Should I sell my house and rent instead?

The answer to "should I sell my house and rent" depends on one annual calculation. Total the expenses of keeping your house: tax, insurance, upkeep and what equity in the house might earn elsewhere. Subtract the amount the house will probably gain in value. When the remaining amount exceeds one year's rent for a comparable home, selling may be the better choice. This applies while you plan to remain a renter for years.

Selling costs before you receive any money

You pay to sell a home. Agent fees, transfer taxes, plus closing bills often add up to close to 6% of the price. Our rent vs buy calculator uses that figure. The typical US home was worth $332,700 in the Census American Community Survey, which means about $20,000 in costs at closing.

Most people think the tax side is less favorable than it really is. Under IRS rules, you can exclude profit of up to $250,000 from your income, or $500,000 if you and your spouse file a joint return. Before the sale, you must have owned the home and lived there during 2 or more of the prior 5 years. Your new place adds expenses for moving, a deposit and one month's rent up front.

What your equity could earn while renting

Equity is the portion of the home that you own completely. Once you sell, that equity becomes cash for you to invest. NYU Stern's Damodaran data shows an average annual return of about 8.3% since 1928 for a balanced mix of stocks and bonds. These are past results, not a promise. Markets sometimes fall sharply.

Your house also earns something. Its value may increase, and living there saves you rent. The fair comparison includes your cash return versus the home's price gain, plus its yearly ownership costs. For a typical US home, yearly costs include:

• About 0.94% of the value each year for property tax, using Census tax figures.
• Upkeep: our annual budget is 1% of the value. When roofs and furnaces get old, they push upkeep higher.
• On our basis, insurance costs about $1,308 a year, and rates are rising in storm and fire zones.
• This return is lost: your equity would earn this much if it sat in a fund instead.

Renters don't pay any of those costs. Rent is what renters pay, and that is where the problem starts.

What you'd give up: the low mortgage rate

Selling means giving up a low rate you locked in years ago. According to Freddie Mac, a new loan costs about 7.24% today. A fixed loan also keeps your payment the same throughout its full term. Your rent payment doesn't remain the same. According to the BLS consumer price index, rent has climbed about 3.5% yearly since 2006, and the gap widens with each year you rent.

If you may buy again in a few years, include both sets of costs. Selling now comes with a cost. When you buy back, you pay closing costs equal to 2% to 5% of the price, according to Freddie Mac's buyer guide. Paying closing costs twice can take away years of savings.

Should I sell my house and rent when I retire?

Selling most often makes sense in this situation. With income thin, most of a retiree's wealth can sit in a home that's paid off. Selling converts that wealth into cash you can use. Your landlord then handles the roof, boiler and yard. Between 2019 and 2023, the total for US householders aged 65 and over rose by 5.2 million, according to Harvard's Joint Center for Housing Studies.

The danger is that rent continues to rise while your income stays the same. The 2023 cost burdened renter count was 22.6 million. These renters used more than 30% of income for housing and utilities. Half of all renters fell into that group, the Joint Center found. Rather than focusing only on age 65, plan ahead for rent at 85, including how you would pay it. For more on this topic, see our retirement guide for renting or owning.

When selling to rent is a bad choice

Some reasons to sell sound appealing, yet they don't hold up:

• You'd buy another home soon. The gain disappears when you pay to sell and then pay to buy.
• You're trying to predict the timing of a crash. Prices might drop, but they might not. Either way, your rent is due every month.
• You'd spend the cash. The calculation works only if the money continues to earn a return.
• You love your home. A stable home has value that no spreadsheet can capture.

Sell house vs rent: run your own numbers

Your city's rent vs buy by city page is the place to start. There, you can see the rent for a similar home and the cost of owning one. The local rents and prices come from Zillow's data. After that, enter your own price in the calculator, along with equity and years.

There's one more point. With today's numbers, renting is cheaper than buying over 7 years in 580 of 813 US cities. That view applies to buyers, who still face closing costs ahead. That expense is already behind you. If you don't own for life, you'll still pay to sell eventually. Your real choice is between the yearly cost to keep and one year of rent.