Moving but not sure whether to sell the old place or rent it out? The answer depends on three things: does it cash-flow as a rental, will you lose the $250K/$500K capital gains exclusion if you convert to rental, and do you actually want to be a landlord? This analyzer runs a 10-year wealth comparison.
Worked example: Current home worth $425K, mortgage balance $210K at 3.25%, monthly PITI $1,680. Rental estimate $2,400/mo. Sell option: net $175K after costs, invest at 7% → $344K in 10 years. Rent option: cash flow $250/mo after expenses, $210K principal paydown, appreciation at 3%. After 10 years: equity ~$400K + $30K cumulative cash flow = $430K.
The 3-year tax clock
The $250K single / $500K married capital gains exclusion on a primary residence requires 2 of last 5 years as primary. If you rent out your old home for more than 3 years, you lose the exclusion permanently. A rent-to-5-years-then-sell plan has a massive tax cost — often $50K-$100K in capital gains tax you could have avoided by selling within 3 years.
When renting beats selling
- Your mortgage rate is below 4% (you're locked into a once-in-a-generation rate)
- The rent/expense math cash-flows positive
- Your market has strong population/job growth (appreciation tailwind)
- You're a good 3-year-or-less candidate (no capital gains hit)
- You can afford both your new mortgage and a vacant rental for 2 months
When selling beats renting
- The home doesn't cash-flow at realistic expense assumptions
- You need the equity for the new home down payment
- You're moving far enough that self-management is impossible and PM fees kill the math
- You don't want the stress of being a landlord
- You already have other investments earning 8%+