You have 2 options
1. Option 1 - Sell now for $350K and invest with some stock/bond AA mix. Your expected returns will vary on the mix.
2. Option 2 - Rent. Assuming your net income from rent (after taxes, management, vacancy, repair) is~50% of rent, then you are looking at a return of (2300*0.5*12)/350,000 = 4%. Plus whatever appreciation you get in house value.
It's a close call and depends on how soon you will need the $350k and your ability to deal with renter hassles. If you dont need the money and can invest the $350K for the long term, then I would probably lean towards option 1.
We really don’t need the money right away and will definitely use it for mid-to-long term investment. I had made my plans on renting it but the Realtor just told me that I need to get a town permit to rent. The thing is that we are leaving within 2 months, so I am a little time-pressed.
Forget the sunk loss; that ship sailed. If the house returns to its old value, other investments will have done well also.
To paraphrase: tell me about the upside of renting again, George.
I'm tired today, so if I fudge some numbers or wording here forgive me.
You say "we", so I'm assuming a married couple here. If you sell now, you get all that $350K tax free because of the primary residence exclusion as a married couple, which is $500K. As soon as you are away for 3 years and haven't lived there for 3 of the past 5 years, you lose that exclusion. If you sell then, you are paying taxes on the gains. Which without a mortgage and talking up to $400K (in a few years?) is going to be a nice sum. Plus, the depreciation you claim while using it as a rental. The gains and depreciation work together somehow, but I'm not exactly sure how. It's a hit to your wallet though because of taxes owed from the sale.
If I mucked that up too bad and someone can clarify better, feel free.
Either way, I think the OP is better off selling now to take advantage of the primary residence exclusion.
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It's not truly as simple as this because there are costs to home acquisition and sale. You presumably know the house well, have a good idea of its condition and the neighborhood. However...this is a good mental exercise.
I'm not a tax guy either... obviously.
But, as a long distance landlord myself, I do knw that when/if the OP were to turn it into a rental the deprecitaion schedule is set off the current FMV of the home. Doesn't matter what the purchase price was. So, that would kind of reset the gains thing if they move away, keep it for few years, and lose the primary residence timeframe. Something else to think about?
I still say sell it now since it doesn't seem the OP wants to be a landlord.
interplanetjanet » - We will initially rent in overseas, and perhaps buy an apartment later. I have no intention of buying another house in the U.S. with the proceeds of this one. If and when we return back to the U.S., we may buy another one then. (Our older son is a 3rd grader and younger one is just an infant. We plan to send them to HS & College here in the U.S., they will have to go to an international school while overseas.)
My wife and I are leaning to sell, but, still we have put quite a bit money into it...
retirementandpf wrote:interplanetjanet » - We will initially rent in overseas, and perhaps buy an apartment later. I have no intention of buying another house in the U.S. with the proceeds of this one.
I think you missed what she was getting at. You're tied up in *this* specific house based on (in part) an emotional investment in it.
She's trying to get you to imagine that you didn't own a house. That you were sitting here with $350k in the bank. Would you be considering buying a $350k house to rent out while you're gone in this situation? If not, then why would you be willing to rent out the house you have now instead of converting it to $350k?
It's a way to give oneself a different perspective on a financial problem involving sunk costs.
retirementandpf wrote:My wife and I are leaning to sell, but, still we have put quite a bit money into it...
When you find yourself thinking about the money you've spent in the past when trying to decide what to do in a current financial situation realize that you're allowing emotions to cloud reason. It's a very very common fallacy that is very easy to fall prey to. Everyone from individuals to large corporations struggle with it.
In your case the $650k is gone. Mentally treat the entire $650k as having burned in a fire. What you have today is a house. It doesn't matter if you bought the house for $650k or $65k, what matters is what the house can be sold for. Interplanetjanet's mental excersize helps get one in the state of realizing that having $350k and no house is the same as having no $ and a $350k house.
Another way to think of it would be to ask yourself if you were getting a $350k inheritance would you rather it be a $350k house that you can rent out while you're gone or $350k in cash?
1) We did list the house for sale, got two decent offers highest being $362k
2) We also did apply for the Rental Permit with the Town. I did some of the work myself (floor plans, etc.)
3) We have obtained the rental permit in late June. With that, we are no longer pressured to sell too quickly so we removed the house from the market
4) It has been listed FOR RENT for $2,500/month 3 days ago, received two offers highest being $2,300/month.
It seems that we would most likely rent it for $2,400/mo. I estimate our annual carrying costs (property taxes, homeowners insurance and minor maintenance) would be $10k, so i hope it would pay off down the road.
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