Moving to Europe--should we sell our house or rent it?

rachel_2010September 8, 2013

My husband's job is sending us to Europe for three years. We will rent in Europe. We may come back to the same location or be sent somewhere else at the end of the three years. That's an unknown. We have four years remaining on our mortgage. Our research indicates we can likely rent it for the amount of the note but not enough for management fees and property taxes. The market in our area has picked up lately and comparable houses in our neighborhood have sold fairly quickly in the last 18 months. We are trying to decide what to do. We love our home and the neighborhood and it would be nice to come back to it but aren't sure we want the potential hassles of renting it. We do worry about wear and tear in that we have a pool and large front and back yards with extensive landscaping that require considerable upkeep. Also, we are not open to pets. We have read there are significant tax benefits to renting out a primary residence. Is that true? We welcome (and appreciate) any advice!

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Even if you decide to sell or rent, how long will it take to find a buyer or renter?

If I loved the house and was pretty sure I would want to return someday, I would rent. If I was ambivalent I would more likely list for sale or rent and see who came along first.

You can exclude pets or get a bigger deposit, and plan the cost of yard and pool care in your expenses.

Even if rent still makes you pay out of pocket monthly, it is losing less than having it sit empty.

I am not aware of a tax benefit of renting a home. Rent counts as income. And if you sell in the future, you have to be sure you have lived in the home as your primary residence for 2 of the past 5 years to avoid capital gains on profits over 500k. So if you rent more than 3 years, then sell, it was not your primary residence for 2 of the past 5 years.

I have had my former house for sale for 6 months. I know that is not long in this market. But I am now considering listing for sale or rent to see if a renter comes along sooner than a buyer. (now it is just costing me money) Keeping in mind the primary residence for 2 of the past 5 years rule, it gives me about 2 1/2 more years to sell it and still meet that criteria.

Another way to think about it, selling is more irreversible than renting. If you sell, it is unlikely you can buy it back if you return. If you rent it now, you can always choose to sell it later and never return to it.

Sounds like you have an adventure coming up!

    Bookmark   September 8, 2013 at 6:42PM
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A local company rotates some employees to Germany for three years.

Every family know who did this (5 of them!) kept their house, did NOT rent it out, and came back to it after their rotation. They kids went back to the same school district. Everything was familiar. For some reason, it was the best choice for all of them.

    Bookmark   September 8, 2013 at 6:49PM
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A lot of it depends upon how much you trust that a family renting the house will keep it in the condition that you have. I rented out the house I just moved into for two years and the renters were rather hard on it. The carpets and one bathroom were brand new, and two of the appliances had hardly been used (Oven and DW still had cardboard and plastic inside) as the house had been updated to sell, and the carpets could all be replaced and the bathroom and appliances were never cleaned once, by appearances.

I am renovating the house extensively anyway so I didn't care so much, but I would not have been able to rent it again in the condition it was left.

This post was edited by palimpsest on Sun, Sep 8, 13 at 19:56

    Bookmark   September 8, 2013 at 7:53PM
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How likely is it that you'll return more quickly than 3 years? Is this a military job where you are sent, or was this elective? I ask because I had a friend who when to China "for 2 years". They returned within 9 months. Another went to China for 3 years, and returned a year later.

The first, just packed up their house and rented it. They lived in an apt for 3 months after they returned while the year long lease expired for the renters.

The second, sold their house, and when they returned 2 years earlier than expected, were disappointed to find the economy picked up substantially while they were away and were faced with buying a new (more expensive) house.

    Bookmark   September 8, 2013 at 9:57PM
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We were in this same situation 6 years ago and we sold the house. If there had been even a small chance that we would have been returning to the same area I would not have sold the house. We loved our house, neighborhood and schools, but knew we would be relocated to the opposite coast after our overseas stay. It worked out well as we sold close to the top of the RE market.

Many expats (if they can afford it) keep their US home and use it as their home base during Christmas and summer holidays. We stayed with family in another state during the holidays and it made us feel like we lived for three years in transition. I used to joke that we were "homeless".

    Bookmark   September 9, 2013 at 11:10AM
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I moved out of my area for three years and rented my house as I knew we'd return to it. Our tenants took great care of our house.

    Bookmark   September 9, 2013 at 12:28PM
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Thanks to all who responded. Lots of food for thought!

    Bookmark   September 9, 2013 at 8:51PM
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I spent two years in Europe on an expat assignment and kept my home. As mentioned, business (or deployment) plans can change, and if they do, you can find yourselves shipped back unexpectedly. This happened to 1/2 of the people I went over with -- I was lucky and my assignment ended on time.

Consult with a tax advisor or your husband's company's tax and relocation department. However, when you begin renting a home, you convert the property to a depreciating asset and begin taking depreciation on the value of the structure and improvements (over the course of 27.5 years). You also can write off the mortgage, insurance, taxes, management fees, repairs and even many of the upkeep bills like lawn service and garbage fees. However, you ability to take deductions in excess of your rental income is subject to passive loss limitations (25K). These begin to phase out at 100K of Adjusted Gross Income per year and completely drop away at 150K income.

Please keep in mind that your income will likely look inflated when you are overseas, because of the benefits that will get taxed (in addition to any salary differentials). I'm not a tax professional, I only had to deal with my own. In fact, three years after moving back I'm still working off my foreign tax credit.

    Bookmark   September 11, 2013 at 10:57PM
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I hear you gooster! We just finished up with all the tax stuff from our expat assignment and it also spanned a period of three years after we returned. Very complicated and our company pays for one of the major accounting firms to sort it all out for the employees.

    Bookmark   September 12, 2013 at 7:14PM
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