Rent or sell when moving abroad

Rent or Sell when Moving Abroad: What Should Potential Expats do With Their Homes?

We’ve always covered expat issues for people once they’re here in Central America. But for most potential expats, the process starts way before you get on the plane. For example, what will you do with your home or property in your home country? Do you rent or sell when moving abroad?

Moving abroad is about making big, bold, breathtaking decisions. And a few boring ones. Most relate to the country you’ve chosen to make a new life in and the lifestyle you aspire to. Others focus on the life you are leaving behind.

For most potential expats, the decision of what to do with their home-country property is a difficult one. Not only are the finances complex, but selling the house you’ve spent decades living in can be emotionally fraught as well.

Still, it’s important to sit down and think through your options. Selling or renting your property might be the biggest financial decision of your life. It pays to get it right.

In this article, we’ll take you through the pros and cons of the two most popular options – selling your property outright before moving abroad or renting it out and using it as an income source while living your new life in another country.

Before we start, it’s important to point out that you shouldn’t read this article as investment advice.

Depending on your current financial situation and the country you’re moving to, the profit realized from selling or renting your home will vary. You should, in other words, check your tax liability as part of any decision of what to do with your home. Tax can turn a lucrative income opportunity into a drain on your finances.

Also, make sure you’re protected when signing contracts – either to rent or sell your home – no matter which country you’re in. That means that you should hire a lawyer in your home country to make sure your contracts are airtight.

With those warnings out of the way, let’s get to the heart of the matter.

1. Selling your property:

For most people moving abroad, selling your property seems like the natural choice. There are several good reasons for that.

Selling your property leaves you with a lump sum to help kickstart your new life in Central America. That’s a good thing. The most obvious use for it is to buy a new property in your chosen destination. If property prices are lower there (most likely), there should be some cash left over to live on.

I would warn against rushing in and buying a new home in your new country, though. The overwhelming advice to new expats abroad is to rent for at least a year or two in your new country before buying a home. I agree. You can use your money in other ways.

One way is that having a decent sum of cash at hand gives you liquidity to apply for certain types of residency in Central America. The rentista category of residency in Costa Rica, for example, requires a $200,000 deposit. Also, if you have a significant sum of money to invest elsewhere, you could provide yourself with an income without the hassle of renting.

You should also be aware that there can be downsides to selling your home.

The most obvious is that many expats don’t plan on leaving their home country forever. Circumstances change, and the majority of expats actually end up returning home within a few years for a myriad of reasons. If you’ve sold your house, that might make going home more difficult and expensive.

It’s also important to think about the true value of your assets.

While selling your house releases a significant lump sum, it might not provide you with the highest possible profit. Renting it out could be preferable and provide a continuous income that adds up to more over the years.

2. Renting your property:

For most expats, the idea of renting out their US property seems unattractive. If you never aspired to be a landlord, why would you start now? What about enjoying that retirement in the sun?

Well, there are several good reasons. Depending on how you rent out your property, rental income could incur less tax than selling outright.

Aslo, there are plenty of estate agents and property management companies who will manage every aspect of renting out your home, from finding tenants to performing maintenance. This can make managing your rental very easy, although it does come with a fee.

Despite any fees here, if you’re out of the country and away from the home you’re renting out, using a property management company is vital.

In the long run, renting might end up providing you with more profit from your asset than selling it. 91 of the 100 largest U.S. cities have seen rent increases over the last year. This trend is likely to continue as more millennials look to move to satellite cities.

This means that even if your rental income wouldn’t be great today, in ten years you might be able to charge a lot more.

The downside to renting is, of course, that you will not realize a nice payout to invest in your new life abroad.

For many potential expats, this will be the deciding factor. There are, however, other disadvantages to renting rather than selling your property.

You should bear in mind it’s not guaranteed that your property will always be occupied by tenants. If you have a significant mortgage this may cause you financial difficulties.

Also, the administration associated with managing the rental may not be suitable for those who wish to make a new start in a new country without leaving any ties back in their homeland.

These are more reasons to find yourself a good property management company in your home town before you move abroad.

Ultimately, it’s difficult to offer advice on what will be the most lucrative option when moving abroad.

Your own personal circumstance plus the complexities of your tax arrangements and the location of your house mean there’s no simple answer.

And then there’s something outside of money – emotion and nostalgia. For many, the financial implications of whether to rent or sell their house will come second to the emotional ties you have to your home country and your house.

At the end of the day, moving abroad isn’t only about looking forward. The most successful expats, those who make the best go of things in their new country, have also managed to do what’s best for them in their home country too.

Derek Dowell is a US-based real estate writer. He lives in West Plains, Missouri, with his wife and dog.