Owning a home with no mortgage provides you with a very big financial asset. It could represent the largest amount of money you have. If you want to move, you can sell your home or you can keep it and rent it out. This is an important decision and needs to be made based on your specific circumstances.
Whether it is better to sell your paid-off home or use it as a rental depends upon your current financial situation and your future goals.
The biggest advantage to selling is that you will get a nice lump sum of money. With no mortgage balance to pay, you will net the great majority of the sales price. If you have lived in the house for at least two of the last five years, you will also benefit from no taxes due on all or most of that money. All of this gives you the freedom to buy another house, invest, travel or do whatever else you want. Plus, you only have to be concerned with one property this way, whether you choose to buy another house, rent or follow a dream to live on a houseboat.
If the real estate market is down where you live, you might have to sell your home for a less-than-desired price. This is made worse if you think that prices could go up in the short term. By selling, you and your family also lose out on the house. What if you want to travel for some years and come back to the neighborhood? What if your children or other relatives end up needing the house? When you sell, you lose options that might be helpful in the future.
Besides being able to keep your house and the options that provides, renting your house gives you a stream of income, the monthly rent payments from the tenants. Since your house is paid off, you should realize a nice cash flow from the rental, even after expenses. This is especially true because as a landlord, you are entitled to many tax breaks, which should increase your net income. In the event you decide to sell later on, you will be free to do so, even with an existing tenant.
The single biggest disadvantage is that you will have to deal with tenant and property management issues. Tenants can cause sometimes significant damages to your house. Tenants can also cause you possible legal problems with your old neighbors or the local authorities. Your house will require maintenance and repairs in any event. What if the toilet stops working in the middle of the night? A way to take care of these problems is to get very good insurance and a professional property management company, but this will cost you money and reduce your net income.