Wednesday, November 29, 2006

HOME IS WHERE THE HEART IS

In the nearly eighteen years (!!) that Art and I have been together, we’ve both felt that where we are isn’t all that important as long as we’re together. Having found each other rather unexpectedly, we both realize how amazing it is to find your soul mate. Even if worst came to worst we could live in a one room apartment and be happy…but of course we’d prefer a little bit more space and a few creature comforts if at all possible.

Since our move to Italy just over three years ago, we’ve seen the dollar spiral downward. We’ve seen our renovation costs eat up most of our savings and each month we struggle, trying to decide when is the most advantageous time to transfer money. We’ve seen our plans to tour Italy and the rest of Europe fade away, and are glad that we love our house, our town and the friends that surround us here.

Of course being the pessimist (note: pessimists are really just REALISTS with a plan for how to cope with the worst, should it happen) I’ve been tempted many times to throw in the towel, put the house up for sale and move back to the states. Art, being the optimist, always assures me that everything will work out. Yeah yeah, but how? When? How long do we wait?

Being an optimist is great for everyday life…I mean, we can’t always go around with a frown on our faces, worrying about every little thing, robbing ourselves of any joy in life, but then there does come a point when reality must play a part. Unfortunately being an optimist and thinking that things will get better really doesn’t have any impact on whether they really do get better. So I asked Art the other night, “Okay, so WHEN do we make the decision that it’s NOT going to get better? How many months or years do we keep thinking (and wishing) our fortunes will improve? When is enough enough??”

He suggested that if things haven’t turned around by the spring then yes, it may well be time to consider going back…but that’s not really something either one of want to do. And if we did, well, then what???

We decided that we would return to Louisville…not only do we have friends and family there, Art can also work (in limited amounts, which is a good thing) at Churchill Downs. The cost of living in Louisville is quite reasonable, and the city has a lot to offer. Additionally moving back to Louisville would mean that we didn’t have to start all over again like we would if we relocated to Florida, or the Carolinas, or some other retirement-friendly haven.

“Okay, so then what would we do? Where would we live? Would we buy something or just rent?” This question of renting versus buying has been puzzling me for a while now. Although we have a small mortgage on our house here in Italy, we are, like many others, living in (and sitting on) our largest asset….the equity in our house. What good is all this equity if we can’t access it, if it only turns to cash once we’re dead and gone? Shouldn’t we be enjoying it NOW?! Realize that this is ME, the financially conservative one saying this! Yes, I want to have something for my ‘golden’ years, but really, at what point will we be able to actually ENJOY our money?!

So we started to do the math. Of course optimist Art expects to get much more for our house than I do, but in any event we’d still have a nice chunk of change, especially if we took it back to the states. That bad exchange rate suddenly works in your favor if you’re changing euros into dollars! At the current rate of exchange €200,000 magically becomes $263,000! Wow!

We could do a lot with the money we’d net from selling our house! We could buy a small condo, or we could rent something for quite a while. We decided that we’d probably get a small mortgage so as to leave some of the money liquid….Art still thinks we could afford to travel…to actually return to Italy as visitors, but once again, I’m a little more hesitant to think that this would be possible.

Now only a few hours before this talk we’d been watching a show on the BBC entitled something like “How I Made My Fortune With Real Estate” or some such. This show just traced the lives of various people who’d had a combination of good luck, good fortune and the desire to take a chance. The people and their stories really weren’t much different from ours…they started off with a small house, made improvements, waited till the time was right, then sold for a nice profit. Those profits were then put into the next property and the cycle repeated until most of these people were living in houses valued at over £1,000,000 ($1,900,000).

Although we didn’t climb that high up the ladder we did make a nice profit on every house we owned, and in the end we had enough equity to allow us to retire early and buy a house in Italy…until the decline of the dollar forced us to re-examine the situation. Yes, others had warned us that this could happen, but you can’t always live your life expecting the worst!

As Art and I are having this troubling discussion, a light bulb goes off! If we could sell this house and buy something in the states, why couldn’t we buy something here in Italy? We’d recently looked at a small apartment that cost about €65,000 and would require maybe €50,000 to renovate. Why couldn’t we buy something like this, then we wouldn’t even have a mortgage at all?!!

Yes, we love our house…we’ve put so much of ourselves into it, but honestly we’ve LOVED every house we’ve ever lived in! When we bought our first house, a cute little Cape Cod, we called it “the cutest little house in the whole world” and thought we’d be there forever. Our friends were shocked when we sold it and built a house just a few years later, but that was such a fun project, and I’m glad we did it. And then, after a few years in the house that we’d built from the ground up, participating in every detail from the placement of electrical outlets to the landscaping to my first attempt at faux finishes on the walls, we decided that a condo would be much easier in terms of maintenance, especially considering the traveling we did. When we bought our condo, a three bedroom, two bath ranch with an attached garage, first floor laundry and small garden we thought we’d finally found the place where we’d live for the rest of our lives. And then we went to Italy.


So now I’m beginning to realize what I’ve always known….a house is just a house but home is where Art is. And so now we’re thinking about this plan….not even a plan yet, just an idea. Could this be the answer to our problems? If we could sell our house, buy something else, not have a mortgage and still have money in the bank, maybe we could travel throughout Italy and Europe just as we’d dreamed. Or maybe we should consider renting something here…with the proceeds from the sale of our house we wouldn’t have to worry about transferring money from the states for a long, long time. Either way, we’re not getting any younger and we both want to travel while we can, to experience as much as we can because who knows what the future will bring? And either way, this house is just a house…a house that may be the key to letting us continue to live our dream.


UPDATE: Well, that dream didn't take long to get shot down! I knew there was a restriction on how soon you could sell your house without having to pay additional taxes and penalties, and apparently that period is FIVE years, not the three as I had hoped, and the tax penalty is 20% of the profit! Ouch! Seems like either way, stay or go, it's going to cost us more than we anticipated. I'm going to be depressed and grouchy for a very long time.......

UPDATE TO THE UPDATE: Now it appears that the five year rule will NOT apply to us because we've actually been living in the house and have residency....OR if it does apply it can be negated if we buy something else with a year....OR all of this could change....this IS Italy after all!

Apparently there are a lot of changes in the wind right now. The Italian government, always in flux, turmoil and scandal, is now debating many changes in these and other laws so for now we'll proceed as planned and see what happens.

Although we're in agreement about doing whatever it takes to stay in Italy, and that a house is just a house, I think at this point all of that is more theoretical than anything else. I think the idea of selling our house is still a little hard to accept, but once we have some time to get used to the idea we'll be fine. We need to come up with a price that's fair and to start looking around to see what's available.

4 Comments :

At 11/30/2006 12:28:00 PM , Anonymous Anonymous said...

Someone here just did it and she hadn't owned her house a full five years, so she set the transferral for later. She planned on renting and investing the proceeds, but ended up finding the apartment she needed the first time! For a lot less money. It is in a palazzo just recently redone, so it's old, but everything is new.

 
At 11/30/2006 12:45:00 PM , Blogger Darla Bruno said...

Hey Barb,

Darla here . . . one small suggestion: you and art may want to consider listing your house on homeexchange. It could be an opportunity for you two to do housing swaps to the places in the world you'd like to see.

Hope to see you soon!
Darla

 
At 12/01/2006 01:03:00 AM , Anonymous cristina said...

Barb, the rule is 5 years BUT if you sell in under 5 years and purchase another property within 1 year from the sale of the first and you claim the second property as your prime casa, you will ony have to pay a very small CGT if any at all.

 
At 12/09/2006 09:22:00 AM , Anonymous rome addict said...

Barb:

Have you considered a reverse mortgage? Do such things exist in Italy? You "sell" your house but continue to maintain occupancy. It is a hot new trend here in the USA. You hold the mortgage so you get the mortgage payment every month.

As Darla suggested you might want to take a look at not only home exchange but renting. We list on VRBO and vacationrentals.com.

If you have some friends or a travel destination that is cheap you can rent your place, travel and make a few $$$.

Finally, take a look at e-bay. A friend sells italian olive oil that you can't get here in the USA. She doesn't make much but even $50 a month is a help.

 

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