Is Renting Smart When the Home Won't Sell?

Home owners who can’t sell their homes for what they think they're worth might find that renting buys them enough time for the market to rise.

But whether renting makes sense depends on various factors. Here are three questions to consider:

1. Do they need the cash? Sellers who can qualify for another mortgage without selling their current property are good candidates to be landlords. Lenders usually count 75 percent of the rent payments as income as long as the home owner finds a renter who will sign at least a one-year lease.

2. Can they rent the property for enough money? Major expense will include the cost of the mortgage, taxes, insurance, and repair bills. The cost of advertising and vetting tenants or of hiring a property manager can add another 10 percent of the rental cost or more.

3. Will they still meet tax exclusion requirements? Sellers who lived in a home for two years out of the previous five can exclude $250,000 of profit if they are single or $500,000 if they file jointly. If renting the property will preclude that, it may not be a good deal.