- - I inherited a $300K home with no mortgage. Here’s the math on whether it’s better to sell and invest the lump sum, or rent the home for $1,800 a month

Danielle AntoszFebruary 1, 2026 at 6:30 PM

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Pensive middle-aged woman at home sitting on the sofa.

Inheriting a home with no mortgage can be a major boost to your finances. However, there’s a notable caveat: Deciding how to make the most of the inheritance can be really stressful.

Jasmin is one of many Americans in this hypothetical situation.

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Her mom passed away, leaving Jasmin — an only child — with a fully-paid off home valued at $300,000 and the common dilemma of deciding whether to sell the property or rent it out.

On paper, Jasmin is fortunate. Many Americans inherit much less — the average amount passed down is $46,200, according to the Federal Reserve (1).

Still, inheriting real estate brings its own set of surprisingly complicated challenges and the choice Jasmin makes could have long-lasting consequences for her future.

Option 1: Rent it out

Emotional attachment, combined with the appeal of a steady income, may make holding onto the property feel like the right move. That argument becomes even stronger if Jasmin believes home prices will continue rising.

After doing some research, Jasmin finds her mom’s house could be rented for about $1,800 a month, or $21,600 a year. But not all of that money would end up in her pocket.

As a landlord, she’ll need to cover property taxes, insurance, maintenance and repairs, potential vacancy periods and — if she doesn’t want to manage the property herself — property management fees. Together, those costs could easily total around $12,000 a year, leaving Jasmin with $9,600, or about $800 a month, before taxes.

To judge whether renting makes financial sense, she can calculate the net rental yield.

Dividing $9,600 by the home’s $300,000 value and multiplying by 100 gives her a return of 3.2%, before taxes and appreciation. That represents the income component. On top of that, you have the changing value of the property, which is hard to predict.

The upside of renting is steady cash flow and potential long-term price gains. The downsides, meanwhile, include landlord responsibilities, tenant risk, unexpected expenses, local market downturns and returns that may trail long-term stock market performance.

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Option 2: Sell the home and invest the cash

The main alternative, aside from living in the house herself, is selling it and, ideally, investing the proceeds.

If Jasmin sells the home at its $300,000 market value, she wouldn’t owe capital gains tax because it wasn’t sold for more than it was worth when she inherited it (2).

However, that doesn’t mean she walks away with the full amount. Real estate agent commissions typically run around 5% of the sale price, and there are additional expenses such as title, taxes and legal fees (3). In Jasmin’s case, those costs total $21,000, leaving her with $279,000 to invest.

What that money earns depends on how much risk she’s willing to take.

If Jasmin wants safety and easy access, she might be able to earn around 4-5% annually.

Conversely, if she’s comfortable investing in the stock market, say, through a low-cost ETF tracking the S&P 500, history suggests she could earn closer to 10.9% a year over the long term, before fees (annual rates can vary year to year) (4).

How does that compare with renting the home?

According to the S&P Cotality Case-Shiller U.S. National Home Price Index has climbed 87.6% in the last ten years alone (5).

Obviously, prices could rise more or less over the next few decades and all locations have experienced the same growth. However, combining that historical appreciation rate with the rental’s 3.2% income yield implies a total annual return of about 7.6%, before taxes.

Key questions to ask before deciding

Deciding whether to sell an inherited home or keep it as a rental is as much about personal circumstances as the math. Two people with the same property and identical numbers could reasonably make opposite choices based on their goals, lifestyle and tolerance for risk.

To determine what makes the most sense for you, start by asking yourself the following questions:

How hands-on do you want to be? Being a landlord isn’t passive. Even with a property manager, you’re responsible for major repairs, vacancies and big decisions. If you want a hands-off option, selling and investing may be the better fit.

Do you actually want to keep the house? Try to think rationally. Are you attached to the house or do you feel obliged to keep it out of guilt?

Income or growth? If you favor regular income and the net rental yield is 5% or higher, renting could be the best move. Conversely, if your objective is to make your money grow in value more, history suggests the stock market is the surer bet.

What are the tax implications? Rental income is taxed like other ordinary income, while long-term investment gains are usually taxed at lower rates (6). Selling sooner may also reduce the risk of future capital gains taxes. State-level taxes and landlord regulations can further shift the narrative.

Do you need liquidity or flexibility? A rental ties up capital. Selling provides cash that can be invested, rebalanced or used for other goals, such as buying a home, paying down debt or covering emergencies (though borrowing against the value of your property is also an option).

How concentrated is your wealth? Keeping the home means a large share of your net worth remains tied to one property in one location. Selling allows for broader diversification.

What does the local rental market look like? Strong demand, rising rents and low vacancy rates favor renting. Weak demand or heavy regulation may tip the balance toward selling.

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Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Board of Governors of the Federal Reserve System (1); The Siegel Law Group (2); Clever (3); S&P 500 Data (4); S&P Global (5); IRS (6)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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Source: “AOL Money”