Author Topic: preparing for 2-year stint abroad  (Read 869 times)

morninglightmountain

  • 5 O'Clock Shadow
  • *
  • Posts: 39
preparing for 2-year stint abroad
« on: April 07, 2022, 08:32:45 PM »
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.
« Last Edit: April 07, 2022, 08:34:47 PM by morninglightmountain »

sammybiker

  • Pencil Stache
  • ****
  • Posts: 511
Re: preparing for 2-year stint abroad
« Reply #1 on: April 08, 2022, 06:24:03 AM »
I've been an expat on and off again for the last decade.  I'm single, so it's easy for me and I'm all for simplicity. 

Stay in the TH until you move overseas, then sell.  Buy when you know you'll be coming back if you're hardset on moving into a SFH, understanding that rates will be higher but the market may have evened out or even come down and your 600-700k may go further.

I'm not sure what your line of work is re: expat status but at least for me, I could plan to be overseas for a year and six years later I come back.  It's hard to plan.

Not very helpful but good luck.

 

uniwelder

  • Handlebar Stache
  • *****
  • Posts: 1697
  • Age: 44
  • Location: Appalachian Virginia
Re: preparing for 2-year stint abroad
« Reply #2 on: April 08, 2022, 06:57:41 AM »
I think the uncertainty of life makes planning difficult.  You're trying to factor in a job change that'll happen one year from now, and then planning to come back to the same city three years from now.  A lot can happen in between.  There might be a different opportunity that cancels the overseas job and there might be reasons you never come back to the same city.  Who knows whether the house you want now is the house you'll want three years from now.

I would stick out living in the current townhouse, then decide whether to rent or sell when you're getting ready for your move a year from now.  Beyond that, I think there are too many unknowns.


morninglightmountain

  • 5 O'Clock Shadow
  • *
  • Posts: 39
Re: preparing for 2-year stint abroad
« Reply #3 on: April 08, 2022, 02:26:12 PM »
Good advice, I think.  The 2-year job posting is very certain, but it's possible we'd do a 2nd stint somewhere else.  I just know some people keep a house in their main city, and I'm experiencing some FOMO with the local housing market. 

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 8956
  • Location: Fayetteville, NC
Re: preparing for 2-year stint abroad
« Reply #4 on: April 08, 2022, 06:02:54 PM »
I'm going to be blunt.

Do you actually know how to be a landlord?

Condition of the property and likelihood of major repair expense in the next few years?

Do you actually know how to calculate whether you're making money on the property or not, and how to get accurate inputs into that formula?   It's not as simple as Cash In minus Mortgage.

Ditto for your rate of return?

Do you have the reserves to handle a long vacancy?    And repair bills if it's trashed?

What are your forecasted numbers?   Why do you believe those numbers are correct?

Renting property is a numbers game.   Without good numbers no one can give you good advice on this topic -- other than to tell you that you need to know what the numbers are and that there are a bunch of good info sources listed in the sticky thread in this part of the forum.    I particularly like Gallinelli's book on Cash Flow and other calculations.


morninglightmountain

  • 5 O'Clock Shadow
  • *
  • Posts: 39
Re: preparing for 2-year stint abroad
« Reply #5 on: April 08, 2022, 06:49:47 PM »

Do you actually know how to be a landlord?


No, in that I've never done it before, and am certainly cautious about going about it with a property management company I have no relationship with.

I did a lot of research on biggerpockets a few years ago gearing up for a rental property purchase. Ended up not pulling the trigger because I wanted something for the cash flow instead of appreciation, and my area just doesn't cash flow well. I'm confident I can be conservative enough and account for most expenses beyond PITI (e.g. turnover, deferred maintenance, appliance replacement, roof, cleaning, etc.).  I haven't run the numbers on specific SFHs yet, but they'd likely be cash-flow negative with the higher mortgage rates and skyrocketing cost of labor and materials.  In my HCOL area, it's generally a question of how poorly a property cash flows! I do expect at least 3% appreciation even with stagnating prices, so that will help offset the cash outflow. 

At this point, I'm trying to decide at the macro level which route to pursue further.   I suppose my downside risk is pretty high renting from abroad, but I know some people who've done it.  So it's this risk vs the risk of being priced out of the SFH market during my time away.

PMJL34

  • Pencil Stache
  • ****
  • Posts: 622
Re: preparing for 2-year stint abroad
« Reply #6 on: April 09, 2022, 11:33:13 AM »
Less is more. Simplify your life. Stay in your townhome and sell it when you move. Enjoy your 2 years abroad. End of story. 

Chris Pascale

  • Handlebar Stache
  • *****
  • Posts: 1335
Re: preparing for 2-year stint abroad
« Reply #7 on: April 11, 2022, 01:01:11 PM »
Less is more. Simplify your life. Stay in your townhome and sell it when you move. Enjoy your 2 years abroad. End of story.

I second this. Can you make more by getting even more appreciation on your home while paying down the mortgage while your perfect tenants keep it pristine? Absolutely. But that is not the norm, and you will be more free, not less, by dropping the weight.

Villanelle

  • Walrus Stache
  • *******
  • Posts: 6657
Re: preparing for 2-year stint abroad
« Reply #8 on: April 12, 2022, 02:15:28 PM »
Stay where you are and sell before you you move.   (I say this as someone who didn't do that when we moved overseas in 2010.  I couldn't stomach locking in what was at that point a huge loss of about 20% from what we paid. We are about to sell it about a dozen years later and while we will make a ton of money on the sale, we would have also made a ton of money having that money in the market, and would have had far fewer headaches.  We were on the other side of the country (no longer the world, at least) when a $7 part on a toilet failed and caused $40,000 in damage.  That would have been stressful no matter what, but not being there made it so much harder.  How do you choose replacement carpet from far away?  How do you check work?  It sucked, at lot.  Just sell and be done with it, especially since it sounds like you aren't interested in being a landlord.)

LightStache

  • Pencil Stache
  • ****
  • Posts: 760
  • Location: California
Re: preparing for 2-year stint abroad
« Reply #9 on: April 17, 2022, 08:13:44 AM »
In 2015 I moved abroad with two negative cash-flowing, former owner-occupied rentals. It was a high-risk, high-reward proposition. I had major issues to deal with -- namely extended dual vacancies due to a negligent property manager -- but I also had some luck and it paid off five years later.

Today I'm much more pessimistic about the mid-term outlook for most residential markets, especially HCOL areas. I still own real estate, but offloaded my single family properties. So if I were in your position, I'd sell the TH ASAP and rent for a year before moving abroad. In the alternative (mostly because I'm lazy and don't like moving), I'd just stay in the TH another year and sell right before expating.