A Two-Year Trial: Renting Your House Before You Decide
She did not want the house to turn into a chore from far away.
Picture a couple named Sylvia and Otis, 64 and 67. Their house is paid off and worth about US$500,000. Sylvia was ready to sell and go. Otis was not. He kept a coffee mug on the porch rail every morning, and he said he could not picture the porch without it.
Sylvia had her reasons. She did not want the house to turn into a chore from far away. Otis had his. He wanted a way back. They tried something in between. They would rent the house for two years, live abroad, and decide again at the end.
Sylvia wrote down what three paths cost over those two years. Their home abroad costs the same on all three, so it drops out of the table. A property manager would take 10% of the rent. When a tenant lives in the house, the tenant pays the utilities and the routine upkeep, and Sylvia and Otis still pay tax, insurance and big repairs.
| Per year | Keep it empty | Rent it | Sell it |
|---|---|---|---|
| Money in | US$0 | US$33,000 (US$3,000 for 11 months) | US$18,800 (US$470,000 after selling costs, at an assumed 4%) |
| Money out | US$14,900 | US$13,800 (US$10,500 for tax, insurance and big repairs, plus US$3,300 manager) | US$0 |
| Left over | −US$14,900 | +US$19,200 | +US$18,800 |
| After two years | −US$29,800 | +US$38,400 | +US$37,600 |
Otis read the last row twice. "Trying it beats leaving it empty by US$68,200," he said.
Sylvia pointed at the other column. "And it is about the same as selling. Renting two years brings in US$800 more than selling today would."
That was the part they had not expected. If they rent for two years and then sell, they pay the same selling costs they would pay now. The sale money would have earned US$37,600 in those two years, and the rent earns US$38,400 on a house that is still theirs. The trial costs them close to nothing, and it leaves the choice open. Prices are held flat in the table, and a house can rise or fall in two years.
Sylvia then phoned a property manager, who explained that a one-year lease renewed once would give them a clear point to stop. She asked Otis what he wanted the two years to answer. They agreed on two questions. Do we miss the house? Do we like the life abroad? They wrote both on the back of an envelope and set a day in month 22 to look at it again.
Otis packed the mug in his suitcase anyway.
The rent in the table is an illustration and varies by place. Rent counts as income, and the figures are before income tax. Two years of renting also fits inside the two-years-in-five rule for a US sale, which an accountant could confirm for their dates.
You could…
- Write the two questions a trial would answer for you.
- Ask a manager what a one-year lease, renewed once, would look like.
- Mark a day in the last quarter of the trial to decide again.
What two questions would you want a trial to answer? Share your two questions below. Someone reading may be looking for the very same two.
Figures are estimates for planning, based on public data. Sources: US Internal Revenue Service guidance on the home-sale exclusion (Topic 701). Rules change and depend on your situation, so an accountant could confirm.
Tell us in the comments