In this article, we'll combine our own thoughts as financial advisors working with expats with real life advice from Ashley Greenwald, a REALTOR® and former expat who has lived some of these experiences.
The transition to life abroad is a major one. Individuals and families are giving up friendships, family connections, cultural frameworks, many of their meaningful personal possessions, and their homes to embrace life in a new context. Each of these transitions is significant in its own way, and a person's home is no different. A home often embodies much of a person's family life in a physical, tangible way. It has greater emotional meaning than many other personal possessions. It also typically represents a large portion of a family's net worth, making it one of the most important elements of their overall financial picture. Deciding what to do with a home when you're moving abroad or coming back to the US after years overseas is, understandably, quite a big decision. Below, we'll attempt to tackle some of the tough questions related to buying or selling a home for expats. There's a lot to say, so we'll split our thoughts into two main categories: tips for expats heading abroad and tips for those returning to the States.
Tips and Advice for Moving Abroad
Should you buy a home if you know you'll be heading overseas in the future?
To answer this question, we asked our friend Ashley Greenwald, a REALTOR® serving the Buford, Suwanee, and Dacula areas and former expat of six years. We know of no one better to answer tough questions about real estate for expats than someone working in the industry with personal experience as an American living abroad. Here's what Ashley had to say:
If you know that you are planning to go overseas in the future, but still have a couple years before you go, my advice is to go ahead and buy a home. Let it create equity for you while you finish preparing to go overseas. Before my husband and I went overseas we were paying off some debt and getting some life experience and training. We decided to rent so that we weren't "tied down" and could have one less thing to worry about when it was time to head to the other side of the world. 15 years later and we still look back on that decision and wish we could change it. The reality is, if you know you have a couple years before a cross-cultural move, it is worth the investment in your home. Not only does this keep you from giving away money in rent every month that could be going to building equity, but it also limits your nest egg for when you move overseas. Looking back, this is one of the biggest changes we would have made as a family as we waited and prepared to go overseas.
If you already own a home, should you sell it when you move abroad?
For many expats, the process of settling in to a new environment is time-consuming and mentally exhausting. One benefit of going ahead and selling your property is having less to think about in the States while you adjust, so you're free to be fully present in your new setting. Additionally, moving overseas is expensive! Ashley's thoughts:
You may want to sell your home, make that clean cut and have a nice lump sum to help set up a new home overseas. This, along with selling other assets you won't be needing while you're overseas, can really help set you up for success in your host country. Word to the wise - it always costs more than you think it will to set up a life in a new, foreign location.
If you do choose to sell your home when you move, you may consider investing the proceeds of the sale, especially if you'll be living overseas for a lengthy amount of time. You'll no longer be benefitting from appreciation of the home's value, and to purchase a similar home when you return, it's possible that you may need more cash than when you left. The good news is that as long as you're selling your primary residence, you likely qualify for a tax exemption for your gain on the property. According to the IRS, "If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse."
Should you rent out your house if you're moving overseas?
The alternative to selling your home is renting it out while you're gone. If you take this route, you'll continue to benefit if the home appreciates, and you'll generate income for yourself through the rent payments. Make sure to hire a management company you trust, even though it will eat into the profits. You won't be present to check up on the property or handle problems yourself, so you'll need a high-quality management team to take care of things for you.
Renting out your home has both tax advantages and pitfalls. On the one hand, you'll be able to write off many expenses, the most significant of which is often depreciation. On the other, when it does become time to sell the property, you could end up owing capital gains tax on more of the transaction, especially if you've rented the property for several years. The rules can get a little complex, so we strongly recommend consulting a tax professional should you choose to go this route. You may also consider asking an attorney about setting up an LLC for your property.
Some expats may opt to rent out their former residence more for the intangible benefits. If you like both your home and the area you live in prior to moving abroad, you might want to return to the same house when you move back to the US. This can be an appealing idea, but beware that getting rid of the current tenants and finding job opportunities in the same area can make this a bit of a hassle. Additionally, Ashley brought to our attention one benefit we hadn't thought of: "It also can provide you a place to stay during the weeks/months when you are on holiday in your home country." If you have strong ties to your current area and want an easy way to visit without lining up an expensive hotel stay or crashing a friend's or relative's home, keeping your house as a rental property can give an extra option. Do be aware that you'll need to have good relationships with your tenants and be respectful of their rights and preferences for this to be possible.
Tips and Advice for Moving Back to the US
When should I start thinking about moving back home?
The real key to having a successful move back to the US is preparation, usually long before you know you need to move. We speak with expats all the time who didn't foresee the circumstances that led to their move back home and, therefore, weren't prepared financially or emotionally for the process. Perhaps a relative's health or a sudden job change forced a quick decision, and while things almost always work out in the end, the process could have been smoother if they had planned for their return from the start. Significant savings to cover moving expenses as well as to help finance a new home are an important part of an expat's financial life. Ashley had some fantastic things to say on the topic:
When my family first moved overseas, I never imagined that we would be returning to the States for anything longer than a 6 month stay. Fast forward 6 years and we were moving back to the States permanently and figuring out what was next. Luckily we had a nice landing pad with family and friends who helped us in the transition. During that time, we had to do things like purchase vehicles, find jobs, set our kids up in school, and find a place to live long-term. All of that takes money. We actively prepared for 8 months for our move from overseas to the States . It included selling items we wouldn't be bringing back to the US and implementing a strict budget for our family. Moving, especially cross-culturally, takes extensive resources. So creating and sticking to a budget is essential. That allows you to save up for the essentials necessary to start up your life in your new location. Having money earmarked in your savings for vehicles, utilities, start-up costs, and a home will make that process so much smoother.
If you can, take your time in the process. You are already processing so many emotions and changes when you move from your host country back to the US. The home-buying process can be overwhelming for anyone. Add in a major life change like cross-cultural moving, and there are whole new levels of stress to work through.
All that said, the more thought you put into what you want your return home to look like, the easier your transition back will be, whether the timing of it is expected or unexpected. If you generally know what types of cities in the US you'd like to live in and what home prices look like in those cities, you can have your finances ready to buy a home when the time comes for that decision.
Real estate decisions are complex and highly personal. If you'd like personalized advice, seek out the help of a financial advisor, a REALTOR® like Ashley, or other professional.
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