sell, minus the mortgage balance, is the cash you walk away with. The calculator invests it at your “return elsewhere” for the years you would have kept the property.
- Keep it as a rental: you collect the cash flow every year, positive or negative, then sell at the end and pay off whatever is left of the mortgage.
Sell today = (value − cost to sell − mortgage balance), grown at the other return
Keep = cash flow over the years + cash from selling at the end
A worked example
A home worth $450,000 with $210,000 left on a 3.25% mortgage could rent for $2,750 a month. Selling today, after 6% selling costs and paying off the mortgage, leaves $213,000. Invested at 5% a year for 10 years, that grows to $346,955.
Kept as a rental, it brings in +$9,337 of cash flow in the first year and +$125,503 over 10 years as rent rises. Sold at the end for $604,762, it leaves $426,761 after selling costs and the mortgage. Together that’s $552,263, so keeping comes out ahead by $205,309.
What tips the decision
- Return on equity vs return elsewhere. Keeping the property keeps your equity tied up in it. Return on equity measures what that equity earns each year: cash flow, plus principal paid, plus growth in value, over the equity. In the example it’s 12.0% in the first year. If it’s well below what the same money could earn elsewhere, selling starts to look better.
- Your mortgage rate. A low rate locked in years ago is worth a lot. Selling gives it up, and buying again would mean borrowing at today’s rates.
- Cash flow. Negative cash flow means paying in every month to keep the property. It can still be worth it, but make sure you can afford it through a vacancy or a big repair.
- Growth in value. Keeping is a bet that the value keeps rising. Try a lower growth rate to see how much the answer depends on it.
- Selling costs. Agent commission and legal fees are paid whenever you sell, now or later, but selling later means paying them on a higher price.
Moving out: rent your home or sell it?
Many people run this comparison when they move and wonder whether to keep their old home as a rental. A few things change when a home becomes a rental:
- You’ll need landlord insurance, which usually costs more than homeowner’s insurance.
- If you’re moving far away, a property manager usually charges 8% to 10% of the rent.
- Budget for repairs and a few weeks of vacancy between tenants, even in a strong rental market.
- Tax can change the answer. In the US, the home sale exclusion generally needs you to have lived in the home two of the last five years before selling. In Canada, turning a home into a rental is a change in use for tax purposes. Check with a tax professional before you decide.
Taxes this calculator leaves out
Both sides of the comparison are before tax. Selling a rental usually means capital gains tax. In the US, depreciation claimed on a rental is taxed when you sell, and a 1031 exchange can defer the tax if you buy another investment property. In Canada, part of the gain is taxable, and the principal residence exemption covers only the years the property was your home. Use the results to see which way the numbers lean, then get tax advice for your situation.
Return on equity tells you when to ask
Even a good rental earns less on its equity over time, because equity grows faster than the return. In the example, return on equity goes from 12.0% in year one to 9.5% in year 10. Owners who check it once a year know when it’s time to weigh keeping against selling, refinancing or using the equity for another property. The rental property calculator runs the numbers for buying one, and the Canadian version uses Canadian mortgage maths.
If you keep it: track it from today
Every number in this calculator is a forecast. Once you decide to keep the property, the real ones start arriving: the rent that actually came in, the repair you didn’t plan for, the tax bill that went up. Owners who write these down as they happen always know their real cash flow and equity. Owners who don’t end up rebuilding a year from bank statements at tax time, and rarely know which property is pulling its weight.
The simplest system is three habits:
- Run the numbers on keeping and selling, as you did here.
- Track it from today: rent, bills, repairs and the mortgage, as they happen.
- Review it every year against the plan: cash flow, equity and return on equity.
It works the same for one property or ten, and it’s far easier to start with the first than to catch up at the fifth. A spreadsheet can do it. EquityRise does it for you, with the same maths as this calculator.
Frequently asked questions
Is it better to rent out my house or sell it?
It depends on what the equity in the house could earn elsewhere. If the rent covers the mortgage and costs, the mortgage rate is low and you expect the value to keep growing, keeping it often comes out ahead. If cash flow is negative, you need the cash, or the equity could earn more invested elsewhere, selling often wins. This calculator compares the two with your own numbers.
How does the rent vs sell calculator work?
It works out the cash you would have from selling today, after selling costs and paying off the mortgage, and grows it at the return you enter for the same number of years. Then it adds up the cash flow from keeping the property as a rental and the cash from selling it at the end. Whichever total is bigger comes out ahead.
What return should I use for “Return elsewhere”?
Use what you would actually do with the cash. Paying down your own mortgage earns its interest rate, a savings account earns its rate, and a stock index fund has historically earned more over long periods, with more ups and downs. Use a before-tax figure, because the rental side is before tax too.
If I rent out my home, do I lose the capital gains exclusion in the US?
You can. The US home sale exclusion, up to $250,000 of gain for a single owner or $500,000 for a married couple filing jointly, generally requires that you owned and lived in the home for two of the five years before the sale. Rent it out for more than three years and you may no longer qualify. Depreciation claimed while it was a rental is taxed when you sell. Ask a tax professional before you decide.
What happens to the principal residence exemption in Canada if I rent out my home?
Turning your home into a rental is a change in use for tax purposes, which can count as selling it at market value. The principal residence exemption can cover the years it was your home, and an election may let you defer the change in use for a time. The rules are detailed, so talk to an accountant before you move out.
Should I keep a rental with a low mortgage rate?
A low rate is a real asset: selling gives it up, and buying again later would mean borrowing at today’s rates. A cheap mortgage often makes keeping the property look better than its cash flow suggests. Enter your actual rate and the years left, and the comparison will include it.
Does the comparison include taxes?
No. Both sides are before income tax and capital gains tax. Tax can change the answer, especially if you lived in the home, so use the results to see which way the numbers lean, then check the tax with a professional.