If I Buy a House, What Happens When I PCS?
Permanent change of station season is stressful. More often than not, you are given a short timeframe to move your family to a new community. You know it is part of the deal, but that doesn’t make it easy! If you currently own your home, you have two options when you receive your permanent change of station (PCS) – sell it or rent it. There are pros and cons to both, so it’s important to weigh your options and choose what’s right for your family.
Do You Want to Be a Landlord?
If you think you will return to the community you currently live in, renting could be the way to go. There are a few things to consider before making this decision though. You should contact a realtor to discuss the rental market to determine how easy it will be to rent your home and how much rent you are likely to get for it. Next, you’ll need to calculate whether or not the rent will cover your mortgage payments, insurance, and property taxes. If not, you need to figure out how you will cover the shortfalls.
You also need to decide if you want to be a landlord. You will be in charge of collecting the rent, making necessary repairs to your home, and managing the landlord-tenant relationship. If that isn’t something you want to take on, you can hire a property manager, but you pay a fee for that service. In addition, as soon as you have a tenant, your home becomes an investment property. If you’re renting out your home in Hawaii, that means you’re responsible for paying the general excise tax (GET) on the income you receive from rent.
Does Selling Make Sense?
If you are ready to move on and don’t think you’ll be back, you should consider selling. If you bought a home during a PCS to Hawaii, there are some specifics you need to know. When you sell an investment property as a non-Hawaii resident, you may be required to pay withholding taxes. Namely, the Hawaii Real Property Tax Act (HARPTA) which is 7.25% of the sales price and the Foreign Investment in Real Property Tax Act (FIRPTA), and that’s 15% of the sales price for foreign investors. It’s critical that you consider the impact those taxes will have on your investment.
It’s also important to know what’s happening in the real estate market. If the market is soft, you may not get the price you want. You may even have to consider taking a loss on the property. Selling also takes time (which you may not have) and costs money, and the deal could close after you’ve left, which means you’ll need to assign someone to manage the sale and sign paperwork.
There is no right or wrong here; it’s a very personal decision based on your unique circumstances. Don’t get caught off guard when you receive your PCS, knowing your options allows for the best possible outcome for you and your family.
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