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Expat Job - Sell the house or rent it?

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Hi FWF - 12 months ago my wife and I bought our first house.  Now I have an opportunity to do an 18 months expat assignment in Europe with option to extend.  The company will pay relocation and housing costs in the destination country, but I need to decide what to do with our current residence.

The house is a SFR in a desirable suburb of a major metro.  High owner occupancy, good schools, close to several major employers.  Property values are up 11% YoY in our zip code, median price is ~$1M..  This is a starter house, we paid 500K and put 20% down.  PITI is $2,700.  There aren't many rental comps, but I see some listings between $2,200 - $3,100 in the past 12 months.

My income ~$145K.  Her income ~$62K.  No debt other than the mortgage.  For planning purposes I am assuming my income stays flat and hers goes away.

Do we:

A) Leave it unoccupied and take the cash flow / savings hit
B) Rent it out and try to manage it ourselves from overseas
C) Rent it out and hire a property management company
D) Sell it and incur the transaction costs

I've been managing my family's vacation property for the last 4 years so I have some experience with the headaches of dealing with tenants / guests.  We aren't particularly attached to the house - we assumed we would be here for 5-10 years and then sell.

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Safe to say, house is worth ~550k.They may have ~50k in depreciation.

RedWolfe01 (Jul. 23, 2017 @ 3:59a) |

My Dad had a Burbank, CA single family home back in the day managed by a professional who was also a personal buddy of m... (more)

JW10 (Jul. 24, 2017 @ 3:21a) |

There have been prior threads about this situation.

---
Here's another person's thread about the issue: https://www.fatwa... (more)

oppidum (Jul. 25, 2017 @ 1:50p) |

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rated:
C - rent it with a PM.

Leaving it unoccupied is a huge waste of cash.
I wouldn't sell it since you may be back in 18 months or less and you don't want all those transaction costs if they aren't necessary.
Landlording long distance is a pain so I'd recommend a PM.

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jerosen said:   C - rent it with a PM.

Leaving it unoccupied is a huge waste of cash.
I wouldn't sell it since you may be back in 18 months or less and you don't want all those transaction costs if they aren't necessary.
Landlording long distance is a pain so I'd recommend a PM.

  I concur. C is best option. If you decide to stay overseas after 18 months, sell the house.

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Definitely C

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Squatters!!!!! don't do option A
You should def do option c

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See if you can get your company to help with transaction costs of a sale or property management fees. Not unheard of in an expat situation, but probably depends on your seniority. Agree with others above - avoid A. Your homeowner's insurance would increase, probably substantially, on a vacant property (but maybe you could ask your company to cover the increase).

Another thing to consider: Is your company giving you return trips to the US as part of your package; and, if so, are they covering lodging?

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If you expect to return to this home within the next 2-3 years, definitely keep it. 5-7% transaction cost (plus 15% capital gains on any profits). Selling will net you, best case, a few thousand dollars. Conversely you can rent it out and have someone pay a good chunk of the mortgage for whatever period you're gone (+/- lease not coinciding with return time frame...fairly simple to plan around, I've done so twice).

Let's do worst case, $2,200 rent less 10% (can find lower) property manager fee, you're 'losing' $700/month. You're paying about $600/mo in principal on the place (30yr @4% amortization table), so in essence your worst case in renting (barring someone torching the place, etc) is the renter is paying the interest/taxes/insurance while you 'pay' down the principal. Budget $2k to have the place professionally cleaned-up and any small stuff fixed and voila, 2-3 years of free mortgage.

Don't do option A. Leaving it empty can get home owners insurance claim denied (since they assume it is occupied), can lead to squatters, and generally a terrible idea.

Recommend against option B, doing it yourself. Eating a property management fee for 18-36(?) months isn't a big deal and not worth the hassle.

Be upfront with your property manager about the length of time you expect to want to rent it for, but that you might want some flex. They can help guide appropriate tenants to the place and craft leases to match length, break terms, etc.

If you're against renting and don't want to sell, consider a house sitter. When were going to be across the country for ~9 months one time, it would've been difficult to rent for that period given we didn't know when we'd get approval to start assignment (nor firm length on when would be done). I had a friend who was trying to save up a house downpayment so we let her live in the house at no cost (she covered utilities) and she took care of the place. Worked for us. We did everything formally just in case. There are professional house sitters who can check up on the place daily/weekly if that's a route you want...though given the length you expect to be gone RENT IT OUT.

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Think about how much savings and investments you have. Can you easily take a hit on the rental rate vs PITI payment? If you were considering option A, I'm assuming the answer is yes. But you still have to consider if you want to own a property that you have to "feed" every month. Hiring a property manager isn't an easy as some people think....especially if you're going to be overseas and you have no relationship with the one you pick.

Your work may very well pay some moving costs or even the realtor commission.

You won't have any capital gains as you should be able to qualify for a reduced exclusion on the capital gains because of the job change. Double check with your tax professional but you should be fine.

My final two cents is....do you or your wife love the house? A house is a personal thing and if this is your dream home, it may not matter to make the best financial move.
EDIT:  I read the last line of your post.  To sum it up I think you should sell, not have to think about a property overseas, and enjoy your time there!

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expat2017 said:   There aren't many rental comps, but I see some listings between $2,200 - $3,100 in the past 12 months.That's quite a range. I find the zillow rent zestimate to be pretty good.
myfrogger said:   Can you easily take a hit on the rental rate vs PITI payment? If you were considering option A, I'm assuming the answer is yes. But you still have to consider if you want to own a property that you have to "feed" every month.He won't have to "feed" it that much, certainly not as much (probably between zero and a few hundred per month) as he'd lose in transaction costs by selling it ($25K-$30K).

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myfrogger said:   Think about how much savings and investments you have. Can you easily take a hit on the rental rate vs PITI payment? If you were considering option A, I'm assuming the answer is yes. But you still have to consider if you want to own a property that you have to "feed" every month. Hiring a property manager isn't an easy as some people think....especially if you're going to be overseas and you have no relationship with the one you pick.

Your work may very well pay some moving costs or even the realtor commission.

You won't have any capital gains as you should be able to qualify for a reduced exclusion on the capital gains because of the job change. Double check with your tax professional but you should be fine.

My final two cents is....do you or your wife love the house? A house is a personal thing and if this is your dream home, it may not matter to make the best financial move.
EDIT:  I read the last line of your post.  To sum it up I think you should sell, not have to think about a property overseas, and enjoy your time there!

  
I agree with the frogg....  if you don't have any particular attachment then don't keep it.  UNLESS you think that you are going to come back from the expat assignment and be assigned the same office/area/ect..   The Expats I know often were offered new jobs when they came back to the US in different areas of the US.   Your Employer CERTAINLY isn't going to hold your OLD job for you - they will bring you back when they need you somewhere in the US worse.  If your company has one major US office and your current house is near it then rent it out.  Otherwise sell.  Also you will need to account for storage costs of the stuff you don't intend to take with you -- you said they were providing lodging so most likely you won't need much.

Read up on the usual expat forums for the country you are being assigned to -- will let you know what you need to consider.  One thing - set up a VPN service and keep your Kindle/Netflix,ec... accounts open.  You can use them from overseas via VPN.  Get a good paid one, you get what you pay for. 

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BTW although this should not be a big factor, be aware that the taxes you owe on any rental property income will be a little higher than you might naively expect. If you run the numbers and you're on the fence, look closely at the tax implications.

The very short story is that if you have $200k in foreign income and $20k of US rental property income you will end up paying US taxes that amount to the rate for someone with $220k total income on that $20k -- i.e. something like 33% of the $20k US income, not something like 15% of the $20k US income. This can be a little surprising depending on what your expectations are about how the IRS treats foreign income and foreign taxes paid; the first year you file an expat tax return, if you do it yourself, you'll probably learn a lot.

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A: waste of $$
B: PITA to deal with tenants from afar
C: PITA to deal with PM company from afar (not worthwhile for ONE, low-end property)

D: Looks good. Use a "budget" RE agency to lessen trans. costs. Those seem like "relocation expenses." So ask employer for reimbursement.

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mherdegg said:   BTW although this should not be a big factor, be aware that the taxes you owe on any rental property income will be a little higher than you might naively expect. If you run the numbers and you're on the fence, look closely at the tax implications.

The very short story is that if you have $200k in foreign income and $20k of US rental property income you will end up paying US taxes that amount to the rate for someone with $220k total income on that $20k -- i.e. something like 33% of the $20k US income, not something like 15% of the $20k US income. This can be a little surprising depending on what your expectations are about how the IRS treats foreign income and foreign taxes paid; the first year you file an expat tax return, if you do it yourself, you'll probably learn a lot.
Nope, he won't generate any taxable income from this property -- it'll be a loss (I'm guessing a few thousand) after all expenses and depreciation. He also won't actually save any taxes from this loss (special allowance for passive activity loss phases out at 150K MAGI).

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mherdegg said:   BTW although this should not be a big factor, be aware that the taxes you owe on any rental property income will be a little higher than you might naively expect. If you run the numbers and you're on the fence, look closely at the tax implications.

The very short story is that if you have $200k in foreign income and $20k of US rental property income you will end up paying US taxes that amount to the rate for someone with $220k total income on that $20k -- i.e. something like 33% of the $20k US income, not something like 15% of the $20k US income. This can be a little surprising depending on what your expectations are about how the IRS treats foreign income and foreign taxes paid; the first year you file an expat tax return, if you do it yourself, you'll probably learn a lot.

  
You are ignoring the effect of the Foreign Earned Income Exemption -- although that also includes the value of the lodging.  (always thought THAT was unfair -- visit and stay in a hotel and its tax exempt, stay longer and you have to pay taxes on its imputed value)

Rental income will be offset by costs -- they JUST bought that house so it will likely be cashflow negative anyway.  The foreign income is no different to the US after the $100K exemption than income made into the US.  The US does have tax treaties with a lot of countries in Europe - so you will get at least partial credit for the taxes paid to the foreign country.  You may end up not owing anything to the US after FEI credit and taxes paid to the host country.  Depends how much you make and where you are.

11% YoY increases -- just say "Bay Area," LOL.  (Boston is high too, but not anywhere near 11%)

Friend of mine is in Malta right now as a PM.  Not sure we will ever get him back. 

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Been there, done that, C. is still a PITA when you're 8 time zones away, eventually sold the place.

eta: Not coming back from Malta? No kidding. Spend your weekends bobbing around Gozo in your little boat? Yeah I think I'd stay.

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If the area is so lucrative, it is probably rent controlled. If you do what everyone recommends in here, you may never get your house back. Research your rent control laws before you take fwf advice. Most people on here live in middle America and don't understand rent control laws.

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I would sell it. There is no telling how long you will be gone, or where you will come back to. Its just as likely that you will come back to a job in a totally different area, and would then have to sell it.

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Another vote for C. Do dd for management co.

I'm thinking re-entry costs. If I got this: lower priced home 500k in prime 1m median area.

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HKnight said:   See if you can get your company to help with transaction costs of a sale or property management fees. 
  This. many companies have very lucrative overseas compensation and relo packages that cover some costs as you're being forced to do a RE transaction that you normally wouldnt do

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expat2017 said:   The house is a SFR in a desirable suburb of a major metro.  High owner occupancy, good schools, close to several major employers.  Property values are up 11% YoY in our zip code, median price is ~$1M..  This is a starter house, we paid 500K and put 20% down.  PITI is $2,700.  There aren't many rental comps, but I see some listings between $2,200 - $3,100 in the past 12 months.

 

You are describing my area perfectly.  A friend just spent six months looking for a rental house in the $3,000 to $4,000 range and only lucked into one through a friend of a friend.  Coincidentally, she is renting from someone going overseas unexpectedly for a 2 year assignment.

If there aren't many rental comps, it is because there aren't many rentals!  You might be way off on your market rent simply because so few properties ever get advertised.  Do your due diligence with a professional in your area who handles rentals and you might find out that the numbers are better than you think.  I'd keep the house.

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Also, your taxes on the property will go up by about 50% when there is no "homestead" on the property. 

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letsspendlotsofmoney said:   Also, your taxes on the property will go up by about 50% when there is no "homestead" on the property. 

Like a lot about property taxes, that is very specific to your state. It is not the case for a couple I'm familiar with.

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SlimTim said:   letsspendlotsofmoney said:   Also, your taxes on the property will go up by about 50% when there is no "homestead" on the property. 

Like a lot about property taxes, that is very specific to your state. It is not the case for a couple I'm familiar with.


Prop 13 limits property tax increases to 2% per year.

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rentc said:   
SlimTim said:   
letsspendlotsofmoney said:   Also, your taxes on the property will go up by about 50% when there is no "homestead" on the property. 

Like a lot about property taxes, that is very specific to your state. It is not the case for a couple I'm familiar with.


Prop 13 limits property tax increases to 2% per year.

 prop 13 apply to non-homestead? pretty slick deal in CA

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Definitely C !!

A) Major waste of money
B) Not worth the effort and headache. It's difficult managing from multiple time zone away, not worth the risk.
D) If it's in a 'High owner occupancy, good schools, close to several major employers', I don't see why you want to incur that cost and start again when you return.

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rentc said:   If the area is so lucrative, it is probably rent controlled. If you do what everyone recommends in here, you may never get your house back. Research your rent control laws before you take fwf advice. Most people on here live in middle America and don't understand rent control laws.You bring up a valid point of the possibility of rent control, but you overstate its probability.
rufflesinc said:   rentc said:   SlimTim said:   letsspendlotsofmoney said:   Also, your taxes on the property will go up by about 50% when there is no "homestead" on the property. Like a lot about property taxes, that is very specific to your state. It is not the case for a couple I'm familiar with.Prop 13 limits property tax increases to 2% per year. prop 13 apply to non-homestead? pretty slick deal in CAProp 13 (CA only) applies to all properties. Property tax for renter-occupied property is approximately $70 per year higher than owner-occupied ($7000 homeowner exemption * ~1% tax rate).

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while I would likely suggest C like everyone else, there are some other important variables:

1) you havent said what your house is actually worth. is it ~1MM? so you are currently maxed out on your homeowner cap gains exclusion of 500k, assuming you are MFJ. just something to think about. that exclusion may not be as generous in the future - nobody knows. if it goes away, that's a huge profit hit (~75k). also, 500k tax-free is huge for people in your income bracket, IMO.
2) putting a renter in there can complicate timelines. the gig is 18 months - most renters stay longer than that, especially in really nice areas. if they don't want to go, you may have to evict them and that's not fun for anyone, and incurs some risks.
3) the state of your possessions. moving is exhausting and expensive - i see the allure of option A. you might consider a [furnished] corporate rental, for this reason AND because the term would be shorter. plus you can typically ask more $.
4) i am a long-distance landlord....for about 15 units! it's not so bad once you have good tradespeople. i have a lot of older houses so there is more upkeep...you might have very little if the place is newer or renovated. plus rent payments are so easy now with venmo, quickpay, etc. you might think the hassle is worth $3.5-4k/year in fees (for your house), or you might not.
5) long shot, but you're not in an association that restricts rentals, are you?
6) property tax freezes in CA, as other posters have mentioned. potentially huge to give that up.

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solarUS said:   1) you havent said what your house is actually worth. is it ~1MM? so you are currently maxed out on your homeowner cap gains exclusion of 500k, assuming you are MFJ. just something to think about. that exclusion may not be as generous in the future - nobody knows. if it goes away, that's a huge profit hit (~75k). also, 500k tax-free is huge for people in your income bracket, IMO.
 

  Safe to say, house is worth ~550k.They may have ~50k in appreciation.
expat2017 said:   12 months ago my wife and I bought our first house.  <snip>
Property values are up 11% YoY in our zip code, ...
This is a starter house, we paid 500K and put 20% down. 

  

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fwuser12 said:   
solarUS said:   1) you havent said what your house is actually worth. is it ~1MM? so you are currently maxed out on your homeowner cap gains exclusion of 500k, assuming you are MFJ. just something to think about. that exclusion may not be as generous in the future - nobody knows. if it goes away, that's a huge profit hit (~75k). also, 500k tax-free is huge for people in your income bracket, IMO.
  Safe to say, house is worth ~550k.They may have ~50k in appreciation.
expat2017 said:   12 months ago my wife and I bought our first house.  <snip>
Property values are up 11% YoY in our zip code, ...
This is a starter house, we paid 500K and put 20% down. 

  

  
Safe to say, house is worth ~550k.They may have ~50k in depreciation.
 

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My Dad had a Burbank, CA single family home back in the day managed by a professional who was also a personal buddy of many years. The neighborhood changed character over time. He finally accepted the notion he was never going to get back there and sold.
I am a former Realtor but in a lower level of client. I have managed property for others and myself. I have lived in Europe for three years. Given you would have some very expensive transportation costs if Murphy arrives at your current home ... not to mention the emergency money reserves needed for the situation you describe. I like plan C, but my real world experience says SELL and take the hit now. Odds are you can invest that emergency fund money better and safer in today's market.

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There have been prior threads about this situation.

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Here's another person's thread about the issue: https://www.fatwallet.com/forums/finance/1449616

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Here's a thread by someone else: https://www.fatwallet.com/forums/finance/1355408

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One person who spoke a lot about moving overseas and planning to rent his US house, along with later reporting what happened with that and what he would have done differently, was Fatwallet member "nasheedb".

Here are two of his relevant threads, but there are more, I think, that talked about renting his house out.

After reading these, you can click on his name in the sidebar and be taken to his other threads:

https://www.fatwallet.com/forums/finance/1300987
https://www.fatwallet.com/forums/finance/1310352

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If you do an external search-engine search, you will probably find more FW threads that have been about this topic.

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