How This Report Works
This calculator helps you decide whether keeping (or buying) a rental property makes more financial sense than selling it (or skipping the purchase) and investing the money in the stock market instead. Here's how to read it:
The Three Scenarios
- Existing Rental: You already own a rental. Should you keep renting it, or sell and invest the proceeds?
- Convert Primary Home: You're moving. Should you rent out your old home, or sell it and invest?
- Buy New Rental: You have cash for a down payment. Should you buy a rental, or invest that cash instead?
The Bottom Line: "Total Dollars Returned"
At the end of your holding period, we compare two numbers side-by-side:
- Rental path: All the cash you'd walk away with if you held the property and then sold it at the end — sale price minus mortgage payoff minus selling costs, plus any positive cash flow collected along the way (or minus any out-of-pocket shortfalls).
- Invest path: What your money would grow to in the stock market over the same time period.
Whichever number is bigger wins.
How the Rental Path Is Calculated
- Each year we estimate rental income, then subtract operating expenses (property tax, insurance, maintenance, vacancy, property management, HOA).
- We subtract the mortgage payment to get your yearly cash flow. Positive means money in your pocket; negative means you write a check.
- At the end of the holding period, we "sell" the property at the appreciated value, pay off the remaining mortgage, and subtract selling costs (agent commissions, closing costs) plus any capital gains tax and depreciation recapture.
- We add up all the cash flows plus the net sale proceeds to get your total dollars returned.
How the Invest Path Is Calculated
- We start with the equity you'd free up by selling today — your home's current value minus what you owe, minus the cost of selling, minus taxes due on the sale.
- Each year, if the rental would have produced positive cash flow, we assume you'd invest that too; if it would have lost money, we assume you'd have had to pull from investments to cover it.
- Everything grows at your assumed stock market return, and we apply tax at the end when you cash out.
Why Equity Matters
The biggest hidden cost of keeping a rental is the equity locked inside it. That money could be earning a market return elsewhere. This calculator makes that trade-off visible.
Selling Costs Are Counted on Both Sides
If you sell today (invest path), you pay selling costs now. If you sell at the end of the holding period (rental path), you pay selling costs then. Both paths bear that cost — neither gets a free pass.
Mortgage Paydown
Each rental payment chips away at the loan balance. That paydown is real wealth-building and is reflected in the final sale proceeds (smaller payoff = more cash to you).
IRR (Internal Rate of Return)
IRR converts all the cash flows over time into a single annualized percentage — like an interest rate on your money. It's the apples-to-apples way to compare the rental's performance to a stock market return.
Sensitivity Analysis
Real life never matches assumptions exactly. The sensitivity tables show how the result shifts if the market returns more or less, appreciation surprises you, maintenance is higher than expected, or you hold longer or shorter.
Important Caveats
- Expenses rise over time. Property taxes, insurance, and HOA grow each year at the expense inflation rate you set. Maintenance and property management already scale with property value and rent.
- Investment tax drag. The invest path assumes a 2% annual dividend yield taxed each year at your capital gains rate, with dividends reinvested. Remaining growth is taxed once at the end when you cash out.
- Tax estimates are approximate. Depreciation recapture, capital gains, and the Section 121 home-sale exclusion can meaningfully change the outcome. Talk to a CPA for your specific situation.
- Big repairs aren't modeled. A new roof or HVAC can wipe out a year of cash flow.
- Your time isn't priced in. Being a landlord is work, even with a property manager.
- Concentration risk: One property in one zip code is less diversified than a stock index fund.
Use this as a starting point, not the final word. The numbers are only as good as the assumptions you put in.
For educational purposes only — not investment, tax, or legal advice. Consult a qualified advisor.