Should you rent or sell your Denver home? Run these numbers first

Every month, owners call our Boulder office with the same question. They are moving, upsizing or relocating for work, and they have a low mortgage rate they do not want to give up. Should they sell, or keep the home as a rental?

There is no universal answer, but there is a clear way to decide. It starts with honest numbers, not the rent your neighbor mentioned at a barbecue.

Start with realistic rent

Pull rents for homes that actually leased nearby in the last six months, not asking rents on listing sites. A three-bedroom in Park Hill that might be advertised at $3,600 often leases for $3,300 to $3,400 after two or three weeks on the market. Use the lower number in your plan.

List the full cost of ownership

Most owners count the mortgage, taxes and insurance, then stop. A realistic rental budget also includes:

• Vacancy: plan for about one month every two years, or roughly 4 percent of annual rent.
• Maintenance and repairs: 1 percent of the home's value per year is a reasonable starting point for older Denver homes.
• Capital items: roofs, water heaters and furnaces do not care that the home is now a rental.
• Landlord insurance, which usually costs more than a homeowner policy.
• Property management, if you use a manager, typically 8 to 10 percent of collected rent.

Compare cash flow to what your equity could earn

Say your home is worth $750,000 and you owe $400,000. That is $350,000 of equity, minus selling costs of about 7 percent if you sold, leaving roughly $297,500. If that money earned 4 percent in a conservative investment, it would produce about $11,900 per year.

Now compare that to your rental's net cash flow after every cost above, plus the principal your tenant is paying down. If the rental produces meaningfully more, and you are comfortable with the risk, keeping it may make sense. If the numbers are close, the added work and concentration of risk usually favor selling.

Do not forget the tax clock

If you lived in the home for two of the last five years, you may be able to exclude up to $250,000 of gain ($500,000 for married couples) when you sell. Once you have been out of the home for more than three years, that exclusion is gone. Many owners rent for a year or two to test being a landlord, then sell before that window closes. Talk to a tax professional about your situation, since this is general information, not tax advice.

Think about the kind of landlord you want to be

Colorado has strengthened tenant protections in recent years, including rules on security deposits, application fees, habitability and notice periods. Self-managing is possible, but it requires staying current with those rules, answering calls at night and handling turnovers.

The cheapest tenant to find is the one you already have.

If you do rent, manage for renewals. Every turnover costs about a month of rent in vacancy, cleaning, paint and leasing time. Fast repairs and fair renewal pricing are what keep good tenants for years.

A simple decision guide

• Sell if your cash flow is negative or close to zero after realistic costs.
• Sell if you need the equity for your next purchase.
• Consider renting if cash flow is solidly positive and you plan to hold for five years or more.
• Consider renting if you may move back to Denver within a few years.

Get both numbers side by side

We can prepare a free rental analysis and a free valuation for the same home, so you can compare a realistic rent and management budget with your estimated net proceeds from a sale. Most owners make the decision within a week of seeing both on one page.

This article is general information for a demo website and is not legal, tax or financial advice.