What selling today nets against what holding it and collecting rent nets instead, year by year.
Value minus the mortgage payoff and 8% to sell it.
−$257 in cash flow along the way, plus $126,633 net when it eventually sells.
Holding it 5 years nets $36,376 more than selling today, before tax.
| Year | Net cash flow | Cumulative | Property value |
|---|---|---|---|
| Year 1 | −$51 | −$51 | $257,500 |
| Year 2 | −$51 | −$103 | $265,225 |
| Year 3 | −$51 | −$154 | $273,182 |
| Year 4 | −$51 | −$205 | $281,377 |
| Year 5 | −$51 | −$257 | $289,819 |
Rent and expenses are held flat across the years; only the property value grows, at the rate above. The mortgage balance is not amortized here since no interest rate is asked for, so the balance you entered is used at both the sale today and the sale after 5 years. A real payoff balance would be lower than that by then, which would make holding look a little better than shown. This does not model income tax on rental income, depreciation recapture, or capital gains tax on the eventual sale.
Appreciation compounds on the whole value of the house, not just the part you have paid off, so a longer hold usually wins the arithmetic here. What the arithmetic cannot see is your patience for being a landlord, or what a tenant does to the place between now and the year you actually sell.
Selling today is not modeled as the worse option. It is modeled as the certain one: one number, at closing, with no years of vacancy, repairs or a tenant behind on rent between now and then.