INVESTMENT OUTLOOK : BEYOND THE TRADITIONAL : Uncommon Ways to Save, Spend Wisely : Moving? Think Twice Before You Sell House, Condo

A real estate adage holds that you should never own anything you can’t drive by daily.

But that might not always be the wisest advice, particularly if you own a house or condominium in a generally hot real estate market such as Southern California, and you are moving to a region where home prices tend to remain stable.

In a society in which job transfers and long-distance romances are commonplace, it is scarcely surprising that each year thousands of people faced with out-of-town moves must decide what to do about their homes.

Should I lease or sell? If I keep my house, how do I ensure that a tenant won’t take me to the cleaners? What are the tax implications? What if I plan to return?

Here is one accountant’s favorite rule of thumb: “Try to buy in an area where you’re going to stay permanently,” said Michael B. Sedgwick, who heads a West Los Angeles accounting firm.

That sounds simple enough, but suppose the out-of-town assignment could prove temporary or you’re not sure you’ll like the new locale.

Then several factors should be considered.

“If you’re in an area that historically has had escalating real estate values, you’re better off to try to find a tenant, if there is a reasonable chance that you will return,” said Charles Kaiser Jr., chairman of Pannell Kerr Forster, a Los Angeles accounting firm. “If you’re going to an area that would have equal or greater escalation, you’re better off selling and then buying there.”

Consider a client of Anthony M. Contratto, a Manhattan Beach lawyer.

The client, who originally paid $100,000 for his Rancho Palos Verdes home, was transferred 10 years ago to a town 80 miles away. He leased the house, reaping tax benefits such as depreciation. He recently decided to move back to the house, now worth $600,000 to $700,000.

His monthly payment hasn’t changed, and the tenant has been helping to pay down the mortgage.

Generally, “the average person . . . trying to move back will be looking at significant increases (in housing prices),” Contratto said of the Southern California market. Moreover, the substantial transaction costs involved in selling a home and buying elsewhere, especially for a short-term move, can argue for renting out a house.

The key to making it work is finding the right tenant.

David W. Bryant, whose Prudential Bryant Cos. Real Estate in South Pasadena manages about 40 homes and condos, charges clients 6% of the value of an annual lease to find a tenant and a monthly management fee of $100 for homes or $80 for condos.

For these fees, Bryant’s firm advertises the property, processes applications, performs a credit check and looks for prior evictions. Once an acceptable tenant is found, staff members collect the rent, pay the bills, supply a monthly statement to the owner, periodically drive by the property and hire repair people.

Even with careful scrutiny, there can be problems. Bryant, who contends that laws tend to favor tenants, said the firm still has to take renters to court. But “a lot of times I’ll pay somebody to move out,” he said. “It’s cheaper.”

Bryant acknowledged that the headache-producing management business would scarcely be worth his while were it not for the “ancillary benefits.”

“If I perform properly, when the person goes to sell that single-family residence, hopefully he will look to me,” he said.

Even with a management service, things can go haywire.

When Kevin Faricy, then unemployed, was offered a dream job in television two years ago, he moved to Los Angeles from Austin, Tex., and hired a manager for his house.

Everything went smoothly for a year. Then he noticed belatedly that he had not received rental income for two months. The tenants had moved out, and the management company was unable to lease the house.

With Texas mired in a recession, Faricy spent weeks vainly seeking a renter or buyer. One step shy of foreclosure, he ceded the house to the mortgage company.

Although Faricy primarily blames the management company, he regrets not riding herd on the house himself--by keeping in touch with neighbors and making visits. He wishes he “had been a little less trusting.”

Not everyone can afford to keep a residence in Southern California as a rental property. Usually, residences that cost $300,000 or more cannot fetch adequate monthly rent to cover mortgage, tax and insurance payments. Then a homeowner-turned-landlord is looking at potentially significant negative cash flow, which could limit the ability to afford good housing elsewhere.

To be sure, writing off such losses against income can be attractive. But beware: Tax law changes effective two years ago limit the amount that those in high-income brackets can deduct.

For most homeowners contemplating a move, a main consideration would arise if they lease their house, then later decide to sell so they can buy in the new city. Will they be taxed on the capital gain or can they roll over the profit into a more expensive house?

“The code, unfortunately, is rather vague” on this subject, Contratto said. “The IRS is going to try to discern what your intent was.”

Tax rules do not prohibit a property owner from renting out a home temporarily, particularly if the housing market is sluggish (as is the case now in the Southland). However, the rules forbid converting a house to rental with no intention of returning, then trying to roll over the gain from a sale into another house.

Contratto, perhaps optimistically, puts an “outside window” of two years on any “temporary” rental period. Realistically, the Internal Revenue Service is likely to frown on someone renting out a home for more than a year before placing it on the market, said Carole Levitzky, a spokeswoman in the agency’s Los Angeles office. But Contratto notes that special circumstances could buy a homeowner more time for renting a property.

If a house has been converted to rental, the owner can exchange it for another rental property of equal or greater value.

Alternatively, the owner could move back into the house for at least a year, qualifying it once again as a primary residence. Then the gain from a sale could be applied toward a more expensive house without tax penalties.

A homeowner is eligible for such a roll-over only once every two years. But after selling a residence, he can take up to two years to find another house.

To avoid raising red flags with the IRS, tax advisers recommend that you split up actions involving your residence into two tax years. If you move back into your house in September, then sell it the next June, the IRS would be less likely to notice that you had been living in it less than one year after it had been a rental property.

TAX GUIDANCE

If you are uncertain about the tax treatment of your situation or are wondering what tack is most advantageous, you can request Publication 527, Residential Rental Property, from the IRS. To get a copy:

* Write to IRS Forms Distribution Center, Rancho Cordoba, Calif. 95743-0001. Be sure to include your return address; allow two weeks for delivery.

* Call the IRS forms line, (800) 424-FORM.

* Visit a taxpayer service counter, or you may find copies at some banks, libraries or post offices.