Updated September 29, 2026
The conversation usually starts the same way. A family in Germantown or Collierville has found the next house, a bigger one or one closer to a new job, and somebody at the kitchen table says, “What if we just kept this one and rented it out?” The mortgage is at 3%. The house is paid down. Rents in these school zones are strong. Selling feels like throwing away a good thing.
Sometimes keeping it is the smart play. Just as often, it turns a clean move into a second job with a tax bill at the end. If you’re asking “should I rent my house or sell it,” the answer depends on four things: what the rent really nets after costs, what your equity could do in the next house, a three-year tax clock most people don’t know is running, and whether you want to be a landlord at all.
We’ll go through each one with an illustrative example. The numbers below are made up to show how the math works, not a quote on your house or a read on the market. Your own figures will be different, and they’re the only ones that count.
The case for keeping it
Keeping your house as a rental when you move has real advantages in the east metro, and it’s fair to lay them out first.
Your old mortgage rate stays with the old house. If you locked in at 3% a few years ago, a tenant is now paying down a loan that costs you less than any investment loan you could get today. The tenant pool in Germantown and Collierville is about as good as it gets for a landlord, too: families who want the school zone and aren’t ready or able to buy in it yet. We covered who those renters are, and why they tend to stay and take care of the place, in our guide to buying a rental property in Germantown or Collierville.
And you already know the house. You know which window sticks, how old the water heater is, and what the HVAC sounds like before it quits. A first-time landlord who buys a rental outright doesn’t get that head start.
The math that decides it
Everyone looks at the rent check first, and it misleads people more than any other number. Rent covering the mortgage proves very little. What you want to know is what the house earns compared with what the same equity would do if you sold.
What the rent nets
Take a made-up Germantown three-bedroom. The owners bought it in 2019 for $340,000 with a $300,000 loan at 3.25%. It might sell for around $500,000 today, and they still owe about $255,000.
Their principal and interest is roughly $1,306 a month. Add property taxes and a landlord insurance policy, call it $550 a month for this example, and the full payment lands near $1,856. Say the house rents for $2,900.
That looks like $1,044 a month in profit. It isn’t. Set aside about 10% of rent for repairs ($290). Plan for a month of vacancy a year, which works out to about $242 a month. If you hire a property manager at 10% of rent, that’s another $290. What’s left is roughly $220 a month with a manager, or around $510 if you manage it yourself and don’t count your weekends.
What the equity could do instead
Now run the other branch. If they sell at $500,000 and spend roughly $35,000 on commissions and closing costs, they walk away with about $210,000 after paying off the loan.
Put that $210,000 toward the next house and the new mortgage is $210,000 smaller. At an illustrative 6.5% rate, that’s about $1,330 a month less in principal and interest on the new loan. So the rental’s $220 of monthly cash flow is competing against $1,330 of payment they could have avoided. On cash flow alone, selling wins by a wide margin, and plenty of families never run this comparison before they decide. Our post on whether to give up your low mortgage rate to move walks through that payment gap in more detail.
Where the rental catches up
Cash flow isn’t the whole return, though. The tenant is paying down that 3.25% loan, about $7,400 of principal a year at this stage. If the house appreciates 3% a year (an assumption, not a forecast), that’s another $15,000 or so on paper. Stack those together and a well-run rental in a steady suburb can come out ahead over a long hold, especially if you’d have had the down payment covered anyway.
So keeping the house is a long-term wealth play that pays you very little month to month, and it only works if you have the cash to fund the next purchase without the old house’s equity. If you need that equity for your down payment, selling usually settles the question before the rental math even starts. Get a real number for your house first. A home value estimate plus your current loan statement is enough to fill in both branches.
The three-year tax clock
This is the part that turns a good rental decision into an expensive one.
When you sell a home you’ve owned and lived in for at least two of the last five years, federal law lets you exclude up to $250,000 of gain from capital gains tax, or $500,000 if you’re married filing jointly. In our example, the gain is about $125,000 ($500,000, minus $35,000 in selling costs, minus the $340,000 they paid), and it would be tax-free if they sold today. We explain that exclusion, and why it’s the best tax break a homeowner gets, in our post on the tax benefits of owning a home in Memphis.
The catch is the five-year window. Once you move out, the two years you lived there start sliding out of it. Generally, if you lived in the house for two full years right before moving, you have about three years from move-out to close a sale and still qualify. After that, the whole gain can become taxable.
And three years isn’t really three years. You need time to give a tenant proper notice, get the house ready, list it, and close. If you move out in June 2027, you probably want the house on the market by early 2030, not a few weeks before the deadline. We’ve seen owners plan to “rent it for a couple of years and see” and then realize in year three that the clock has nearly run out.
Depreciation follows you to the closing table
While the house is a rental, the tax code expects you to depreciate the building over 27.5 years. That deduction helps each year by offsetting rental income. When you sell, though, the depreciation gets taxed back, usually at a rate of up to 25%, and the home-sale exclusion doesn’t cover it.
In our example, the depreciable basis is roughly what they paid minus the land. If the land is worth about $70,000, that leaves $270,000, or around $9,800 a year of depreciation. Rent the house for three years and sell, and about $29,500 of depreciation comes back as taxable income, even if the rest of the gain is excluded. At that 25% ceiling, that’s a federal bill of up to about $7,400 on a sale you thought was tax-free. The rule also applies to depreciation you were allowed to take, whether or not you claimed it, so skipping the deduction doesn’t dodge it.
Two more wrinkles for your CPA, ideally before a tenant signs anything. Paper losses on a rental generally can’t offset your salary once household income passes about $150,000, which covers a lot of east-metro families; they carry forward until you have rental profit or sell. And if the house is worth less than you paid on the day you convert it, you generally can’t deduct that earlier drop when you sell.
Financing the next house with a rental in the mix
Keeping the old house also changes how a lender looks at you for the new one. You’ll be carrying two mortgages, and your debt-to-income ratio has to support both.
Rent helps, but usually not dollar for dollar. On many conventional loans, a lender can count a portion of the rent from a signed lease, commonly around 75% of it, to allow for vacancy and upkeep. First-time landlords often face tighter rules. Without a history of managing rentals, the rent may only be allowed to cancel out that house’s own payment. It won’t count as extra income. Lenders may also want a signed lease and proof of the tenant’s deposit before closing on your new place. Guidelines differ by loan type and change over time, so treat this as a sketch and get the specifics from your lender.
That’s why this question belongs in your pre-approval conversation, not after you’ve found the new house. Ask the lender to run it both ways: once with the old house sold and once with it kept as a rental. If keeping the rental knocks $75,000 off what you qualify for, that’s the real price of being a landlord, and it’s better to see it before you fall for a house. And if you’re trying to buy before you sell either way, our guide on whether to sell before buying or buy first covers bridge loans and contingent offers.
Two smaller items to check. Most owner-occupied loans require you to live in a house for a period, often a year, after buying it, so a recent purchase may not be ready to convert yet. And your homeowners policy almost certainly won’t cover a house with a tenant in it. Call your agent about a landlord policy before the lease starts.
Landlord realities in Germantown and Collierville
The spreadsheet can say yes while the rest of your life says no.
The HOA can end the plan before it starts. Many subdivisions in both towns have covenants that limit rentals, whether that’s a cap on how many homes can be leased at once, a minimum lease length, or board approval for each new tenant. Some neighborhoods have a waitlist once the cap is reached. Read your covenants before you promise yourself a rental income, and ask the HOA directly whether you’re under the cap today.
Tennessee is generally seen as landlord-friendly, and Shelby County falls under the state’s Uniform Residential Landlord and Tenant Act, which sets rules for leases, security deposits, repairs, and ending a tenancy. The deposit rules trip up new landlords most. Tennessee expects the deposit to sit in a separate account used only for deposits, not in your checking account, and there are deadlines and paperwork for returning it. Pay a local real estate attorney for an hour to review your lease. It’s cheap next to one botched eviction.
Then there’s the work. Taxes don’t get a break because you rent the place out, and you’ll still pay both the county and city bills in Germantown or Collierville. Our breakdown of property taxes in Germantown and Shelby County shows how those two bills work. You’ll also field the call when the AC dies in August, deal with turnover every year or two, and repaint and re-carpet between tenants. Plenty of owners who move farther than a short drive away end up hiring a manager, which is how a $510 month becomes a $220 month.
When selling is the better call
Selling tends to win when:
- you need the equity for the next down payment
- you’re moving out of the area and would be managing from a distance
- your HOA caps or restricts rentals
- you’d need the house to sell within about three years anyway
- your tax picture makes depreciation recapture and suspended losses a bad trade
Keeping it tends to win when you can fund the next house without the old equity, the old loan has a low rate and a payment the rent clearly covers, the HOA allows it, and you’re comfortable holding the house for many years, well past the point where the tax exclusion lapses.
If you’re selling, don’t start a big remodel on the way out the door. It rarely earns back its cost before closing. Our list of the home improvements with the best ROI before selling shows which smaller projects do.
Pick the sale year before you sign the lease
If you keep the house, decide which year you’d sell it before a tenant ever moves in. Write it down. If that year is within three years of your move-out, you’re really running a short-term rental against a tax deadline, and selling now is often cleaner. If you can’t name a year at all, that usually means you haven’t decided to be a landlord. You’ve just put off deciding whether to sell.
If you’d like help running both sides of this with your real numbers, including a sale price for the current house and what’s available in Collierville and Germantown for the next one, get in touch. We’ll build the comparison with you, and we’ll tell you when your CPA should weigh in.
