When preparing for deployment, military families know certain “housekeeping” needs to be addressed prior to departure. Take time during this transitional period to evaluate whether selling or renting out your home is best given your unique circumstances. Is it time to sell and explore another purchase elsewhere? Or do you love the home and want to hire a property manager to oversee the rental process?
Relax. One in five USAA members successfully move each year, and there are federal programs in place to make the sale or rental of your home as seamless as possible. Regardless of where you fall on the “to sell or not to sell” spectrum, here are some points to consider:
Selling Your Home
Pros:
- Home Sale Exclusion
If the home has been your primary residence for at least two out of the last ten years, you may qualify for a tax-free sale of your home up to $250,000. For married couples, the exemption doubles to $500,000. The capital gains tax savings can be quite substantial, and could put you in a great financial position for your next home purchase.
- VA Loan Assumption
Noticed that local interest rates are on the rise? An expensive real estate market can work in your favor if you financed using a VA loan. The new homeowners have the chance to assume your mortgage, meaning they can take over your fixed-rate payments instead of financing elsewhere (and potentially spending even more). Advertise a VA loan assumption sale to encourage more competitive bids.
Cons:
- Not good for a time crunch
Depending on the local housing market, it can take 10 days to several months for your home to sell, with the national average being four weeks. A seasoned real estate agent can help expedite the process. Still, there’s no guarantee that your home will sell when you need to sell it.
Renting Out Your Home
Pros:
- Fluctuating Home Values
Consider renting out your home if the property value has recently decreased. Under the right circumstances, you could break even on your mortgage with monthly rent payments and have some change to spare. But do your homework if you decide to sell later on—rental properties can incur hefty capital gains tax.
- Double Down with BAH (Basic Allowance for Housing)
When you love your home and community, renting out the property while deployed feels like a no-brainer. Collecting rent from a tenant and BAH is the perfect recipe for aggressively paying down a mortgage. As long as the property wasn’t financed using a VA loan, there’s no reason not to double-down on payments and come home financially stronger than you were before.
Cons:
- Property Management
There’s a good chance you won’t be able to (or even want to) manage a rental property while deployed. Between filling the home with a tenant, collecting the monthly rent, and handling repairs, the process can feel like a fulltime job. But hiring professional management is expensive, with bare minimum fees ranging from 50 to 150 percent of the first month’s rent. Owning a rental property may not be a cost effective choice once all expenses are accounted for.
Your home is likely your most significant asset. Deployment can mean an opportunity to let tenants pay down your mortgage before you return at a later date, or it may be the impetus to cash in on your surging market and reinvest elsewhere. Be sure to consider your long-term financial planning and where you hope to live or be stationed in the future.
Phil Karp uses his 25 years of real estate experience to help homeowners make the choice to sell or rent their home before deployment. He also serves as the Head of Brokerage Services at Owners.com, a home buying and selling platform. Phil lives in the Atlanta area with his wife and rescue dog, Dakota.
