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Weighing Risks, Rewards of Renting Out a Home

In many major metropolitan areas across the country—places including Miami, Atlanta, Memphis—rents are higher than typical mortgage payments. In fact, as the the price of real estate appreciated at staggering rates over the past year, rent price growth recovered and now has "sped past what levels were projected to have been based on pre-pandemic trend," according to Zillow's latest rental market report. That has left 33 of the 50 largest metropolitan areas with typical rents that are higher than typical monthly mortgage payments, including insurance and taxes, Zillow reported. Meanwhile the company has introduced tools, including a return-on-investment calculator, which they say make it simpler for would-be landlords to determine what it would take for them to rent out their property and to weigh the pros and cons.

The ability to work from home has severed or seriously stretched the commute for millions of Americans and opened up new opportunities for them to live where they like. A recent Gallup poll found 52% of U.S. workers are in at least partially remote jobs, while 33% are fully remote. At the same time, market conditions have created a need for homes and, for some homeowners who may have struggled financially during the pandemic, a need to find extra income without having to sell their home.

"For homeowners looking to explore life in a top metro for digital nomads or favorite vacation town without selling their current house, renting can open the door," pointed out Zillow Home Trends Expert Amanda Pendleton.

Property owners who rent out their home for more than their monthly mortgage payments can use the difference for traveling, catching up on bills postponed during a pandemic, or savings, Zillow's authors note. And they also would be entering a market with high demand for the product they are peddling.

"Single-family homes comprise about one-third of the nation's total rental stock," said Zillow Economist Alexandra Lee. "Owners who do rent out their properties can provide both much-needed rental inventory in tight markets as well as sought-after space and amenities for families looking to move up from an apartment."

Zillow pointed out that its new Rental Property Calculator is designed to help independent landlords determine if their prospective purchase makes financial sense.

As the Zillow literature reads, "a rental property can be a profitable real estate investment if you understand the risks involved as well as the potential return on investment (ROI). Our rental property calculator looks at the upfront investment costs, expenses and earnings to calculate the ROI. Simply adjust the sliders on the calculator below to customize the financial details."

The calculator factors in property price, home appreciation forecasts, expected rental income, mortgage rates and more to find when the purchase will break even and begin to pay itself off.

Access the suite of tools and information for would-be landlords at Zillow.com.

About Author: Christina Hughes Babb

Christina Hughes Babb is a reporter for DS News and MReport. A graduate of Southern Methodist University, she has been a reporter, editor, and publisher in the Dallas area for more than 15 years. During her 10 years at Advocate Media/Dallas Magazine, she published thousands of articles covering local politics, real estate, development, crime, the arts, entertainment, and human interest, among other topics. She has won two national Mayborn School of Journalism Ten Spurs awards for nonfiction, and has penned pieces for Texas Monthly, Salon.com, Dallas Observer, Edible, and the Dallas Morning news, among others. Contact Christina at [email protected]
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