New job takes me permanently overseas - rent or sell the family home?

[diplomat]

I bought a single family home in 2010 to live in with my wife.  It is a 3br, 2bath 1300 sqft located in a nice neighborhood near Irvine, in Orange County, CA.  We paid $480,000 using $383,000 from a 30 year, 4.75% fixed loan.  I refinanced later that year to 4.25%

We lived in the home for 1.5 years and then I took a new job as a diplomat, stationed overseas or in Washington DC for the rest of my working life.  We know we will never live in this home again, and I have other ties to CA so I don't need the address to maintain my state tax benefits.

When we left in 2012, we found a property manager and eventually a renter, and have rented it ever since.  Our first renter paid $2200 per month and stayed for 1.5 years, and our new renter pays $2450 and signed a two year lease.  We had about 2 weeks of vacancy in between.  The rental demand is pretty high in the area.

I constantly consider selling the house, since it holds about half of our net worth, is a headache from time to time, and doesn't generate much income.  If I sold it I would put the money in mutual funds and other low effort investments.  I would appreciate some analysis from you experts.  Should I sell or keep renting?  Here are the details in summary:

Market Value: Zillow says $580,000 now, I think between $550,000 and $600,000 is reasonable.
Original Purchase price: $480,000
Original Mortgage Amount: $383,000
Interest Rate: 4.25%
Mortgage Term: 30yrs
Term remaining: 25yrs
Amount remaining on mortgage: $352,000
Gross Rents: $2450/month
Principal and Interest: Current P=$630 I=$1250
Taxes and Insurance: Taxes = $6,000/yr, Insurance = $600/yr
HOA costs: $650/yr
Other expenses: $125/month in property manager fees, $35/month for a gardener
Deferred maintenance notes: nothing major
Other notes: The house is in a desirable neighborhood with fairly strong sales in the last few years.  The interior is modest but not updates.

[Calimandc]

Congratulations and welcome to the Foreign Service.  I was with State for many years in the past and hope you have a wonderful adventure!

As for the house, sell it.  The cost of maintenance, along with the headache of owning it will dog you wherever you go.  Or, you can simply stash that cash and enjoy the proceeds without ever thinking about it again.

I won't get into the specifics on dollars, but I will tell you that you'll want a place in the DC area (rent or buy) when you're back here.  Having to manage two places just won't be fun.

Whatever the costs (worst case scenario is you break even), the foregoing of the headaches will be worth so much more.

Btw, do you know your first assignment yet?

Best,

Jeremy

[waltworks]

1% rule fail, sell.

-W

[MountainBeard]

Not sure if there's something making you want to keep the CA address, but you might consider switching to a no income tax state.

[Ricky]

In your situation I would pocket the $200k and just stick it in some funds.

You're currently losing money ($200/mo) so this should be a no brainer. Even if there was no mortgage, the return wouldn't be acceptable. This is a landlord hair on fire situation. If you want to remain a landlord, there are plenty of areas where being one makes sense. Where your property currently is doesn't make sense. All it's going to take is one major repair to really screw you over. SELL.

[pagoconcheques]

Not sure if there's something making you want to keep the CA address, but you might consider switching to a no income tax state.

When you move overseas you will pay state income taxes to the state where you last resided.  California is one of the worst, so you might consider becoming a resident of a state with a lower tax burden (don't have to buy, just be a "resident" and pay taxes there).  If you need to be near DC, VA is a good bet, but there are about half a dozen states that have no state income tax.  A little research might pay off handsomely over the long term. 

Since you're with the State Department, ask around with colleagues who have put in many years overseas.  I'm sure there's a wealth of knowledge available. 

[diplomat]

Thanks all for the advice.  I guess I've been hanging on to the house while property prices increase, which they have, but I don't foresee them going up too much more in the coming years.  Probably a good time to sell.

In response to a few of the questions above, I choose to remain in CA because I qualify for tax safe harbor, which allows me to pay no state tax.  I just can't physically be in the state for more than 30 days a year, which is no problem for me.  I could switch to a fully tax free state but I would have to establish sufficient ties in the state, which I would have to start from scratch.

My first assignment was Jakarta, Indonesia which I just completed, and now am at the American Institute in Taipei.

Thanks again.

[bruce88]

I would sell.  Why?

You will most likely qualify for the pro-rata portion of tax free personal home sale, since your 1.5 years of living there were in the last 5 years.  Situations like yours appear to be part of the exceptions to allow pro rata sales (even if you go past the 5 year rule due to a job transfer).  Research this thoroughly, or talk to a CPA.

Selling now, and getting tax free dollars (or mostly tax free) would simplify your life.  And, add to your investable funds.