I currently own a TH in a hcol area worth about $620K, but with a new baby we're looking to get a SFH (in our area -> 700-800k). We've plenty of equity and could put up to 50% down on the house - not that we would actually. The wrinkle for us is a job move overseas that will begin mid-2023. On one hand, a year or so in the larger house with a yard will be nice for our family, but the transaction costs would heavily support us renting it out instead of selling before the move, and having to pay a lot for property management.
Any thoughts would be appreciated, but my main point in posting is to get input on whether I'm structuring this analysis correctly. Am I making any ridiculous assumptions, perhaps implicitly? Am I not factoring in something I should? Maybe I'm missing an option?
The options:
- Wait it out in current townhome, then sell before overseas move
Pros: we could invest the net proceeds in index funds, and then sell in 2-3 years when we want to buy again. Capital gains taxes will be an issue.
Cons: we'll be out of the RE market, missing out on any price gains. I doubt we'll see an actual price decrease in my city anytime soon, but a stagnation is likely. Further price modest increases are likely too, so there's a positive expected value associated with owning in this market.
- Wait it out in current townhome, rent it out during 2-year stint
Pros: We'll be in the local RE market. Cash flow from renting will benefit from our 2.75% mortgage, which increasingly looks like an asset as rates shoot up. Rents are increasing quickly. Cash flow (taking into account deferred maintanence and tenant turnover) looks good, except having to use a full-service property manager will probably limit us to break-even cash flow.
Cons: while we're in the broader RE market, we won't be in the SFH market. Prices could decouple a bit more making SFHs more expensive relative to THs, especially if institution investors continue/increase buying of houses.
- Sell TH and buy SFH, rent it out during 2-year sting
Pros: assuming no massive issues, our family would really enjoy the extra space for a year.
Cons: We'd be buying at a higher interest rate, but I think this is inevitable. Rates could be even higher when we're back state-side in 2025 and want to buy a house. Historically, maybe 5% isn't bad at all. Any gardening/improvements done to the yards and house itself would need to be made knowing the place will be tenant occupied. Granted, we could pay for gardening services but it would eat at our cash flow. Also, a move would be a huge hassle knowing we'd have to move again in a year.
Thanks! I'll be modeling this problem out in Excel, but your input ahead of time will be helpful. Happy to share the results of my analysis if there's any interest.