Selling vs Renting Out Your House: How to Decide When You Move
Short answer
Renting out your old home beats selling only if its net rental yield after every cost, plus expected price growth, beats what the sale proceeds would earn invested, after tax. Many homes yield 2–4% net once you count management, vacancy, repairs and tax. Selling also has a tax-free window in the US and UK that renting can close.
Key takeaways
- Judge a rental by its net yield on your equity, not on whether the rent covers the mortgage.
- In the US, sell within three years of moving out to keep the Section 121 exclusion (up to $250,000 or $500,000).
- In the UK, Private Residence Relief covers your years living there plus the final 9 months; letting relief now only applies if you shared the home with the tenant.
- A cheap old mortgage rate is real value, but it rarely outweighs a low net yield and a lost tax exemption on its own.
Should you sell or rent out your house?
The rent vs sell home decision comes down to one comparison: the net return on your equity if you keep the house as a rental versus what the sale proceeds would earn if you sold and invested them, after tax and costs. If the net rent plus expected price growth beats a diversified investment and you are ready to be a landlord, renting out can win. If not, selling usually leaves you richer and less exposed.
Most people frame it as “the rent covers the mortgage, so it pays for itself.” That test is misleading. The mortgage payment includes principal you would keep anyway, and it ignores the large pile of money (your equity) that stays locked in one property instead of working elsewhere. The fair test is the same opportunity-cost logic our rent and invest vs buy calculator uses for buyers.
What does a landlord actually earn?
Gross rent is not income. A realistic landlord budget subtracts every cost an owner bears before asking whether the property is worth keeping.
Net operating income (NOI) is annual rent minus vacancy, management, property tax, insurance, maintenance and service charges, before mortgage payments. Cap rate is NOI divided by the home’s current value. It tells you what the property earns on its full value, regardless of how it is financed.
Worked example: a US house worth $450,000
Imagine you are moving for work. Your house is worth $450,000, you owe $250,000 at 3.5% with 22 years left, and comparable homes rent for $2,400 a month. Using cost assumptions similar to our United States calculator defaults:
| Monthly item | Amount |
|---|---|
| Rent | $2,400 |
| Vacancy allowance (5% of rent) | −$120 |
| Property management (9% of rent) | −$216 |
| Property tax (1.1% of value) | −$413 |
| Landlord insurance (about 0.63% of value) | −$237 |
| Maintenance and repairs (1% of value) | −$375 |
| Net operating income | $1,039 |
| Mortgage payment (principal + interest) | −$1,359 |
| Cash flow after mortgage | −$320 |
The NOI is about $12,470 a year, a cap rate of roughly 2.8% on $450,000. Even with a cheap mortgage, the property costs you around $320 a month out of pocket. That is not unusual: a gross yield of 6.4% turns into a net yield under 3% once the owner’s costs are counted. Our guide to the hidden costs of owning a home explains why these line items add up faster than people expect.
Keeping it for five years vs selling now
Selling today with 6% selling costs leaves about $173,000 in cash. Invested at 7% a year, that grows to roughly $242,600 after five years.
Keeping the house for five years, with 3.5% annual price growth and rent rising 3.5% a year, the home is worth about $534,500 and the loan balance falls to about $208,800. After 6% selling costs, equity is about $293,600. Subtract roughly $19,000 for the negative cash flow you fed in (with its own lost investment growth) and the pre-tax total is about $274,600.
So holding looks around $32,000 ahead, before tax. Then tax arrives.
How do taxes change the answer?
This is where many accidental landlords get caught. Selling your main home is often tax-free; selling a former home that has become a rental may not be.
United States: the Section 121 three-year window
Under Section 121 of the tax code, you can exclude up to $250,000 of gain ($500,000 for married couples filing jointly) when you sell a home you owned and lived in as your main residence for at least 24 months of the five years before the sale, according to IRS Publication 523. Because the test looks back five years, you can rent the home out for up to about three years after moving out and still qualify.
Two catches:
- Depreciation. Rental property must be depreciated, and the depreciation you claimed (or could have claimed) cannot be excluded. It is taxed as unrecaptured Section 1250 gain at up to 25%.
- Missing the window. Rent for longer than three years and you fail the use test entirely, so the whole gain becomes taxable.
In our example, assume you bought for $300,000. Selling now produces a gain of about $123,000, fully excluded. Selling after five years of renting means the exclusion is gone. Depreciation of about $8,700 a year (on an assumed building value of $240,000 over 27.5 years) totals about $43,600, taxed at up to 25% (about $10,900). The remaining gain of roughly $202,000 at a 15% long-term rate adds about $30,400. That is around $41,000 of federal tax, before any state tax or the 3.8% net investment income tax, which turns a $32,000 lead into a deficit of roughly $9,000.
The answer flips again if prices rise faster. At 5% annual growth, the keep path still comes out about $20,000 ahead after tax. Small changes in assumptions decide this, which is why you should model your own numbers rather than rely on rules of thumb.
United Kingdom: Private Residence Relief and the final 9 months
In the UK, Private Residence Relief (PRR) exempts the gain for the periods you lived in the home as your main residence, plus the final 9 months of ownership whatever you used it for, according to HMRC’s HS283 Private Residence Relief helpsheet. Since April 2020, letting relief only applies if you shared occupancy with your tenant, so letting the whole house no longer qualifies.
The taxable share of the gain is roughly the rented period (minus the final 9 months) divided by total ownership. Residential property gains above the small annual exempt amount are taxed at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. UK landlords also only get a basic-rate tax credit for mortgage interest, rather than a full deduction, which hits higher-rate taxpayers with mortgages hardest.
Other markets
- Canada: the principal residence exemption can often be extended for up to four years after you move out if you make the change-in-use election and do not designate another home.
- Australia: the main residence exemption’s “six-year rule” can let you rent out your former home for up to six years per absence and still treat it as your main residence, subject to conditions.
- UAE: there is no personal capital gains tax on residential property in Dubai, so tax rarely drives the decision there. Yields, service charges and the 4% Dubai Land Department fee on any future purchase matter more.
Rules have conditions and change, so confirm with a tax adviser before relying on any exemption.
Selling vs renting: side-by-side comparison
| Factor | Sell now | Rent it out |
|---|---|---|
| Cash available now | Full equity minus selling costs | None, and possibly negative cash flow |
| Diversification | Proceeds can be spread across assets | Concentrated in one property, often leveraged |
| Tax on gain (main home) | Often exempt (US Section 121, UK PRR) | Exemption shrinks or ends over time |
| Ongoing work | None | Tenants, repairs, compliance, vacancies |
| Exposure to local prices | None | Full upside and downside |
| Keeps a low fixed mortgage rate | No | Yes |
| Option to move back | Must buy again | Possible, subject to tenancy law |
| Transaction costs | Pay selling costs once | Pay selling costs later, plus letting fees |
When does renting out your house make sense?
Renting out tends to work when several of these are true:
- Net yield is healthy. Annual rent of 7% or more of value in a typical-cost market gives room for costs. Below 5% gross, you are relying on price growth.
- You will sell inside the tax-free window, or the exemption does not matter in your country.
- You have a low fixed rate with many years left, so financing costs stay below the property’s growth plus yield.
- You expect to move back and would otherwise pay buying and selling costs twice. Our rent vs buy break-even guide shows how heavily those round-trip costs weigh over short horizons.
- You have cash reserves for voids, a boiler or roof, and legal costs if a tenancy goes wrong.
When is it better to sell?
Selling usually wins when:
- The home’s gross yield is low, as in many expensive cities where prices run at 25 or more times annual rent (see our price-to-rent ratio guide).
- You would lose a large tax-free gain by holding too long.
- You need the equity for a deposit on your next home. Keeping the old house can push you into a higher-rate mortgage, a smaller deposit, or a second-home surcharge such as the UK’s additional 5% Stamp Duty Land Tax.
- You do not want landlord duties. In England, the Renters’ Rights Act abolished Section 21 “no-fault” evictions from 1 May 2026, moving tenancies onto periodic terms. That is good for tenants but means landlords need a valid legal ground to regain possession.
A five-step method for your own decision
- Get two numbers: a realistic rent from local listings and a realistic sale price net of agent and legal fees.
- Build the landlord budget using the table above, including management even if you plan to self-manage.
- Project both paths over the same horizon: proceeds invested at a sensible after-tax return vs equity plus cash flows if you keep.
- Apply tax on both paths, especially whether you would lose a main-residence exemption.
- Stress-test: rerun with 0–2% price growth, a two-month vacancy, and a rate reset if your fixed term ends.
If you are also deciding what to do next, renting or buying where you are moving, run that separately in our global rent vs buy calculator with your new city’s numbers. This is general information, not tax or financial advice.
Run your own numbers
Every rule of thumb above depends on your rent, price, rate and how long you stay. Use the Rent and Invest vs Buy Calculator below — it starts with local defaults you can change.