Would renting my house at a small loss still be a smart financial move?

My friend and I have been debating this for years now.

I have a small home with a $2200/month mortgage. I can rent it out for $2000/month, which leaves a $200 deficit. I’ve saved $4000 for rental incidentals and plan to set aside $150 monthly for maintenance. On top of that, I have enough in stocks to cover emergencies for at least a year if necessary.

My plan is to buy a modest new home for myself while letting renters cover most of my current mortgage. I understand I won’t be making money in the short term, but at $150,000/year in salary, I can handle the temporary loss.

My argument is this: if you see the house as an asset and the mortgage as debt, I may lose some cash flow now, but renters are still building equity for me. If I sell later, I get the payout from the rent they’ve been contributing. So, my net worth is actually increasing, even though my liquidity is taking a hit.

What do you think about this approach?

Edit: Since I originally posted this, the home’s value has appreciated enough that I can rent it out for more than the mortgage. But I still feel my strategy of accepting short-term losses for long-term gain holds up.

The issue is you’re just looking at the mortgage. Have you factored in vacancy rates, repairs, and the time or cost of managing the property? If it were me, I’d sell and avoid capital gains taxes (assuming you qualify). Then you could use the proceeds to pay off or invest in your next home.

@Stephany
Agree 100%. The mortgage is only part of the expense—don’t forget about the rest.

@Stephany
Good advice. Just to clarify, the capital gains tax exclusion applies if equity is under $250k for single filers or $500k for married filers, assuming the home meets the residency requirements.

A rental property with no cash flow isn’t a good investment. Your money could be doing better elsewhere.

Finley said:
A rental property with no cash flow isn’t a good investment. Your money could be doing better elsewhere.

Why isn’t it a good investment?

Oli said:

Finley said:
A rental property with no cash flow isn’t a good investment. Your money could be doing better elsewhere.

Why isn’t it a good investment?

If you took that money and invested it for an 8% annual return, you’d build more wealth in the long run than through rent.

Oli said:

Finley said:
A rental property with no cash flow isn’t a good investment. Your money could be doing better elsewhere.

Why isn’t it a good investment?

Compare the ROI to other options. You could park the cash in a HYSA or CDs at 5% or better. If this doesn’t beat that, why bother?

Oli said:

Finley said:
A rental property with no cash flow isn’t a good investment. Your money could be doing better elsewhere.

Why isn’t it a good investment?

Because it’s not making money. Real estate investing is about cash flow now, not just potential future gains. If this property isn’t cash flow positive, you’re better off selling and looking for a better opportunity.

What’s the reason you want to keep the house? Appreciation? Sentimental value? If you’re renting at $2000/month, why not bump it up to $2200 and break even?

Valentine said:
What’s the reason you want to keep the house? Appreciation? Sentimental value? If you’re renting at $2000/month, why not bump it up to $2200 and break even?

Even at $2200, you’re not breaking even. Maintenance will eat into that.

Valentine said:
What’s the reason you want to keep the house? Appreciation? Sentimental value? If you’re renting at $2000/month, why not bump it up to $2200 and break even?

Valid point about the rent. As for keeping the house, it’s not about location, but it’s a great home in a family-friendly area. My dad always told me not to sell good real estate if I don’t have to.

@Oli
Sounds like you can afford it, so why not try renting it for a year? If it doesn’t work out, you can always sell. Building a real estate portfolio can be a good move if done thoughtfully.

@Oli
But you’re assuming home prices will always go up. There’s a chance they could drop, and you’d have to sell at a loss.

“They won’t abuse the home.”

Famous last words. What if they don’t pay rent and just squat? What about major repairs like flooring, plumbing, or a new roof? My neighbor rented his house to what seemed like a good family. When he returned, the flooring was ruined because of their dogs.

You’re also planning to double down on mortgage debt for another home. Why not use your equity to reduce your new home’s mortgage instead? This sounds like mismanaging your finances.

I did something similar, and as long as you have emergency savings, it can work. Basically, you’re letting someone else pay off your debt while you move on to the next house.

We rented out a property at a $200/month loss, but it made sense because our 15-year mortgage was building $2000/month in equity. If your equity isn’t growing significantly, it might not be worth the risk.

It’s hard to give advice without more numbers. Are you including taxes, insurance, maintenance, and other expenses in your $2200? If not, the losses might be higher than you think. Also, are you prepared to manage the property yourself?

Are you asking if $2400/year in losses is worth potential appreciation? It depends on how much appreciation you expect.

How much equity do you have in the home?