Photo by Warren Talbot
(Ed. Note: In honor of our house officially going on the market this week, here is the post where we hashed out whether we should sell or not.)
One of the myriad of questions we had to confront in our planning is whether we want to sell our house in Seattle before we leave on our trip. This issue has both financial and emotional considerations so coming to a decision requires a great deal of openness and an honest assessments of ourselves. This is a highly personal decision, but I will give you insights into how we approached the problem to see the various implications.
The financial perspective:
We bought our place in June 2006 for $540,000 after getting into bidding war. Yes, this was back in the day of a seller’s market and relatively limited supply. We have about $130,000 in equity and our mortgage is ~$3,000/month + $200 in HOA dues. Today we estimate that the house is worth $450,000 (it hurts me to type that) and we could rent it out for $2000/month. So, on an annual basis we would be paying somewhere between $14,400 and $20,000additional (depending on repairs, insurance, etc). Assuming that the house appreciates at 5%/year (obviously this is like gazing into a crystal ball, but that is the fun of this decision) we would be “making” $22,500/year in the increased value of the home.
As you consider your own situation, you will also want to take into account the following:
- Housing market – is it a buyer’s or a seller’s market?
- Tax implications – your mortgage interest is tax deductible and selling will eliminate this deduction
- Capital gains – check out IRS publication 523 on home sales for details on when you can avoid paying capital gains taxes
- House equity – how much do you have and are you looking to preserve it?
- Costs of selling the house – do not underestimate the high fees it takes to sell a home (taxes, real estate agents, legal fees, etc…it adds up quickly)
- Property management – would hiring a property management firm be worth it?
Our Financial Summary: On a pure numbers perspective, assuming we can keep it rented the entire time and no major repairs, it makes sense to keep the house.
The emotional challenges:
We absolutely love our home. We fell in love with the view the moment we walked onto the deck. The Fremont neighborhood of Seattle is wonderful and we never have to get in the car because we can walk to everything. Of all the homes we have owned (this is number 8 in 6 different states) this is by far our favorite and the smallest. As the old adage goes, buying a home is about 3 things location, location, location.
However, what is important is to step back from the emotional ties to the house house. As we have pointed out before, the ties you have to the memories of your house or things never fades even if you sell it. The key is to determine how owning a how will impact you on your trip. Ask yourself some key questions:
- Are you going to be comfortable with other people living in your house?
- Will you be thinking about the place while you should be enjoying your trip?
- How will you feel when there are repairs needed on the place?
- Will you constantly be worried that something may go wrong?
- What if we cannot rent it for a few months? Will this ruin our trip?
Our emotional summary: When we decided to go on this trip the goal is to embrace a new lifestyle and experience the wonders of long term travel. We both know that if we keep the house we will be constantly worries about what might happen back in Seattle, instead of what might we will experience in our next location.
Ultimately we made the decision to sell by being honest about who we are. We both understand the financial impacts of our decision, but by selling we can make a complete mental break and just focus on the life in front of us and our trip. We are not able to avoid the worry that comes from owning property while we are away. Besides, if money was really what we found motivated all our decisions I certainly would not be quitting a great paying job to step into the unknown and travel the world. To us, and we realize this will not apply to everyone, selling the house and making a clean break just feels right.
Here are some sites we used in the decision process:
- Check home values from Zillow
- Home sale cost calculator
- National Association of Residential Property Managers
- New York Times article on the “accidental landlord”
- One family’s experience we learned from
Have you gone through a similar process? How did you make the decision? What advice would you have to others?
About Warren
Whoa, brave of you to share ALL the financials here…I admire your transparency!
For some reason, I feel like I just went through some emotional process too – if you don’t have a home calling you back to Seattle, you could end up anywhere!
A moment of silence.
Karen and Margit, it took us a while to come to this decision, and it was not easy. We live in a great location, and it would be so nice have this come back to. But the reality is that we may not even want this kind of life if/when we come back. If we are moving in a different direction, why would we keep such a huge (and expensive) reminder of the way we used to live?
So let’s just hope the Seattle real estate market agrees with our decision this spring!
And don’t worry about us not coming back – we may or may not live here again, but we have so many good friends there is no way we won’t be back to visit. Keep your guest bedrooms open…
Great post, Warren. A few comments to think about:
1. Spending $90K plus to sell vs. $30K to rent for one year – do you have the cash handy? Is that a smart way to spend $60K?
2. An experienced landlord once told me that tenants rarely cause more than $10K in damage.
3. Once you are on your trip, the odds that you wil by worrying about your renters is low.
I know this is a big decision for you both. However, it is reasonable to assume that you can sell for more one year later than when you do sell. The question becomes, is that amount of money worth it?
Good luck!
Anna
I was faced with a similar decision a few years ago when pondering an expat stint. My real estate agent — a good friend — advised me that yes, I could sell, but his concern was that I would not be able to get back in to a place I wanted to be and was I willing to take that risk? It turned out to be a non-issue, but I did decide not to sell based not on his advice about now — of course he could sell my house — but on his advice about the future, when I’d decided to come back home.
I’ve rented my place repeatedly while traveling and never had more than too much cat hair to deal with on my return.
P.
WOW, thank you all for the comments. I did not realize when I sat down to write about our experience I would get so much great feedback both here and offline.
@Anna – excellent questions. Financially I agree that keeping the house could be more beneficial, assuming the prices rebound in the next few years and the market begins to climb again. While I am not one to walk away from money (Betsy is laughing just at the thought given how “frugal” she knows me to be) I am worried about the ability for me to check out while on the road and not obsess. You have certainly given me pause.
@Pam – thank you for the personal insight. This is extremely helpful to see how others have dealt with similar situations. Given how much hair our cat and dog put out I can relate to the comment. Right now we are not sure we will want to come back to Seattle and by selling the house it allows us to be free in our future decisions.
Thank you all for the insights and giving us more to consider over another bottle of wine.
Warren