Should We Keep the Old House and Turn It Into a Rental Property?
Moving boxes, Zillow tabs, and the faint smell of fresh paint. You’ve just found your next home, and now you’re wondering what to do with the old one.
Should you sell it? Or keep it as a rental and let someone else “pay the mortgage”?
It’s one of the more common questions I’ve been getting lately. And with good reason: a lot of people bought or refinanced between 2020 and 2022, locking in ultra-low 2%-3% mortgage rates. Even homes that wouldn’t normally make great investments suddenly look tempting because the financing is so cheap.
So… does that make keeping it a smart move?
The Financial Math Is Not Straightforward
First, let’s acknowledge the obvious: a 2.8% mortgage is a gift.
Low financing costs can make even modest rent look good on paper. But the math still needs to work after factoring in the real-world costs:
Property taxes and insurance
Maintenance and repairs
Occasional vacancies (times when you don’t have renters paying you)
Potential property management fees
Here’s the part most people miss: you shouldn’t compare the rent to your mortgage payment. You need to look at how much profit you’re earning relative to your actual equity in the home.
Example:
• Home value: $400,000
• Minus the mortgage (How much of the house you own/your equity): $80,000
• Annual profit after all expenses: $4,000
That $4,000 divided by your $80,000 investment = about a 5% return.
Add in roughly $6,000 of principal paydown each year, and your total benefit is closer to $10,000 annually, or a 12–13% return on your invested equity. This is the quiet magic of leverage. You’re earning returns on the bank’s money as well as your own.
Of course, leverage works both ways. A few months of vacancy, a big repair, or a drop in property values can erase those gains quickly. Real estate rewards patience, liquidity, and a strong stomach.
The Liquidity Question
Before you even get to the landlord part, you need to ask yourself this: Can you afford the new home without the equity from the old one?
For many families, the answer is no. Keeping the old home means carrying two mortgages and giving up liquidity, or factoring in a much bigger mortgage payment on the new home.
That may work fine for a while. Until a furnace breaks down, a tenant moves out, or the new home needs updates. The S&P 500 will never have a furnace breakdown costing you $10,000. Real estate can be a great wealth-builder, but it’s far from hands-off.
The Lifestyle Factor (and Why This Deserves Its Own Article)
Becoming a landlord is its own thing.
Even if you plan to outsource management, you’re still running a small business. You’ll need to set rents, review leases, budget for capital repairs, and stay on top of tenant issues.
I’ve had clients who love it. It fits their temperament, they enjoy the hands-on side, and it’s worked beautifully.
I’ve also had clients who swore they’d never do it again after tenant headaches, surprise repairs, and unending expenses. They didn’t realize how much of a full-time job it could feel like.
Honestly, the “Should I be a landlord?” question deserves its own blog post (and you probably wouldn’t read it if I wrote it all here). But the short version is this: you shouldn’t even be considering keeping a rental unless you’ve thought through the lifestyle of managing property.
Some Tax Rules to Consider
When you sell your primary home, you can exclude up to $500,000 in capital gains if you’ve lived there for two of the last five years. Most people count on this without realizing it.
Once you convert it to a rental, that clock starts ticking. Wait too long, and you could lose that exclusion entirely. AKA you might owe taxes on the appreciation when you eventually sell.
And if you took depreciation deductions while it was a rental, the IRS will want to “recapture” those when you sell, adding to the tax bill.
When It Can Make Sense
Keeping your old house can still be a great move if:
You have a low fixed-rate mortgage well below market rates.
The rent comfortably covers all expenses and reserves.
You don’t need the equity for your new down payment.
You’re in a strong rental market with consistent tenant demand.
You have the time and mental capacity to do it :)
In short: a low interest rate makes a good deal better, but it rarely turns a bad deal into a good one.
A Simple Gut Check
Ask yourself this:
”If I didn’t already own this house, would I go out and buy it today as an investment property?”
If the answer is no, the only reason you’re keeping it is the mortgage rate. And that’s not a good enough reason on its own if the property doesn’t perform well or you’re not cut out for being a landlord.
Think Like An Investor
Your super low mortgage is an amazing asset, but it doesn’t automatically make your old house a great investment.
Run the numbers like an investor, not a homeowner. Think about liquidity, leverage, and lifestyle.
And if you haven’t really thought through what it means to own and manage a rental, even with a property manager, it might be better to sell and move on with less debt on the books.
If you’re wrestling with this decision, let’s talk it through. I can help you see how keeping or selling fits into your bigger financial plan.
