Why Your Rent Estimate Is Lower Than Your Mortgage

By Matthew Whitaker, founder of Evernest.

Quick disclaimer: This is education, not financial advice. The numbers in this post are examples, and your own situation will differ. Talk to a financial adviser or tax professional before you decide whether to rent or sell.

If you just got a rent estimate on your house and it came in lower than your mortgage, this post is for you. I'll show you why that number came in low, what it costs to ignore it, and what to do next. I'm Matthew Whitaker, founder of Evernest, and I wrote the book How to Rent Your Home.

The short version

The short version: A rent estimate is a read on the market, not a grade on your house or on you. It reads low for four reasons: it's what a resident will pay today and not what you need, your gut number came from somewhere else, the season is off, or the house's condition lags the comparable homes. Pricing at your mortgage usually costs more in empty months than it earns. Measure your real gap, then improve, adjust, carry it, or sell.

How a low rent estimate feels

Say your job is moving you out of state. Your house payment, with taxes and insurance, is $2,200 a month. You ask for a rent estimate and it comes back at $1,900. That's $300 a month short.

It stings because this isn't just a house. Maybe you brought your kids home to it. Maybe it was your mom's. And the payment is real. It comes out of your account on the first, whether anybody lives there or not.

If that number felt like a punch, that's normal. A lot of owners I talk to feel the same way. But a rent estimate isn't a grade on your house, and it isn't a grade on you. It's a read on the market. There are four reasons it reads low.

Reason one: the estimate is what the market pays, not what you need

This is the big one. The estimate is what a resident will pay today. In my book, I call this one of the two most common pricing mistakes: pricing what you need instead of what the market pays.

Think about it from the other side. A family is scrolling through every three-bedroom in your area on their phone. They see your house at $2,200. They see one just like it two streets over at $1,900. They don't know your mortgage, and they'll never ask. They just call about the other house.

Your mortgage is your number. Rent is the market's number. They were never connected. Listing at the number you need doesn't change the market. It just means you sit empty while the houses around you rent.

Reason two: the number in your head came from somewhere else

Maybe it came from an online estimate. That's a decent start, but in the book I point out those can be off by 10% to 15% in either direction. On a $2,000 rent, that's $200 to $300 right there.

Maybe it's what your neighbor listed for. But a listing is what an owner asked for, not what a resident actually paid. Rented recently beats currently listed every time. Or maybe it's your lender's estimate from when you bought. That was a different market, and rent growth has since slowed.

Reason three: timing

The same house often leases for $100 to $200 more in May than in November. If you're pricing in the fall and your gut number came from a spring listing, part of your gap is just the calendar.

Reason four: condition

Residents compare your paint, floors, kitchen, and yard to every other house on the same screen. If every comparable home has fresh floors and yours has tired carpet, you'll feel it in the rent.

What happens if you list at the number you need

Here is what our leasing data says.

• Week one is everything. A new listing gets about 2.3 times more leads in week one than in any other week. That's why our leasing team calls day seven the pricing report card.
• One lead or fewer by day seven is a cold start. In our data, 87% of cold starts end up needing a price drop, and they lease about four times slower.
• Early cuts work better. A price cut in the first 14 days lifts leads by about 84%. The same cut after day 15 lifts them by only about 49%. You usually take the drop anyway. You just get less for it the longer you wait.
• Repeated drops get expensive. Homes that needed three or more price drops took over two months to lease, and they landed 12.5% below where they started. Homes priced right from day one leased in a median of 15 days at full price.

The math: pricing high costs more than it earns

Let's put dollars on it.

Way one: You list at $1,900. It leases in about two weeks. You lose half a month of rent, call it $950.

Way two: You list at $2,200 because that's the payment. Nobody bites. Two months later, you drop to $1,900 and it finally leases. You lost two months of rent, that's $3,800, and you ended up at $1,900 anyway.

Pricing high didn't close your gap. It cost you almost $3,000 more.

Here's another way to see it. Say holding out gets you $100 a month more in rent. That's $1,200 a year. Nice. But one empty month costs you $1,900. One empty month wipes out more than a year and a half of that extra $100. Price it right and lease it fast. That almost always beats pricing high and waiting.

"But my neighbor's house rented for more"

Maybe it did. Ask four questions:

• Is it really the same house? The same size, the same updates, the same school zone?
• Did it rent in the spring or in the fall?
• Is that what it rented for, or just what it was listed at?
• How long did it sit first?

Most of the time, one of those answers explains the whole difference.

The other version is "another company quoted me higher." Be careful with that one. A high quote is the easiest way to win your business. It costs a manager nothing to say a big number on the phone. It costs you two months of payments when the house doesn't rent. Ask them to show you the comps, meaning homes that actually leased, not just listings. Then ask what they'll do on day seven if the leads aren't there.

Yes, I run a property management company. We could quote you a bigger number too. It just wouldn't help you.

Step one: measure your real gap

Start by measuring the real gap, not just rent against the mortgage. In the book, I tell owners to add a maintenance reserve, a vacancy reserve, and management if you use one.

Here's my rule of thumb for a lot of these conversations. A gap of $400 to $500 a month is often workable. A gap near $1,000 a month rarely is. That's not a law. It's just what I've seen. Either way, you have four options.

Option one: make improvements that move the rent

Neutral paint, replacing worn flooring, and a professional deep clean. In the book, I call those the three cheapest improvements with the highest return.

What usually doesn't move the rent is the big remodel. Owners spend $15,000 hoping for $150 more a month. In most markets, they get $25 to $50. Upgrade to the level of your comparable homes, not above.

Option two: adjust the terms

Set your lease so it ends in late spring. Then your next listing hits in May and not November. Also think about whether you'll accept pets. That can widen your pool of applicants.

Option three: carry a small gap on purpose

A $300 gap is $3,600 a year. That's real money. But look at what you keep: a mortgage rate you may never see again, a resident paying down your loan every month, and a house that in most markets has gone up in value over the long run. In the book, I call that paying to own an investment. It can be a smart bet. Just know it's the bet you're making.

Before you take that bet, have six months of payments in the bank plus $5,000 for repairs.

Option four: sell

That might sound strange from a guy who runs a property management company, but sometimes selling is the right answer. If your gap is near $1,000 a month, or you don't have the reserves, or a new roof is coming, renting can drain you slowly. In the book, I tell owners to be willing to land on sale. For a lot of people, it's a perfectly good answer.

The worst choice isn't renting and it isn't selling. It's listing at the number you need, sitting empty for three months, and then finally deciding.

Quick recap

• The estimate is what the market pays, not what you need. Your mortgage isn't part of it.
• Check your number against leased homes, the season, and the condition of your house.
• Price it right and watch day seven. If you have to cut, cut early.
• Measure your real gap. Small gap: improve, adjust, or carry it. Big gap: be honest about selling.

Frequently asked questions

Why is my rent estimate lower than my mortgage payment?Your mortgage and the market rent were never connected. A resident compares your house to every other home on the screen and pays what the market supports today. The estimate may also read low because of timing, condition, or because the number in your head came from a listing, a spring season, or an old lender estimate.

Should I price my rental at my mortgage payment?Usually not. Residents don't know your mortgage and will call the comparable house priced lower. In our example, listing at $2,200 and dropping to $1,900 after two months cost $3,800 in lost rent, versus about $950 for listing at $1,900 and leasing in two weeks.

How accurate are online rent estimates?They're a decent start, but they can be off by 10% to 15% in either direction. On a $2,000 rent, that's $200 to $300. Use recently leased homes as your check, since what a resident actually paid beats what an owner asked.

How big a gap between rent and mortgage is workable?In my experience, a gap of $400 to $500 a month is often workable, and a gap near $1,000 a month rarely is. That's a rule of thumb, not a law. Measure your real gap by adding a maintenance reserve, a vacancy reserve, and management if you use one.

What improvements actually raise rent?Neutral paint, replacing worn flooring, and a professional deep clean are the three cheapest improvements with the highest return. Big remodels usually don't pay off. Owners spend $15,000 hoping for $150 more a month and in most markets get $25 to $50. Upgrade to the level of your comparable homes, not above.

When should I sell instead of renting my house?Consider selling if your gap is near $1,000 a month, you don't have the reserves, or a new roof is coming. If you carry a gap on purpose, have six months of payments in the bank plus $5,000 for repairs first. Selling is a perfectly good answer for many owners.

When is the best time of year to list a rental?The same house often leases for $100 to $200 more in May than in November. If you can, set your lease so it ends in late spring, so your next listing hits in May. Pricing in the fall against a spring number accounts for part of the gap.

Where to go from here

If you want an honest number for your house, start with a free rental analysis. Ask to see the comps behind it. And if you're still deciding whether to rent or sell, my book, How to Rent Your Home, walks you through the whole decision and comes with a set of landlord checklists, including a rent ready checklist.

Get a free rental analysis on your property

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It's your house and it's your call. Just make it with the real numbers.