I am 55 and own a townhouse in Chicago. My property taxes are rising more rapidly than home values, relatively speaking. I decided to change my career and to pursue a PhD beginning in the fall of 2018. Meanwhile, I just accepted a one-year position in Seattle, and am not sure after my year away whether I will return to Chicago, stay in Seattle or potentially move to Ann Arbor, Mich., the three top cities for programs in my field of study.
Here’s my question: Should I sell my home or rent it out?
Time is the most important consideration when it comes to buying or selling a home That’s because real estate is such an illiquid investment.
We often say that if you’re not sure you’re going to be in your next home for the next five to 10 years, you should rent rather than buy. That’s because home prices typically move upward at just over the rate of inflation. If inflation is 1 to 2 percent, you could reasonably expect your home price to rise 2 to 3 percent per year.
In addition, there are costs and expenses that could reach between 6 and 10 percent of the sales price of your home, including the sales commission, transfer taxes and fees, title insurance (which sellers often provide), and many others. And many sellers will face moving costs, storage costs and move-in costs for their new home, whether they buy or rent it.
So, back to your situation. You’re moving to Seattle for a year and planning a big change in your life. You’re going to change careers and pursue a PhD program. All of this will unfold over the next five years and you don’t know where you’ll be. From your email, it looks as though Chicago has only a 33 percent or less chance of being the place where you’ll wind up. We’re not sure we’d bet on those odds.
And there’s this: Let’s say you do wind up in Chicago. Will the PhD program you attend be close enough to your townhouse for the commute to make sense? And will you be able to afford it?
While you’re noticing that your property tax bill is rising faster than your home value, there are other costs and expenses required to maintain your property. If you’re managing the property all the way from Seattle and there is a problem, it will take time to figure out who to call and manage the situation for your tenants. And even if you get great tenants, and your townhouse doesn’t really have any problems in the first year, what happens if you decide to stay in Seattle but the market is a little slower in a year?
You should also know that your real estate taxes may go up a bit once you rent your property. Many places give homeowners who live in their homes a break on their real estate taxes, and once they rent the home they lose that break.
So we don’t think that trying to manage a rental property in Chicago from Seattle makes a lot of sense unless you’re fairly certain you’re returning, and that it would make sense to live in your house as you move forward with your new career.
But there are a lot of advantages to selling now. If you sell now, you may take advantage of the hot spring market, and have cash in your pocket in case you decide to stay in Seattle and find a good property there to buy. You also don’t have to worry about what’s happening to your property, like finding good tenants, fixing broken appliances and rising property taxes, which means less stress for you. Even if you come back to Chicago, you have more flexibility.
In short, we think you should sell now, and go off to Seattle focused only on your new job and future career.
Ilyce Glink is the creator of an 18-part webinar+ebook series called “The Intentional Investor: How to Be Wildly Successful in Real Estate” as well as the author of many books on real estate. She also hosts the “Real Estate Minute” on her YouTube channel. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them at ThinkGlink.com.