Author Topic: Case Study - Potential relocation; what should we do with the house?  (Read 1848 times)

Bo-rrific G

  • 5 O'Clock Shadow
  • *
  • Posts: 30
  • Location: Zug, Switzerland
Since this is a case study, I will try to stick to the proper format.

Lifestyle:married, no kids, 2 dogs
Salary: $180k
Current monthly expenses average at about $3,200 - I'm not seeking advice in this area right now so I will not go into the details.  Our expenses have been a work in progress since 2014.

Assets:
Emergency fund - $42k
Retirement - $117k
Cars - truck worth about 2k and a focus worth about 8k

Liabilities:
Student loan #1(H) - 87k
W student loan #2(W) - 52k (this has gone down considerably in the last year, but pay off was delayed to do work on the house)
Mortgage - $220k (bought at $255k and the house is currently valued at $440k)

Issue:
My company is relocating and will move my position to Europe permanently.  This means that we are moving as "locals" not in an expat position.  They will pay for the cost of the move, including, if we wish to rent or sell the house they will assist with the transactional costs.

Question:
What should we do with the house? We are stuck between two options, both make us nervous for different reasons.  We are looking for an objective review of what makes the most financial sense long term.

For starters, regardless of what we do with the house, we plan on selling my car. So we will allocate the 8k toward student loan #2 because it has a higher interest rate.

Here are the options we have been considering for the house:

(1) Use a cash out refinancing to pay off student loan #1, increasing our mortgage to $310k but allowing us to reduce our interest rate from 4.5 to about 3%.  The estimated mortgage payments would be as follows:

        For a 30 year mortgage - $1,900 per month
        For a 15 year mortgage - $2,700 per month

If we take this option, we would rent the house.  Our neighborhood became really popular since we moved in, so the rental market is doing very well.  We would expect to rent the house for $3,000 per month (our next door neighbors rented their similar home for $2,800 last year, we expect ours would rent for more because we have a much nicer yard and our interior is upgraded from the standard build - beverage center, built ins etc).

My concern with this option is that I would be worried about damage to the house.  We are meticulous in maintaining our home and it would be hard to evacuate it and hand it off to strangers who may trash it.  One positive about combining our student loans into the mortgage instead of using the next year to pay off the loans ourselves is that we will be paid in foreign currency.  We would lose some money converting cash into USD each month to pay down the loans. 

The upside with this option is that if my company changes their strategy a few years down the road, operational HQ will stay where we are and we could move back without having to deal with ever increasing real estate prices.  Our house is just the right size for us (2b/2b, small yard, attached garage, 1200 square feet).


(2) Sell the house, estimated value of $440k.  Unfortunately, because of how much I make, we are in the 28% tax bracket.  Therefore we would only be able to pocket about $160k.  With those funds, we would pay of both student loans in full and increase our emergency fund by about $29k.

Your advice is greatly appreciated.  Please let me know if you need additional information to give thoughts.  At this point, I do not know anything about the relocation terms, but I expect that we would rent and use readily available public transport.  Cost of living is significantly higher where we would move to, but I understand that quality of life doesn't compare.
« Last Edit: July 17, 2016, 09:54:13 PM by Bo-rrific G »

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8323
  • Age: 62
  • Location: The Villages, Florida
Re: Case Study - Potential relocation; what should we do with the house?
« Reply #1 on: July 17, 2016, 09:22:39 PM »
How long have you lived in the house?

Bo-rrific G

  • 5 O'Clock Shadow
  • *
  • Posts: 30
  • Location: Zug, Switzerland
Re: Case Study - Potential relocation; what should we do with the house?
« Reply #2 on: July 17, 2016, 09:25:28 PM »
We moved in the Spring of 2009.  We are in our 7th year.

Prices in our neighborhood started going crazy in 2010.  We are so lucky to have bought where we bought when we did.

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8323
  • Age: 62
  • Location: The Villages, Florida

Bo-rrific G

  • 5 O'Clock Shadow
  • *
  • Posts: 30
  • Location: Zug, Switzerland
Re: Case Study - Potential relocation; what should we do with the house?
« Reply #4 on: July 17, 2016, 09:30:48 PM »
Oh wow.  That changes the calculations quite a bit!  Thanks for pointing that out - we didn't know about it!

Choices

  • Pencil Stache
  • ****
  • Posts: 516
    • ChooseBetterLife
Re: Case Study - Potential relocation; what should we do with the house?
« Reply #5 on: July 17, 2016, 10:17:55 PM »
Being a long distance landlord doesn't sound like fun, and if you're meticulous about your house, it would probably drive you nuts to move back in a few years after renters had been there. It's so much simpler and less stressful to sell the house, pay off your debt, invest the rest, and start fresh when/if you return. That way you're also not tied to a particular neighborhood.

Bo-rrific G

  • 5 O'Clock Shadow
  • *
  • Posts: 30
  • Location: Zug, Switzerland
Re: Case Study - Potential relocation; what should we do with the house?
« Reply #6 on: July 18, 2016, 06:52:48 AM »
Thanks for your responses.  Being able to keep a larger amount of the money makes a huge difference. 

I know already that I would have trouble moving back in after renting.  I leant my parents my car for a year and complained about it to myself for the 3 additional years that I kept the car. It blew my mind how much they let the car deteriorate.

ManchVegas

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Case Study - Potential relocation; what should we do with the house?
« Reply #7 on: July 18, 2016, 08:34:10 AM »
Definitely sell. As noted - no tax on gains up to 500k for a married couple. Plus landlording a home from Europe that you have emotional attachment to sounds like a boatload of stress.

Guesl982374

  • Pencil Stache
  • ****
  • Posts: 501
Re: Case Study - Potential relocation; what should we do with the house?
« Reply #8 on: July 18, 2016, 08:46:29 AM »
Answer the following:

If you didn't own the house, would you buy it for what you could "cash out" to keep as a long distance rental? My guess is the answer is probably no but answer to that question is what you should do.