Enter any five of the following values into the calculator—monthly rental income, monthly rental expenses, total number of months the property will be rented, selling price of the property, purchase price of the property, and net gain/loss—to calculate the missing value.
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Rent Vs Sell Formula
The following formula is used to calculate the net gain or loss from renting a property for T months and selling it (relative to its purchase price):
Net\ Gain/Loss = (R - C)\times T + (S - P)
Variables:
- Net Gain/Loss is the total net rental profit over the rental period plus the gain/loss on sale (selling price minus purchase price)
- R is the monthly rental income
- C is the monthly rental expenses (including property management fees, maintenance costs, insurance, etc.)
- T is the total number of months the property will be rented
- S is the selling price of the property
- P is the purchase price of the property
To calculate the net gain or loss, subtract the monthly rental expenses from the monthly rental income and multiply the result by the total number of months the property will be rented. Then, subtract the purchase price from the selling price to find the gain (or loss) on the sale. Finally, add the rental result and the sale result to obtain the net gain or loss.
What is a Rent Vs Sell?
Rent vs Sell is a decision-making scenario often faced by property owners. It refers to the choice between renting out a property to generate a steady stream of income over a period of time (rent) or selling the property outright to realize a lump sum profit (sell). This decision is influenced by several factors including the property’s location, market conditions, the owner’s financial situation, and long-term goals. For instance, if the property is in a high-demand area with rising property values, the owner might choose to rent it out for now and sell it later when the property’s value has increased. On the other hand, if the owner needs immediate cash or if the property market is at its peak, selling might be the better option. Ultimately, the rent vs sell decision is a strategic one that requires careful consideration of various economic and personal factors.
How to Calculate Rent Vs Sell?
The following steps outline how to calculate the Rent Vs Sell decision.
- First, determine the monthly rental income, R ($/month).
- Next, determine the monthly rental expenses, C ($/month).
- Next, determine the total number of months the property will be rented, T (months).
- Next, determine the purchase price, P ($), and the selling price, S ($).
- Next, calculate the net rental profit over the rental period: (R − C) × T.
- Finally, add the gain/loss on sale (S − P) to get Net Gain/Loss = (R − C) × T + (S − P).
Example Problem:
Use the following variables as an example problem to test your knowledge.
Rental income ($/month) = 1500; Monthly expenses ($/month) = 400
Total number of months = 24; Selling price ($) = 200,000
Purchase price ($) = 180,000 → Net Gain/Loss = (1500 − 400) × 24 + (200,000 − 180,000) = 46,400
