I live in an area that is rapidly growing. My current house (based on comps) has appreciated $50k in two years to give an example. I currently have an opportunity to buy another for a reasonable price in the same area. I have the cash on hand and the income to do it as well. I'm debating renting the original. Here's the issue: the average rent in my area is the same as my mortgage (which is fixed rate). So, with all things considered, renting would mean a loss. My question is this: given how rapidly the area is growing, does it make sense (or could it) to eat the loss for a while counting on 1) rent eventually increasing 2) the gains in the value of the house?

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    "Here's the issue: the average rent in my area is the same as my mortgage (which is fixed rate). So, with all things considered, renting would mean a loss." - This is a nonsensical statement. Your mortgage payment is a function of your agreement with the bank, it doesn't need to correlate with rent. Would you pay double the rent on the same house to a person who got a 15 year mortgage instead of a 30 year? No, that makes no sense.
    – Brady Gilg
    Jan 14, 2020 at 22:18
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    There's nothing nonsensical about it, I'm stating the current state of affairs. My monthly payment is $X per month, average rent is $Y per month. Currently, Y is less than X. Given that, I'm asking if renting could still make sense.
    – Pat
    Jan 15, 2020 at 21:03
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    Negative cash flow doesn't mean unprofitable. The problem underlying the question is potential for negative cash flow, which is fair to be worried about. Liquidity crunches are real. But, you may or may not have a "loss" in the tax and accounting meaning. The principal part of mortgage payments will show up nowhere on Schedule E. Try filling out a Schedule E for your expected year to see if you are likely to have a loss or gain. irs.gov/forms-pubs/about-schedule-e-form-1040
    – user662852
    Jan 16, 2020 at 2:11
  • @Pat The nonsensical part is the statement "renting would mean a loss".
    – Brady Gilg
    Jan 16, 2020 at 16:39

2 Answers 2


You are betting on the value of the property increasing.

Tax issues regarding rental property have a few subtleties.

  • the average rent in my area is the same as my mortgage (which is fixed rate).

    Don't forget property taxes and any HOA or condo fees. Some people forget that. For the typical homeowner these don't have any tax issues, but for a rental property these expenses are used to reduce taxes on the income. These expenses can also go up over the years. Some jurisdictions give a tax break to owner occupied properties, which the rental property would not qualify for.

  • The principal portion of the monthly payment doesn't reduce tax on the rental income.

    This can mean that the rental property owner can lose money each month via cash flow, but still owe taxes because a portion of the monthly mortgage payment.

  • Good news, you have to depreciate the property.

    That will help reduce your taxes. Of course when you sell the property that depreciation will be recaptured.

  • If you buy the new property, and turn it immediately into a rental property, then determining the expenses preparing it to rent, and determining the base value for depreciation is more straight forward. The downside is that the lender will require 20% down, and might charge a higher rate.

  • If you rent the original house handling the transition is more complex. You probably don't need a new loan, but if in the future you do want to refinance the lender will treat the loan differently.

  • Don't forget that you will have expenses with each new tenant, plus you could have a month or two without a tenant. Never forget repairs and maintenance.

The question is how long can you hang on with loss each month to make it worthwhile? Remember future increases in value are not guaranteed. People in my neighborhood took 10 years to get back to the peak after the 2006-2010 drop in prices.

  • So I should have worded that better. The average rent is the same as my monthly payment, that's including mortgage, taxes, etc. My plan with the new property is to make it a permanent residence for at least two years. It wouldn't immediately become a rental as well. Other points well taken, thanks for the anwswer!
    – Pat
    Jan 12, 2020 at 16:25
  • @Pat Make sure you read the last paragraph here a few times. Do not underestimate the chance that the market goes down, and not up. Jan 14, 2020 at 20:54
  • @Grade'Eh'Bacon Yup point well taken. I've been looking at the housing index for my area to see how it reacted to the last crash and how long the recovery took.
    – Pat
    Jan 15, 2020 at 21:04
  • @Pat Even the last crash may not look the same as the next one, if there is one... Jan 15, 2020 at 21:16

You say that since rent would be the same as your mortgage, you'd be operating at a loss, but that mortgage money doesn't disappear. Instead, you'd be trading ready cash for added principal on your mortgage. Is that worth it? Maybe. If you calculate that you'll lose $200/month in order to make a $1500/month mortgage payment, that's a reasonable tradeoff, and a different calculation than the one you seem to be making.

  • Interesting. I've seen that interpretation in some other places too. That's also a good point that that money isn't "gone" per se since it's being paid into principle.
    – Pat
    Jan 12, 2020 at 4:36

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