Sell, Keep or Rent: Joan’s Three Columns
Renting for around three years can still leave that door open.
Picture a woman named Joan, 67, widowed two years ago. Her house is paid off and worth about US$500,000. She plans to spend most of the year abroad, and she would stay with her daughter Claire for the few weeks she is home. Claire said it on the phone: "Mom, keep it. It's home."
Joan loved that answer. She also wanted to see the numbers. One evening she drew three columns on a yellow legal pad. One said Keep it empty. One said Rent it. One said Sell it.
She made one rule for the columns. Each one would count the place she lives abroad, a one-bedroom at US$900 a month plus about US$150 a month for utilities. That is US$12,600 a year in every column, so no column looked better only because it left that cost out.
| Per year | Keep it empty | Rent it | Sell it |
|---|---|---|---|
| House money in | US$0 | US$33,000 (US$3,000 for 11 months) | US$18,800 (US$470,000 after selling costs, at an assumed 4%) |
| House costs out | US$14,900 | US$13,800 (tax, insurance and big repairs US$10,500, plus a 10% manager fee US$3,300) | US$0 |
| Her place abroad | US$12,600 | US$12,600 | US$12,600 |
| Left over | −US$27,500 | +US$6,600 | +US$6,200 |
| What stays open | Her bedroom and her things | A tenant in her home, and a way back | No way back to this house |
When a tenant lives in the house, the tenant pays the utilities and the routine upkeep. Joan would still pay the tax, the insurance and the big repairs. The US$10,500 is an assumption, and a manager could say what is usual where she lives.
Joan looked at the bottom row. Between keeping the house empty and selling it, the difference was US$33,700 a year. Between keeping it empty and renting it, the difference was US$34,100. Between renting it and selling it, the difference was US$400.
She called Claire and read the columns aloud. After a long pause Claire said, "I didn't know it cost that much to keep my bedroom." Joan said she had not known either. Then Claire said what she would truly miss. It was the kitchen table, where she did her homework as a child.
That changed the conversation. The money said little about renting against selling. The question was what Joan wanted to keep. She could set the table aside for Claire. The house, with its roof and its taxes, was a different question from the table.
In the end Joan chose to rent the house for two years through a property manager and decide again afterward. She also made an appointment with an accountant. In the United States, a seller who has lived in a home for two of the last five years can leave out a large part of the gain from tax, up to US$250,000 for a single person. Renting for around three years can still leave that door open. The IRS explains the rule in Topic 701, and an accountant can check it against her own dates.
You could…
- Draw your own three columns, with the cost of your own place to live in every column.
- Ask a property manager what a tenant pays and what you still pay.
- Ask an accountant how rent and a later sale would be taxed where you live.
The columns use rough figures, before income tax and with prices held flat. Rent counts as income, the 4% is an assumption, and selling costs vary by place.
If you drew three columns for your house, which one would you hope wins? Tell us in the comments. Someone reading may be sitting with the same legal pad.
Figures are estimates for planning, based on public data.
Tell us in the comments