We’re moving but have a $3 million home with a $1.2 million mortgage at 2.5% – should we rent it out or sell?

To rent or to sell, that’s the question on the mind of many homeowners who have enough financial firepower to make a down payment on a newer, pricier “dream” home. Of course, there’s really no right answer for everyone, given the personal aspects of personal financial situations and the different market environment we may all find ourselves in.

In any case, I’ll chime in on the specific case involving a Reddit user who’s moving to a $3 million home who’s looking to either sell their old home or hang onto it while renting it out. Let’s investigate the pros, cons, and which mode I’d personally make if I were in their shoes.

Renting out the second property makes a lot of sense given the mere 2.5% rate.

Perhaps the biggest shocker here is just how low the mortgage is on their existing home. They’ve got a fixed 2.5% rate, which is incredibly tough to come across these days. Given such a low mortgage rate on their existing home, I think playing the role of a landlord could prove quite lucrative. That is, if the Reddit user has enough income flowing in to allow them enough financial flexibility to juggle two mortgages.

Of course, it’s not so easy to balance two mortgages at the same time. Still, if the math checks out (it seems to for this Reddit user; a financial advisor should crunch the numbers to confirm) and one is fine with the added work of being a landlord, which can itself be a full-time job, steadily paying off one’s primary residence and rental property could be a wise move, especially since the latter has an incredibly low fixed rate. 

As an added bonus, the Reddit user also stands to profit from capital appreciation, especially if they reside in a bustling city. At the same time, there’s also the risk of near-term fluctuation, especially if tariff disruptions end up causing a recession that weighs heavily on the U.S. housing market. Either way, it sounds like this Reddit user is in it for the long haul, which should help iron out the price fluctuations bound to hit the housing market.

An expert seems like a must in this case. There are a lot of figures to double-check.

Of course, before making a move, I’d strongly encourage bringing aboard an advisor who’s well-versed in real estate investing. The best move may also hinge on the state of the market. Personally, I think there’s no sense in rushing a decision. If one opts to rent, one can always change one’s mind and sell later.

Either way, I’d encourage the Reddit user to not let “phantom” costs of managing two homes get the better of them. A double dose of mortgage payments, property taxes, insurance, and all the sort could leave limited financial wiggle room at the end of any given month. It’s a mistake to underestimate the impact of all costs, as they can add up to a nasty surprise at some point down the road.

Additionally, going too heavy on real estate with no exposure to other asset classes (think stocks, bonds, and gold) certainly doesn’t make for a very diversified portfolio.

Being a landlord isn’t for everyone.

Indeed, being a landlord sounds incredibly easy on paper, but, at times, it can be pretty hectic. Indeed, if you’re already in a demanding job that doesn’t allow you much room in your schedule to drive over to the old house to make a quick repair or call a plumber should a pipe burst in the middle of winter, it’s worth considering one’s options.

Rolling up one’s sleeves for a change of lifestyle or hiring a professional property manager are just some options to consider before making the plunge and becoming a landlord.

The bottom line

This Reddit user can’t go wrong by selling or renting out their existing property. If the math checks out, they should consider other aspects such as diversification across asset classes (selling the home and stashing the funds in the S&P 500 could make for a more diversified portfolio) and the lifestyle that comes with being a landlord.

Though an advisor specializing in real estate investments is the right person to contact, it’s my opinion that the ridiculously low 2.5% mortgage rate makes the case for renting (over selling) slightly more compelling.

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