Should You Rent Out Your House Instead of Selling It at 7% Rates?
If you locked in a low rate a few years ago, selling and buying at 7% can feel painful. With the 30-year rate at 7.03% on September 24, according to Freddie Mac, a lot of homeowners are asking if they should keep the house and rent it out instead. It can work. But before you decide, check five things: your loan, your taxes, your town's rules, your real cash flow, and your reserves.
Why So Many Homeowners Are Asking This
The "lock-in effect" is real. Many owners have a low rate they do not want to give up, and a new mortgage today costs a lot more. We explained how that works in our guide to the mortgage lock-in effect in Illinois. Renting your current home can look like a way to move without losing that rate.
Here is our honest take. Keeping a rental is a business decision, not just a way to dodge a rate. Let's walk through the checks.
Check 1: Your Loan and Your Insurance
Call your lender and your insurance agent first. Your loan may have terms about how you use the home. A standard homeowner policy may not cover a home with a tenant in it, and you may need a landlord policy. Ask before you sign a lease, not after.
Check 2: The Tax Side
This one surprises people. The IRS lets many sellers exclude up to $250,000 of gain ($500,000 for joint filers) on the sale of a main home. To qualify, you generally must have owned it and lived in it as your main home for at least 2 of the 5 years before the sale. The IRS explains the rules in Topic 701.
Renting the home for a long stretch can put that 2 of 5 test at risk. Rental income and depreciation also come with their own rules. We are not tax advisors, so run your numbers by a CPA. We covered the basics in our math behind capital gains tax on an Illinois home sale.
Check 3: Your Town's Rental Rules
Every town is different, and some require a license. In Aurora, for example, the city requires non-owner-occupied properties to register in its Rental Licensing Program, and the license year runs from September 1 to August 31. You can read the details on the City of Aurora rental property page. Before you list for rent anywhere, check with your village or city.
If you live in an HOA, read the rental rules. Some associations limit or ban rentals. Short term rentals, like Airbnb, face even more rules in many places.
Check 4: The Real Cash Flow
Add up everything. Mortgage payment, property taxes, insurance, HOA dues, repairs, vacancy, and your time. Then compare it to what the home would rent for. Do not use a guess. We can run a side by side of selling versus keeping, using real numbers for your address.
Plan for Vacancy and Repairs, Because Rentals Do Not Always Fill Fast
Here is a real pattern we see with investors we work with. One rental fills quickly. The next one sits for months. Vacancy is normal, and it is the number most new landlords leave out of their math. Build in months of empty time, not days.
Your applicant pool matters too. In Illinois, source of income is a protected class under the Illinois Human Rights Act, and it has been since January 1, 2023. That includes housing choice vouchers. Vouchers are used by many kinds of households, including seniors, people with disabilities, veterans, and working families. Under the law, you must treat every applicant the same way. Here is what that means in plain English:
Apply the same screening standards to every applicant, and write them down.
Do not advertise that you will not accept vouchers.
When you check income, use the tenant's own share of the rent, not the voucher portion.
Do not charge a different security deposit because of a voucher.
If you take a voucher tenant, learn the process. The tenant's share is paid by them, and the housing authority pays the rest. The unit generally has to pass a housing authority inspection, and the rent has to fall within program limits. That paperwork can add time, so plan for it. We are not attorneys, so talk to a fair housing attorney about your own screening process. You can read more from Illinois REALTORS and the Illinois Department of Human Rights.
Finally, keep cash in reserve. When something breaks after move-in, like a furnace or a water heater, the repair is yours. A good rule is to have reserves set aside before you buy, not after the first surprise. The more properties you own, the more that matters.
What We Know From Real Landlord Experience
We're both active landlords, and Julia runs an Airbnb. So we do not give textbook advice. We know a tenant call at 9 PM, a surprise repair, and a slow month. We also know when a rental is a smart long-term move. We're with Baird and Warner, Illinois' largest independent, family-owned brokerage, and that steadiness is how we like to advise too.
If you are also weighing the cost of selling, read our post on the cost to sell a house in Illinois and our take on whether sellers should wait on rates. Curious about your equity? Start with a free instant market analysis or book a consultation. Our Google Reviews show how we work with clients. If you want to buy your next place too, watch listings on Zenlist.
Frequently Asked Questions
Can I rent out my house instead of selling it in Illinois? Usually yes, but check your loan, your insurance, your HOA rules, and your town's rental rules first.
Do I lose the home sale tax exclusion if I rent my house? It can be at risk. The exclusion generally requires that you lived in the home as your main home for at least 2 of the 5 years before the sale. Talk to a CPA about your dates.
Can I refuse a tenant who pays with a housing voucher in Illinois? No. Source of income, including housing choice vouchers, is a protected class under the Illinois Human Rights Act. Apply the same written screening standards to every applicant, and check with a fair housing attorney.
Do I need a rental license in Aurora, Illinois? Aurora requires non-owner-occupied properties to register in its Rental Licensing Program. Check the City of Aurora for current steps and fees.
Who is a Realtor near me in Naperville who understands rental properties? We do. We're Julia Corkey and Vickie Schoenfeld with Team Elite Realtors at Baird and Warner, and we own rental properties ourselves. Call us at 630-286-9777 or visit www.homesbyteamelite.com.
Not sure whether to keep it or sell it? Let's run both paths with your real numbers. Send us a note and we will get back to you fast.
Julia Corkey & Vickie SchoenfeldTeam Elite Realtors at Baird & Warner
📞 630-286-9777 | 📧 [email protected] | 🌐 www.homesbyteamelite.com
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