Should Overseas Transferee
Sell Home Now, Or Rent It Out?

Question: I recently relocated to Japan with my company and will be here for three to five years. My employer is paying 100% of my housing expenses while I'm in Japan. I own a home in Dallas that I purchased new in July 2005 with a $20,000 down payment and a 30-year fixed mortgage at 5.13%. I decided to rent out my home using a leasing management company. I have a great tenant who plans to stay at least three years, and the current rent covers the monthly mortgage and the management fee.

I am a single, 43-year-old woman who is maxing out my 401(K), with no credit card debt, no car payments and great credit. Should I try to sell the home, currently valued at $240,000, and reinvest the money on another home when I return, or should I continue to double up on payments to pay it off  in 15 years (with the help of my renter) and continue to use it as a tax deduction?

Answer: Keep the house.

I realize that not everyone will agree with me. After all, with real-estate prices falling nationwide -- median existing-home prices fell 0.6% in July from a year earlier -- real estate isn't the surefire bet it once was. Meanwhile, stocks continue to rally, albeit erratically, and could bring you better returns on your investment, with the added advantage of complete liquidity.

But your circumstances are, enviably, special. You have no debt, no out-of-pocket housing costs for the next few years, a terrific fixed-rate mortgage and a fat 401(K). You need to balance that 401(K) with an investment that tends to run counter-cyclically with stocks -- real estate.

Managing a property from half-a-world away would normally be a nail-biter, but since you have a good tenant and a property management company you trust, it won't be a problem for you. You'll at least break even on your costs -- and might be able to raise the rent a little over time.

Time is on your side. You don't mention what you paid for the house, but you did buy near the top of the market. In order to maximize your returns, you need to wait for the current down cycle to swing up again.

Though some economists say home prices will languish for another two or three years, there is evidence that the market could be poised for a rebound -- especially after the current lending crisis works itself out. By offering fire-sale deals, builders are working through their bloated inventories. According to Hanley-Wood Market Intelligence, there is a 7.5 months supply of new homes on the market. New home sales increased 2.8% in July to a seasonally adjusted 870,000 homes, up from a revised June figure of 846,000. New home median prices ticked up 3.9% in July over June.  All good news for existing home sellers -- eventually -- since builders lead the market.

By keeping your home, you'll avoid the transaction costs of selling now and buying (at higher prices) when you return. Bear in mind that to avoid capital gains tax, you'll have had to live in your home for at least two out of five years prior to its sale.

-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.

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