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Sell vs Rent

Before putting your home on the market, ask yourself a few questions. If you decide to sell, will you put your earnings into a new home, a savings account, or make another investment? Have you considered holding on to your property as a rental? Can you afford another home without selling? What would you do with extra monthly income? We’ve summed up some things to consider while making the decision.

Costs to Maintain a Rental Home

  • Monthly expenses – include mortgage payment, HOA dues, utilities, lawn care, etc.
  • Annual expenses – include property taxes, landlord’s insurance (typically 20% more than HOI), HVAC maintenance/service, vacancies, etc.
  • Repairs and replacement – may involve appliances, HVAC, flooring, walls, doors, windows, roof, etc.
  • Cleaning and maintenance – include “make ready” expenses such as cleaning, paint, flooring, appliances, HVAC, lawn care, etc.
  • Advertising, Tenant Screening – typically $50-150 per vacancy
  • Property management – typical management fees include 8-10% of monthly revenue and a leasing fee of 50%-100% of one month’s rent
  • Accounting – filing fees for year-end taxes
  • Vacancy – property management services can assist in reducing vacancies

Costs to Sell Your Home

  • Commission expense – typically 5-6% of sales price paid to your Realtor®
  • Capital gains – Consult with your CPA or refer to IRS Topic No 701 Sale of Your Home for more information

Other Considerations

  • Tax implications – as with any business, profits are subject to income taxes (keep in mind that costs to rent your home are tax deductible)
  • Equity – rental income should cover your monthly expenses and ultimately increase your home equity over time
  • Expenses – be prepared for a “worst case scenario” (e.g. paying double mortgages, evictions may be expensive and take time to resolve, costs associated with vacancies and/or potential damage)
  • Tenant rights and renting restrictions – be aware of legal obligations, understand HOA restrictions, hire a property manager
  • Time and stress – a property manager will help

Renting your house, like many investment strategies, is a risk. If the value of your home appreciates over time, rents rise and you keep it rented, you can benefit from a fantastic return on your investment. On the other hand, if rents decline and your home value doesn’t appreciate as fast as you hoped, or if you have bad tenants, your investment may not show a profit. It’s important to do your research and tap into the knowledge and experience of others.

Let our team of Realtors® share their knowledge and expertise while you work through this decision!

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  • Listing your home with an agent 89% of home sellers use a real estate agent to list their home. Keep in mind that an experienced, knowledgeable Realtor® will help you navigate a process involving hundred of documents and back-and-forth communications with prospective buyers. Expect to spend 4-6% of your equity toward your real estate agent’s commission.
  • FSBO If you intend to sell your home without an agent, you’ll need to get educated on all of the closing documents and arrange for an attorney and title company to complete the transaction. You may save 2-6% towards commission, however don’t expect your home to sell quickly. You should anticipate additional challenges tracking the intricacies of the transaction.
  • Short sale Selling short requires an agreement with your lender to sell your home for less than you owe on it. You must be eligible by being financially underwater on your home. Your lender does not have to agree to a short sale.
  • iBuyer option You can skip the arduous process of prepping and listing your home by seeking a sight unseen offer on your home via an iBuyer. However, there are no guarantees that you will net more than listing on the open market. This new model isn’t available in all markets. Be sure to consult with an expert before considering this option!
  • Auction sale Any homeowner can sell their house at an auction, and doing so may be a smart choice if you want to sell fast. However, you will typically set the minimum bid at 10-15% below the current market value. Competing bids may increase the price or you may be forced accepting the minimum bid. The NAR advises that sellers self-test their circumstances with the Two-Thirds Rule before choosing this option.
  • Setup a face-to-face interview
  • Most Realtors® do the same type of marketing
  • Ask how each Realtor® is different
  • Check past references
  • Make an informed decision

There are lots of factors to consider when making the “sell vs. rent my home” decision, including:

  • Your financial situation.
  • Local market conditions for rental homes.
  • Your future housing plans.
  • Your tolerance for being a landlord.
  • State and federal income taxes.
  • Current and projected home prices.

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