House Won't Sell? When Renting Beats a Price Cut

By Matthew Whitaker, founder of Evernest.

Quick disclaimer: I am not your CPA or your attorney. Tax rules, lease rules, and listing agreements vary by situation and by state. Talk to your own tax professional and an attorney before you act on any of this.

If your house has been sitting on the market, nobody's biting, and you're wondering if you should just rent it out, this post is for you. I'll show you when renting beats a price cut and how to rent it without wrecking your chance to sell later. I'm Matthew Whitaker, founder of Evernest. Our teams manage homes for people just like you in markets across the US, and I wrote the book How to Rent Your Home.

The short version

The short version: First find out why the house isn't selling: price, condition, or the market. Renting can help with a market problem, but it doesn't fix a price problem. If it is the market, compare three numbers: what it costs you each month to sit empty, the monthly gap if you rent, and the price cut it would take to sell now. If you rent, match the lease to your sale date, update your insurance, and get your tax deadline from a CPA.

You're not alone

Lately a near record share of rental listings have been homes that were listed for sale first. I get it. You cleaned, you staged, you cleared out for every showing, and it just sits. That's frustrating, and every month the mortgage still shows up.

But before you become a landlord, ask the hard question: why isn't it selling?

Why isn't your house selling: price, condition, or the market

There are really only three answers.

• Condition. People come to look but nobody makes an offer, and the feedback keeps naming the same thing, like the kitchen or the roof.
• Price or photos. Hardly anybody comes to look. That's almost always price or the photos.
• The market. Every house on your street is sitting too.

Renting can help with a market problem. It doesn't fix a price problem. If your house is priced $10,000 too high today, it's probably still too high next spring. Ask your agent straight out: what price sells this house in 30 days? Sometimes the cheapest fix is a price cut, not becoming a landlord you never wanted to be.

The math: renting vs. waiting vs. cutting the price

Say it really is the market. Let's do the math.

Step one: what the house costs you each month. Mortgage, property taxes, insurance, and the HOA if you have one. Say that's $2,000 a month.

Step two: a real rent number. Not what you need. What the market will actually pay. Say it comes back at $1,900. Great, only $100 short, right? Not quite.

Step three: the two costs people forget. In the book, I tell owners to budget for repairs, about 1% of the home's value per year, and for empty time between residents, about one month of rent per year. On a $300,000 house, that's roughly $400 a month. So on paper, renting leaves you about $500 a month short. And if you hire a property manager, that gap gets bigger.

Step four: compare it to sitting empty. Empty, you pay the full $2,000 plus the power bill and the lawn, call it $2,200. An empty house isn't free. It's the most expensive way to own a house. Over six months, renting might cost you about $3,000. Sitting empty costs you more than $13,000.

Three numbers to write down before you decide

1. What it costs you each month to sit empty.
2. The monthly gap if you rent it.
3. The price cut it would take to sell it now.

If a $10,000 price cut sells the house this month, that can be two years of being a landlord you didn't want to be. If the market is frozen and the gap is small, renting buys you time.

One more check: could you handle a bad month? In the book, I tell owners to save six months of payments plus another $5,000 for repairs before they rent.

Renting as a bridge: match the lease to your plan

Here's the right way to think about it. You're not trying to become a real estate investor. You're trying to get the house to a better market without bleeding money. So the lease has to match your plan.

Most leases run 12 months. If you want to sell next spring, line the lease up so it ends right when you'd list. Some owners make the first lease a little shorter or a little longer to land it in the right month. Then you have two ways to sell later:

• Sell with the resident in place. Investors often like that, because the rent is already coming in.
• Wait for the lease to end and sell it empty. Buyers who want to live in the home usually want it empty, and empty homes typically sell for more per square foot.

What a lease means for selling

A lease is a promise. Once it's signed, you can't ask the resident to leave because a buyer showed up. In most cases, the lease stays in force after a sale, so the new owner gets the house and the resident in it. Showings get harder too, because you'll usually need to give the resident notice before each one.

If you might want to take a quick offer, plan for that before you sign the lease, and have an attorney look at it. Pick one path. Trying to sell and rent at the same time usually means doing both badly. Check your listing agreement first.

What changes the day it becomes a rental: insurance and taxes

Insurance. Your homeowner's policy isn't built for a rental. You'll need a landlord policy, sometimes called a dwelling policy. Call your agent the week before your resident moves in, not the week after. Skip that call and you can end up uninsured without knowing it.

Taxes. This one can really cost you. When you sell a home you've lived in, you may be able to skip tax on a big chunk of the gain. But there's a rule. You generally have to have lived there two out of the last five years, and that clock starts when you move out. Rent it too long, roughly more than three years after you've moved out, and you can lose that break. Appreciation you gain while it's a rental usually gets taxed when you sell.

So if this is a bridge, know the date your bridge runs out. Your CPA can give you that date.

Getting a house ready to rent is different from getting it ready to sell

To sell, you stage it so it feels like a dream. To rent, you make it safe, durable, and easy to clean.

• Safety basics: smoke detectors on every level, carbon monoxide detectors if you have gas, and working locks on every outside door.
• Fix what's about to break, like an old water heater, before a resident has to call about it.
• Neutral paint, flooring that holds up, and a professional deep clean.
• No big remodel. I know owners who spend $15,000 before renting, hoping for $150 more a month. Mostly, they get $25 to $50.

If you plan to sell in a year or two, don't do the pretty stuff twice. Save the fresh paint and the staging for after the resident moves out, right before you list. Rent it clean and solid. Sell it pretty.

"But a stranger will be living in my house"

That fear is real, and I'm not going to tell you it's silly. My own mom rented her house out to someone who stopped paying. It cost her thousands and it broke her heart.

But the vast majority of residents pay their rent and take care of the home. Most of the horror stories come from skipping three basics:

• Screen well. Use written rules covering credit, income, rental history, and background, and apply the same rules to every person who applies, every time. That keeps you on the right side of fair housing law and gets you a better resident.
• Price it right. An overpriced rental sits empty or draws the wrong applicants.
• Keep inspecting. Inspect the home at least once a year so small problems stay small.

And try to see it as a house now, not your house. The resident is your customer.

"I'll just leave it empty and wait until spring"

Sometimes that's right. If spring is two months away, your price is right, and you can easily cover the payment, waiting can make a lot of sense. A 12-month lease would lock you right past spring.

But run the math first. If spring is six months away, that's six empty payments. At $2,000 a month, that's $12,000 just to wait. Call your insurance agent too, because a lot of homeowner policies limit coverage when a house sits empty for a while. And spring isn't a promise. If the market is still slow in April, you spent $12,000 and you're right back here.

My rule: waiting is a plan if it's short and you can afford it. If it's long, it's just a hope with a mortgage payment attached.

Quick recap

• Find out why it isn't selling: price, condition, or the market.
• Compare three numbers: the cost of sitting empty, the gap if you rent, and the price cut.
• Match the lease to your plan.
• Update your insurance and get your tax date from your CPA.
• Rent it clean and solid. Sell it pretty.

Frequently asked questions

Should I rent my house if it won't sell?It depends on why it isn't selling. Renting can help if the problem is the market, but it won't fix a price problem. Compare what it costs to sit empty, the monthly gap if you rent, and the price cut it would take to sell now. If the market is frozen and the gap is small, renting buys you time.

Why isn't my house selling?There are three answers: price, condition, or the market. If people look but nobody offers, it's usually price or condition, especially if feedback keeps naming the same thing. If hardly anyone comes to look, it's almost always price or photos. If every house on your street is sitting, it's the market.

Is it cheaper to rent a house or leave it empty?Usually renting. In our example, an empty house costs about $2,200 a month, including the mortgage, power, and lawn, while renting leaves you about $500 a month short. Over six months, that's roughly $3,000 renting versus more than $13,000 sitting empty.

Can I sell a house that has a resident living in it?Yes. A lease is a promise, so you can't ask the resident to leave because a buyer showed up, and in most cases the lease stays in force after a sale. Investors often like a resident already in place. You'll usually need to give the resident notice before each showing. Have an attorney review the lease.

How long can I rent out my home and still avoid capital gains tax?You generally have to have lived in the home two out of the last five years, and that clock starts when you move out. Rent it too long, roughly more than three years after moving out, and you can lose that break. Your CPA can give you the exact date for your situation.

Do I need landlord insurance if I rent out my old home?Yes. A homeowner's policy isn't built for a rental, so you'll need a landlord policy, sometimes called a dwelling policy. Call your insurance agent the week before the resident moves in, not the week after. Skipping the call can leave you uninsured without knowing it.

Should I renovate before renting a house I plan to sell?Keep it simple. Make it safe, fix anything about to break, and use neutral paint, durable flooring, and a deep clean. Skip the big remodel, which usually adds only $25 to $50 a month. Save the fresh paint and staging for after the resident moves out and right before you list.

Where to go from here

If you want to know what your house would really rent for, start with a free rental analysis. If you're still deciding whether to rent or sell, my book, How to Rent Your Home, walks you through the whole decision. It also comes with a set of landlord checklists, including a rent ready checklist.

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