Keep or sell primary residence condo after job move?

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zagurit
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Keep or sell primary residence condo after job move?

Post by zagurit »

Hi everyone,

I live in a HCOL area in SoCal. Unhappy with my current job, I've decided to look for jobs outside our city and state.
We live in a condo we purchased in 2016, with $415k mortgage @ 3.625% left: $3200 total monthly payments when HOA/taxes/PMI/insurance are factored in.

Question: If I accept a job offer and we move, should I sell this condo?

Case #1: Sell the condo and use the proceeds to pay off some of our student loans (~$150k). Based on comparable homes, if I sell TODAY for >=$500k, we should make ~$80k, EXCLUDING the realtor fees. In at least one interview in the past, I was told the employer will pay the realtor fees. I'm assuming this will be the case for other ones.

Case #2: Rent the condo. This will generate -$700 cash flow, based on similar condo rentals in this area (~$2500). In this option, I'm treating the condo as a speculative investment that I want to keep.
Bonus question: I pay ~$1900 in mortgage toward principal+interest, ~$750 of which is toward the principal. Am I deceiving myself by treating the latter as investment and thinking by renting it, I'm not $700 in the hole?

Cheers.
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Pajamas
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Re: Keep or sell primary residence condo after job move?

Post by Pajamas »

Would you buy this particular condo to use as a rental property at this time?

If not, sell it.
delamer
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Re: Keep or sell primary residence condo after job move?

Post by delamer »

I can’t imagine having a rental property with a negative cash flow while owing $150,000 in student loans.

How could that make sense?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
boglerdude
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Re: Keep or sell primary residence condo after job move?

Post by boglerdude »

Not a great loan rate
Out of state landlord
Most condos dont have earthquake insurance and you cant buy full protection as an individual
Concentrated risk of that city's economy

Maybe if you had a great risk-free tenant lined up it could be worth keeping, for as long as they stayed
Last edited by boglerdude on Fri May 25, 2018 3:50 am, edited 1 time in total.
Valuethinker
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Re: Keep or sell primary residence condo after job move?

Post by Valuethinker »

zagurit wrote: Thu May 24, 2018 10:26 pm Hi everyone,

I live in a HCOL area in SoCal. Unhappy with my current job, I've decided to look for jobs outside our city and state.
We live in a condo we purchased in 2016, with $415k mortgage @ 3.625% left: $3200 total monthly payments when HOA/taxes/PMI/insurance are factored in.

Question: If I accept a job offer and we move, should I sell this condo?

Case #1: Sell the condo and use the proceeds to pay off some of our student loans (~$150k). Based on comparable homes, if I sell TODAY for >=$500k, we should make ~$80k, EXCLUDING the realtor fees. In at least one interview in the past, I was told the employer will pay the realtor fees. I'm assuming this will be the case for other ones.
The straight financials depend on the interest rate on student loans. Whether RE fees covered also important-- there's a present value to that (a cash inflow in effect) which you won't be able to exploit in future job moves.
Case #2: Rent the condo. This will generate -$700 cash flow, based on similar condo rentals in this area (~$2500). In this option, I'm treating the condo as a speculative investment that I want to keep.
Bonus question: I pay ~$1900 in mortgage toward principal+interest, ~$750 of which is toward the principal. Am I deceiving myself by treating the latter as investment and thinking by renting it, I'm not $700 in the hole?

Cheers.
The 750 pcm is indeed an investment in home equity. It's part of your portfolio.

But that also means you are losing the chance to invest it in an equity portfolio, or in retirement of student loans. The latter has a *guaranteed* return equal to the after tax interest cost of those loans. The former tends to have higher returns than real estate as a whole (although some cities the historic experience has been very different).

The trials and tribulations of rental property ownership mean it's not for the feint of heart, nor for the dabbler. Bad tenants, building problems, maintenance and repair etc. Don't "drift" into becoming a rental landlord but make a positive decision to become one - treat it like a new investment. And I would recommend being within driving distance of rental properties that you own (or equivalent).

With a negative cash flow from this property, it doesn't sound like a great rental investment, even setting aside all these other issues.
student
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Re: Keep or sell primary residence condo after job move?

Post by student »

I would not keep it for two reasons. The first is that it is not worth the trouble. The second is that California has high tax rate and it is aggressive in "keeping residents" for tax purpose. I wonder whether having a condo in California affects your tax status.
cherijoh
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Re: Keep or sell primary residence condo after job move?

Post by cherijoh »

Valuethinker wrote: Fri May 25, 2018 3:47 am The trials and tribulations of rental property ownership mean it's not for the feint of heart, nor for the dabbler. Bad tenants, building problems, maintenance and repair etc. Don't "drift" into becoming a rental landlord but make a positive decision to become one - treat it like a new investment. And I would recommend being within driving distance of rental properties that you own (or equivalent).

With a negative cash flow from this property, it doesn't sound like a great rental investment, even setting aside all these other issues.
Been there, done that on a condo I wasn't able to sell when I bought my house. On paper, my condo rental was basically cash flow neutral but that didn't include replacing the hot water heater and refrigerator (both of which gave up the ghost after I had moved out) or repairing the damages caused by a destructive tenant.

I was never so happy as when I got on offer on the condo and was able to retire from being a landlord. I would definitely NOT recommend becoming an out-of-town landlord on a negative cash-flow property.
chevca
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Re: Keep or sell primary residence condo after job move?

Post by chevca »

The only reason I could see not to sell would be if you really love the condo and plan to move back to the area someday, so you could live there again. If that's not the case, sell it.
gotester2000
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Re: Keep or sell primary residence condo after job move?

Post by gotester2000 »

You will get better advice with more info viz. Age,profession,income and networth.
Just by looking at 415k + 150k debt - there is no question of keeping it - sell.
Are you sure that the new job will work out for you?
Last edited by gotester2000 on Fri May 25, 2018 7:20 am, edited 1 time in total.
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RickBoglehead
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Re: Keep or sell primary residence condo after job move?

Post by RickBoglehead »

zagurit wrote: Thu May 24, 2018 10:26 pm EXCLUDING the realtor fees. In at least one interview in the past, I was told the employer will pay the realtor fees. I'm assuming this will be the case for other ones.
You know what they say about those that assume...

What you get in an offer depends on the employer, the job, the region, and YOU. What YOU negotiate for.

For some positions, an employer will pay all moving costs, buy your home (they determine a price and you have a set period to accept it or go it yourself), provide temporary housing for a period (could be 6 months), etc. It all depends. Note - the house I live in now was owned by a senior exec at a company that shut a local facility and put over 1,000 white collar workers out of work. He listed the house for 59 days, then took the company's offer. I saw the house on the 59th day, and then made an offer right after he took the company's offer, and bought the house for 15% below his latest asking price, which was $3,000 above the relo company's new listing price, but they hadn't listed it yet.

YOU have the ability to negotiate for what you want, for what you consider important. If it's a large company, they may have established policies that they follow and are inflexible. Or, they may offer a sum of money and you decide how to apply it. And, they may gross up the money provided so you don't pay any tax on the "income", i.e. the expenses they pay show up on your W2. A medium sized company may offer you a lump sum. A small company may offer you a very small sum, or nothing.

My last job (moved in 2007) my employer offered me a lump sum, and I could apply it to whatever I wanted. The job prior to that my employer paid for 3 months of temporary living expenses, my move, my selling realtor fees, house search expenses, food during house search and temporary living and drive from old house to new, car mileage for drive, ... And then grossed everything up so I had no taxes on it (I actually had to sit with CFO because his staff didn't know how to calculate gross up. I rented when I moved, and due to turmoil at the new company (I picked a real winner), I kept renting. After the senior staff was dismissed over a period of months, new president brought me into his office and asked why I was still renting in my 2nd year of employment. I told him the truth. He grabbed a piece of paper and wrote a number on it, and turned the pad towards me. I nodded my head yes, and when I closed on my house the company wrote a check (to the seller directly) for that amount in addition. Of course less than 3 years later he was fired and I followed within 2 days, but that's life.

You also have the ability to negotiate salary, vacation, vesting, and more. Or not, depending on you, the company, and how tight the market is.

Good luck!

Oh, and sell the condo.
Last edited by RickBoglehead on Fri May 25, 2018 7:22 am, edited 1 time in total.
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DarkHelmetII
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Re: Keep or sell primary residence condo after job move?

Post by DarkHelmetII »

I echo sentiment 1) sell the condo, and 2) try to squeeze out a few $$ from new employer (if you are still negotiating) to help cover closing costs / realtor fees. Only one data point ... I had a job offer include $15,000 toward closing costs etc... once I mentioned a condo I would have to sell in order to move. When I reflect on that, was actually pretty generous given I wasn't really that senior at the time. Whatever it might be dollar-wise point is it's a reasonable ask in my opinion.
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dratkinson
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Re: Keep or sell primary residence condo after job move?

Post by dratkinson »

student wrote: Fri May 25, 2018 5:48 am I would not keep it for two reasons. The first is that it is not worth the trouble. The second is that California has high tax rate and it is aggressive in "keeping residents" for tax purpose. I wonder whether having a condo in California affects your tax status.
+1. Knew a military coworker who married while in CA. After moving from CA, CA continued to demand income tax on his wife's civilian employment "... because she was still a resident, just temporarily working out of state with her military spouse."

Every year he received a CA letter saying "...she owes CA income tax." Every year he had the base legal office send a letter to CA saying "... she isn't a CA resident so doesn't owe CA income tax." This situation had been ongoing for ~5 years when I left that assignment.

If you keep your CA condo, that could be prima facie evidence that you have chosen to remain a CA resident, and are just temporarily working out of state so still owe CA tax on your (plural) income.

Check with CA department of revenue to see what CA ties you (plural) must sever to prove you (plural) are no longer CA residents so are not subject to its taxes.
--Sell your condo?
--Renounce co-ownership of any other property in CA?
--Close your USPO mailboxes?
--Change voter registrations?
--Change vehicle titles from CA to new state?
--Change insurance providers?
--Shake the dust off your feet as you leave the state?
--....

Find a tax lawyer in your new state, just as a CYA.

Plan for the worst. Hope for the best.
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
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Nate79
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Re: Keep or sell primary residence condo after job move?

Post by Nate79 »

Sell.

Horrible investment. Poor rental rate, cash flow negative, very little equity and leveraged up to your eye balls. And that's before even considering operating costs, vacancy, etc.
Topic Author
zagurit
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Re: Keep or sell primary residence condo after job move?

Post by zagurit »

Thank you all for the comments. The consensus seems pretty clear: SELL!
Some of the sidenotes were informative for future, too. Much appreciated.
Pajamas wrote: Thu May 24, 2018 10:27 pm Would you buy this particular condo to use as a rental property at this time?
No. When buying, we both agreed that we don't want an investment property (hence the high taxes, HOA, etc.). This is solid, concise advice! Thanks!
delamer wrote: Thu May 24, 2018 11:11 pm I can’t imagine having a rental property with a negative cash flow while owing $150,000 in student loans.
We have been toying with the idea of selling it to reduce student loan debt, and renting until we are done. The reasons we were hesitant were (a) Real estate prices in CA are now in the ridiculous territory. By selling we would have disconnected from the market and possibly priced ourselves out of a future house (Sell high, buy high, etc. Is it reasonable?). This also takes into account the experiences of some others we know who bought before the 2007 crash, and are not regretting it (2) We like the neighborhood and are happy where we live.
boglerdude wrote: Fri May 25, 2018 3:35 am Maybe if you had a great risk-free tenant lined up it could be worth keeping, for as long as they stayed
Almost all our family are in this city, and some are renting (yes, risk-free tenants). We would have liked them renting from us, but considering the comments, that seems not logical: We want to rent high, they want to rent low, becomes a zero um game vs. renting to strangers (unless you see a silver lining there).
Valuethinker wrote: Fri May 25, 2018 3:47 am The straight financials depend on the interest rate on student loans. Whether RE fees covered also important-- there's a present value to that (a cash inflow in effect) which you won't be able to exploit in future job moves.
Student loan is @6.5%, which I think again supports a sale.
Valuethinker wrote: The 750 pcm is indeed an investment in home equity. It's part of your portfolio.
In absence of any other debt, and just as a thought experiment, does that make $2500 rent on this $3200 mortgage property cash-flow neutral (ignore maintenance costs, I'm just curious to see how people price their rentals).
Valuethinker wrote: But that also means you are losing the chance to invest it in an equity portfolio, or in retirement of student loans. The latter has a *guaranteed* return equal to the after tax interest cost of those loans. The former tends to have higher returns than real estate as a whole (although some cities the historic experience has been very different).
All true. We are utilizing all the tax-sheltered investment opportunities that we can [HSA, 401K, some 529] while throwing any extras at the student loan (which at the current rate should be paid in 7-8 yrs), recognizing that the latter has a *guranteed* return.

Thank you for the crisp and objective response.
Valuethinker wrote: Don't "drift" into becoming a rental landlord but make a positive decision to become one - treat it like a new investment.
chevka wrote: The only reason I could see not to sell would be if you really love the condo and plan to move back to the area someday, so you could live there again
Nate79 wrote: ... very little equity and leveraged up to your eye balls ...
We never wanted to keep it long term, or ever become landlords. We just wanted to take advantage of the low rates at the time (like everybody else!), float with the market and buy the house we wanted to live in longer, later.

We DO want to come back to this city (family reasons), but nothing is certain in life, right?
dratkinson wrote: Sat May 26, 2018 7:38 am
student wrote: Fri May 25, 2018 5:48 am I would not keep it for two reasons. The first is that it is not worth the trouble. The second is that California has high tax rate and it is aggressive in "keeping residents" for tax purpose. I wonder whether having a condo in California affects your tax status.
+1. Knew a military coworker who married while in CA. After moving from CA, CA continued to demand income tax on his wife's civilian employment "... because she was still a resident, just temporarily working out of state with her military spouse."
Duly noted and thanks for the pointers.
DarkHelmetII wrote: Fri May 25, 2018 7:15 am I echo sentiment 1) sell the condo, and 2) try to squeeze out a few $$ from new employer (if you are still negotiating) to help cover closing costs / realtor fees.

RickBoglehead wrote: Fri May 25, 2018 7:04 am You know what they say about those that assume...

What you get in an offer depends on the employer, the job, the region, and YOU. What YOU negotiate for.
Thanks for the tips on negotiations. I'm not senior, and am interviewing with large companies with rather rigid hiring policies, but will sure not take offers I don't see fair. The reasons for changing my job are technical-field/job-satisfaction ones and I'm totally comfortable environment-wise/financially at my current job. So I don't HAVE to move.
gotester2000 wrote: Fri May 25, 2018 6:51 am You will get better advice with more info viz. Age,profession,income and networth.
Just by looking at 415k + 150k debt - there is no question of keeping it - sell.
Are you sure that the new job will work out for you?
I have discussed that info here . I thought for this rater simple investment question, it was not necessary to bring it up.
Of course I don't know if the new job (if I get one, I'm just interviewing for now) will work out. The only way to find out is to try, and I recognize the risks. How do you think that would affect my decision here?
delamer
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Re: Keep or sell primary residence condo after job move?

Post by delamer »

If you are happy where you live, then why are you looking for jobs elsewhere?

Why not set your roots where you are?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
gotester2000
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Re: Keep or sell primary residence condo after job move?

Post by gotester2000 »

zagurit wrote: Sat May 26, 2018 12:26 pm
Nate79 wrote: ... very little equity and leveraged up to your eye balls ...


+100
gotester2000 wrote: Fri May 25, 2018 6:51 am You will get better advice with more info viz. Age,profession,income and networth.
Just by looking at 415k + 150k debt - there is no question of keeping it - sell.
Are you sure that the new job will work out for you?
I have discussed that info here . I thought for this rater simple investment question, it was not necessary to bring it up.
Of course I don't know if the new job (if I get one, I'm just interviewing for now) will work out. The only way to find out is to try, and I recognize the risks. How do you think that would affect my decision here?
The information in that thread actually gives the overall picture - you cannot afford to keep this house if you move somewhere else unless the new job pays much much better.
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zagurit
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Re: Keep or sell primary residence condo after job move?

Post by zagurit »

delamer wrote: Sat May 26, 2018 12:42 pm If you are happy where you live, then why are you looking for jobs elsewhere?

Why not set your roots where you are?
I should have provided a more clarified answer: I'm happy with our condo location, neighborhood and "life outside work". As to why I'm not happy with my current job, the answer will need a therapy chair, and is out of scope of the current topic. In short: spending the majority of my waking hours doing something I hate is starting to take its toll.
delamer
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Re: Keep or sell primary residence condo after job move?

Post by delamer »

zagurit wrote: Sun May 27, 2018 11:24 am
delamer wrote: Sat May 26, 2018 12:42 pm If you are happy where you live, then why are you looking for jobs elsewhere?

Why not set your roots where you are?
I should have provided a more clarified answer: I'm happy with our condo location, neighborhood and "life outside work". As to why I'm not happy with my current job, the answer will need a therapy chair, and is out of scope of the current topic. In short: spending the majority of my waking hours doing something I hate is starting to take its toll.
Understandable, but why not focus on finding a new job in the current location rather than relocating?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Socal77
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Re: Keep or sell primary residence condo after job move?

Post by Socal77 »

delamer wrote: Sun May 27, 2018 4:39 pm
zagurit wrote: Sun May 27, 2018 11:24 am
delamer wrote: Sat May 26, 2018 12:42 pm If you are happy where you live, then why are you looking for jobs elsewhere?

Why not set your roots where you are?
I should have provided a more clarified answer: I'm happy with our condo location, neighborhood and "life outside work". As to why I'm not happy with my current job, the answer will need a therapy chair, and is out of scope of the current topic. In short: spending the majority of my waking hours doing something I hate is starting to take its toll.
Understandable, but why not focus on finding a new job in the current location rather than relocating?
De-ja-vu-

I lived in Socal from 1999 to 2014. Bought a condo in Aliso Viejo in 2011, 240k, sold in 2104 for 300k and moved to Wisconsin due to work related burnout and my marriage wasn't doing well.

I ended up getting divorced, hating WI, and I desperately want to move back to Orange County. Now I'm pretty much priced out of 2 bedroom condos where I'd like to be. My old condo now worth ~400K and I'd have about 150k left in mortgage...

So be careful making decisions when burned out. I needed a change but in hindsight I should not have sold the condo. It can be tough to re-establish yourself back in sunny socal.
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Watty
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Re: Keep or sell primary residence condo after job move?

Post by Watty »

A couple of things I have not seen mentioned;

1) Depending on when you bought the house in 2016 you may not need to pay any federal capital gains tax on the $80k(?) gain. If you keep the condo as a rental for more than a few years then that may become taxable when you eventually sell it. It may be worth delaying the sale into you hit the 2 year date to qualify for this.

2) If you rent it then decide to sell it later it will be much harder to sell it since you will need to wait until the lease expired, refurbish the condo, and have it empty for a number of months while it is for sale. It can take a long time to sell a condo in a slow housing market.

3) Have you checked to see if you can actually rent the condo? Many(most?) condo associations have a limit on the percentage of units that can be rented. This is because if the percent of rentals exceeds a certain percentage future buyers cannot qualify for a standard mortgage.

4) If you want to buy property where you move to then having the condo as a rental could make it hard to qualify for a mortgage on your next house. Many lenders want to see several years of rental history before counting the rent as income on your loan application. You may also have trouble coming up with a 20% down payment on your next house.
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Re: Keep or sell primary residence condo after job move?

Post by ThePrince »

Pajamas wrote: Thu May 24, 2018 10:27 pm Would you buy this particular condo to use as a rental property at this time?

If not, sell it.
+1
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zagurit
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Re: Keep or sell primary residence condo after job move?

Post by zagurit »

delamer wrote: Sun May 27, 2018 4:39 pm
zagurit wrote: Sun May 27, 2018 11:24 am
delamer wrote: Sat May 26, 2018 12:42 pm If you are happy where you live, then why are you looking for jobs elsewhere?

Why not set your roots where you are?
I should have provided a more clarified answer: I'm happy with our condo location, neighborhood and "life outside work". As to why I'm not happy with my current job, the answer will need a therapy chair, and is out of scope of the current topic. In short: spending the majority of my waking hours doing something I hate is starting to take its toll.
Understandable, but why not focus on finding a new job in the current location rather than relocating?
I tried doing that for 4 years now, with no success, and I think it's time to remove the location constraint from my search.
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zagurit
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Re: Keep or sell primary residence condo after job move?

Post by zagurit »

Watty wrote: Sun May 27, 2018 6:26 pm A couple of things I have not seen mentioned;

1) Depending on when you bought the house in 2016 you may not need to pay any federal capital gains tax on the $80k(?) gain. If you keep the condo as a rental for more than a few years then that may become taxable when you eventually sell it. It may be worth delaying the sale into you hit the 2 year date to qualify for this.

2) If you rent it then decide to sell it later it will be much harder to sell it since you will need to wait until the lease expired, refurbish the condo, and have it empty for a number of months while it is for sale. It can take a long time to sell a condo in a slow housing market.

3) Have you checked to see if you can actually rent the condo? Many(most?) condo associations have a limit on the percentage of units that can be rented. This is because if the percent of rentals exceeds a certain percentage future buyers cannot qualify for a standard mortgage.

4) If you want to buy property where you move to then having the condo as a rental could make it hard to qualify for a mortgage on your next house. Many lenders want to see several years of rental history before counting the rent as income on your loan application. You may also have trouble coming up with a 20% down payment on your next house.
Excellent points. We have already passed the residency test, and can avoid the capital gains tax.
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zagurit
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Re: Keep or sell primary residence condo after job move?

Post by zagurit »

Socal77 wrote: Sun May 27, 2018 4:57 pm So be careful making decisions when burned out.
Thanks for sharing your experience. I'm in a VERY similar workplace situation (all else is great though), and trying no to make another mistake (in addition to taking this job) when making my next move.
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zagurit
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Re: Keep or sell primary residence condo after job move?

Post by zagurit »

I'm writing this just to reflect on the decision we made back when I had posted this, and as a reference for anyone who may be in a similar situation in the future ...

I got a job offer with a pretty generous (in my mind), but probably standard, relocation package: realtor fee reimbursement, white-glove household move, 2 months of temporary living and reimbursement of closing costs if we decided to buy in the new location, house hunting trips, etc.. I have absolutely had a blast at my new job and couldn't have asked for a better one in terms of learning opportunities and career trajectory correction (my job before this was taking my in the wrong direction)

We sold the condo.

The realtor fee payback itself, after tax, was ~$25k. That was real cash flow that, as Valuethinker had pointed out, could only be realized during a relocation. All together, we got $100k back which we immediately applied to the student loan. That dropped the loan below a limit which opened the possibility of refinancing with attractive terms. So the student loan is now at $40k, with a rate of 3.2%, instead of 6.5%.

We are renting in our current city, and I have just accepted an offer to go back to the original city we came from. As Socal77 pointed out, the new city and being away from family was pretty stressful for our marriage. But as with being priced out, apparently we sold at the market peak, and since then prices have barely moved (~3%).

So in short this move resulted in:
a. wiping of $100k of student loan
b. refinancing of the student loan at almost half the interest rate
c. correction of my career trajectory, which opened up the possibility of getting the new offer in the original city (without experience in my current company I could never get a job like the new one)
d. a 50% increase in my salary compared to when we were originally living in the city

The only drawback (which I learned of later) was that all the relocation help counted as earned income for tax reasons, and we took a heavy hit on that during tax season (~$2-3k more than what I was expecting). Apparently that was something new in the new taxlaw passed in '18(?).

Hope this is useful.
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Re: Keep or sell primary residence condo after job move?

Post by Broken Man 1999 »

Awesome!

Thanks for the update. Too many posters turn out to be kinda like one-night stands, you never hear from them again.

Glad to hear your new job is such a positive change. That is a good thing for your mental health.

Best of fortune in the future.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
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