How to Decide Whether to Do a Short Sale or Rent Out My House

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When deciding whether to short sale your home or rent it out, consider whether you are ready to take a financial blow that may take years to recover from. A short sale involves selling your house for less than the amount owed, a transaction which your lender voluntary agrees to after a lengthy evaluation process. The credit ramifications may hurt your ability to buy a home for several years and you may end up with a tax liability for the lender's loss. Although renting your home allows you to transition into more affordable housing, you maintain the financial burden of home ownership.

Hire a residential real estate professional, such as an agent, property manager or appraiser experienced in evaluating homes in your area, to provide a comparable rent schedule and an operating income statement; this report shows you what you can expect to pay for property management, utilities and other maintenance costs. It also tells you how much rent you can collect each month based on current market conditions and competing rentals. Alternatively, research rental rates on your own by check online resources such as online classified ads, and Also, check property management companies, local newspapers and visit comparable rental properties to get a better idea of what your home can rent for.

Put together a list of recurring expenses you will encounter as a landlord, such as gardening and trash service, to determine how much it costs to keep up the property. Add the monthly housing payment, which includes loan principal, interest, taxes, an insurance, as well as HOA dues to these recurring expenses. Refer to your most recent mortgage statement, tax bill, insurance policy and HOA bill for exact figures.

Add the expected housing costs of the new home or rental you expect to move into to the rental income or loss. If you calculated a negative figure, subtract it from your expected housing expense. Divide this figure by your current gross income. For example, if you calculated a rental loss of $200 per month and want to buy another home that has a monthly payment of $1,100, your total housing costs are $1,300. If you earn $4,000 a month, than you will use .325, or approximately 33 percent of your income to pay for your homes. A homeowner can safely afford to spend 28 percent of his income on housing. Consider renting a place with a rent low enough to bring your overall monthly housing expense down to an affordable range. This helps you keep your current house as a rental and avoid short sale.

Add your total expected housing payments to your other monthly expenses, including transportation, insurance, groceries and credit cards and other loans, to determine whether you can reasonably afford to keep your current house as a rental. Experts recommend you spend no more than 36 percent of your income on housing and other recurring debt. A borrower with monthly obligations which exceed these benchmarks is well-positioned to short sale under most lenders' standards.


  • Consult with a tax expert, attorney and your lender to determine possible liability after a short sale.