Soliciting Advice Version 2
Hello all. I too would like to solicit some advice. Wife and I are struggling to decide what to do with our home.
We own a home we really like. 1950s construction, beautiful hardwood floors, doors and cabinets, 1900 sf, large rooms, 1/3 acre city lot, view of the sound, less than 5 minutes to freeway onramp (but far enough away there is no freeway noise), 4.375 % 15 year fixed rate with 11 more years to go, in an area we love. lot is zoned for a second story, which if built would provide a stunning view of the Narrows Bridge.
Problem is the home is 40 miles from work, and last year the commute became too tough. We currently rent the house out to international students from a local college (we have experience being a host family, international students are much better behaved than frat boys). we modestly furnished the house, so the students dont need anything but their personal items. We moved to a rental house ourselves.
We have a 20% downpayment but are waiting for better market conditions to buy a home closer to work, and are comfortable in the rental we have found.
we bought the house in 2002, conservativley have about $150k in equity, and understand that if we keep the house our equity position will deteriorate. as the loan is a 15 year loan, the payments are higher than fair market rent for the area. to keep it, we will be out about $400/monthly, but we live well below our means, and that is comfortably managable.
We are attracted to the idea of keeping the house for the following reasons
1) we like the house and area, and i can retire in 20 years, and are looking forward to having a home paid off by then
2) we have a strong cash postion beyond our 20% down (moved from stocks to cash in the last 6 months), so we dont need to extract the equity (though i recognize that by not selling some equity will be lost in the short term), .
3) if inflation ramps up, even if real estate stays flat, rents are likely to rise to meet our fixed mortgage cost.
4) we suspect that the view and large city lot will make the house less suseptible to a large decrease in value (ive heard that nicer homes may go down less proporationally than starter homes)
5) we realize keeping the home will reduce the amount we can spend on another home if and when we buy, and are ok with that (now seems to be a good time to only own 1 home, not a couple).
i guess i just want a sanity check, to see if other bubble heads think we are crazy for not selling now, rather than keeping a house we like and want to own for the long term
thanks
mking
We own a home we really like. 1950s construction, beautiful hardwood floors, doors and cabinets, 1900 sf, large rooms, 1/3 acre city lot, view of the sound, less than 5 minutes to freeway onramp (but far enough away there is no freeway noise), 4.375 % 15 year fixed rate with 11 more years to go, in an area we love. lot is zoned for a second story, which if built would provide a stunning view of the Narrows Bridge.
Problem is the home is 40 miles from work, and last year the commute became too tough. We currently rent the house out to international students from a local college (we have experience being a host family, international students are much better behaved than frat boys). we modestly furnished the house, so the students dont need anything but their personal items. We moved to a rental house ourselves.
We have a 20% downpayment but are waiting for better market conditions to buy a home closer to work, and are comfortable in the rental we have found.
we bought the house in 2002, conservativley have about $150k in equity, and understand that if we keep the house our equity position will deteriorate. as the loan is a 15 year loan, the payments are higher than fair market rent for the area. to keep it, we will be out about $400/monthly, but we live well below our means, and that is comfortably managable.
We are attracted to the idea of keeping the house for the following reasons
1) we like the house and area, and i can retire in 20 years, and are looking forward to having a home paid off by then
2) we have a strong cash postion beyond our 20% down (moved from stocks to cash in the last 6 months), so we dont need to extract the equity (though i recognize that by not selling some equity will be lost in the short term), .
3) if inflation ramps up, even if real estate stays flat, rents are likely to rise to meet our fixed mortgage cost.
4) we suspect that the view and large city lot will make the house less suseptible to a large decrease in value (ive heard that nicer homes may go down less proporationally than starter homes)
5) we realize keeping the home will reduce the amount we can spend on another home if and when we buy, and are ok with that (now seems to be a good time to only own 1 home, not a couple).
i guess i just want a sanity check, to see if other bubble heads think we are crazy for not selling now, rather than keeping a house we like and want to own for the long term
thanks
mking
Comments
I wouldn't do anything to the house especially if you bought it at market value in 2002. You missed the real estate bubble altogether, so all this market concern doesn't apply to you.
I am guessing that the fall or spring of next year will be a great time to buy....If your renters or paying the mortgage you have no reason to sell unless you just want to lose money....
To Sell: You will have these costs:
1) Preparing the house for sale...Painting inside or/and out or both...freshening up the kitchen and baths ...replacing carpet ...God forbid the Roof....Etc.
2) Gregor's Sales Tax
3) 6% real Estate Fees.
Could you sell it for enough to just cover those fees? and the market is falling and will continue to.
On the big Plus side if you can afford to buy another house ...you stand to be able to buy all the house you really want because the prices will be tumbling down, we are just at the beginning of the drop...
In 2-5 years the prices will recover and then you will have two houses with huge equity and can retire ...To Panama ...or Balise...and have a full time house keeper...and be Rich and Happy....AMEN
Because, as this bubble...and the last have definitively prove, only professionals are reliable sources of information. That's why web 2.0 has come to mean "adding the capability for professionals to correct and marginalize the opinions of the masses."
Or maybe everyone out there really does have some valuable information, and so long as we can cope with a high signal-to-noise ratio it is valuable to allow everyone to share their opinions.
That said, really, you shouldn't do anything. prices are going down, but in my opinion not more than another 15%, and if you're holding on for the long term you should do just fine.
The home is now an investment. From that perspective merged with the other data you provided I would HIGHLY recommend selling - and price it to sell. I would also continue to rent into the near future (one to five years). When the dust settles on this mess you can re-enter the market. The reward is low and the risk is high if you enter now. Conversely, the opposite is true if you wait until AFTER an ESTABLISHED bottom. You'll buy a little higher than the bottom, but it is better than buying a little better than the top - especially during the busting of the biggest real-estate bubble in US history.
And yeah, it is affecting the Seattle area. We don't even know how much yet since it is just ramping up.
Yeah, there is a lot of disagreement on this stuff, even among the "experts".
My take is that, first and foremost, this house is now, by definition, an investment. Second, I then treat it like any investment that depends on both appreciation and monthly income. But regarding income, it is upside down. So I then look at the property appreciation/depreciation risk.
It then becomes pretty obvious what to do:
1. As income it is a losing proposition.
2. Loss risk: In a market where houses have JUST STARTED to go down and the economy (locally, nationally AND worldwide) is screaming bubble, and possibly the worst one in the history of the US, the risk of the home continuing to lose substantial value is tremendous.
The only reason I would keep this property is as a tax writoff. Otherwise, the equity that remains would be best extracted and put in a more secure investment. In this case, I would trust turning it into cash and putting it in a safety deposit box (or mattress) more than leaving it in the house. It is easy to not see equity as actual money. But it is. When prices drop, the first thing they hit is your equity. If you extract $150k now, you are ahead of waiting two years and extracting $50k. Quite a bit ahead actually. But I suspect the difference will turn out to be even greater.
Sounds like you did pretty well this bubble. I'd dump the house and put the profits into the "next bubble".
I believe that the owner is "forced" to move out and trying to recover her loss by renting it out as oppose to using it as an investment. Hence the reason why I hesitate to treat it as one. Also like I mentioned before, she "missed" the bubble altogether, so she's not in any danger of losing the value of the home, plus she's under great term for mortgage.
Adding everything together, there's no reason to sell and try to time the market and buy again. House is not a collateral for everyday people, try trading like one and see if you can handle the stress and risk.
Normally I would agree they should not sell and try to time the market. But in this case, since they are already renters...
I know of several people that have done that btw, and they all made out like bandits, but that is because most of them are in SoCal. Oh, and I am one of them, but in the Seattle area. It is one of the smartest financial decisions I have ever made. I am also getting hooked on the freedom of renting. I may not own my actual residence again for some time - if ever. But then, nobody actually owns real estate any more anyway.
I have five huge firs in my back yard. The tree falling on the house thing is something I think about when we get those REALLY GOOD wind storms. As a renter I can sit back and enjoy!