Moving up in house..

AMEAME
edited September 2008 in Seattle Real Estate
We have been looking to move up in quality and size of house for over a year. Our house is just too small for our family. We have 4 kids and a dog. Our current house is 1600 sq, 3 bed, and 1 bath.

We have watched prices come down and believe they still will come down a lot more. With that said though.. that means our house value will go down with it. And if it goes down another 15% in value in a year or two, we would either 1) Break even, or 2) be reversed on our mortgage.

So this is what my spouse and I have been discussing.. Should we sell our house today (priced to sell quickly) and come out ahead about 35K after all said and done and rent until we find a house we can live in for at least 10 years that we like and that would be an upgrade for us. We would only rent an apartment or house that would roughly be what we are currently paying on our mortgage.
My train of thought would be is to invest the 35k plus the 100K we have saved in something that would give us a return of at least 5%. That way our money will grow some more to help us get into a better house at a better price in a year or so.

The other option is that we stay in our current house and not move up.

Thoughts?

Comments

  • That's a tough spot. It's unclear how much down payment will be required in the near future. Perhaps you'll need 20%, in which case $40k wouldn't get you very far. Have you looked into what it would take to add on to your current home? It wouldn't be cheap, but it might be cheaper than selling and buying after you consider real estate commissions.
  • AME wrote:
    Should we sell our house today (priced to sell quickly) and come out ahead about 35K after all said and done and rent until we find a house we can live in for at least 10 years that we like and that would be an upgrade for us. We would only rent an apartment or house that would roughly be what we are currently paying on our mortgage.
    My train of thought would be is to invest the 35k plus the 100K we have saved in something that would give us a return of at least 5%. That way our money will grow some more to help us get into a better house at a better price in a year or so.

    I like this idea a lot. I expect housing prices to drop 80% or more over the next 5 years, and you will certainly be able to buy a MUCH nicer home for the money later down the road. In the meantime, you may even be able to rent a BETTER home than you currently have for less money. But it all depends on how long ago you bought, and how big your current mortgage is.

    As far as investing the money from your home sale goes, I would NOT worry about chasing yield. Capital preservation is the name of the game right now. Stocks are going to continue tanking, so don't put your money there. Also, stay away from any bond that isn't backed directly by the national government of a developed nation. Just don't touch corporate, municipal, or state bonds.

    Don't worry if the yields are only 3% or 4%. Asset prices are going to fall so much in the next few years that if you just manage to keep your money safe you will be winning (e.g. if a stock drops 50% in value while you kept $100 safe in the bank, you've made 50%).
  • AME wrote:
    We have been looking to move up in quality and size of house for over a year. Our house is just too small for our family. We have 4 kids and a dog. Our current house is 1600 sq, 3 bed, and 1 bath.

    We have watched prices come down and believe they still will come down a lot more. With that said though.. that means our house value will go down with it. And if it goes down another 15% in value in a year or two, we would either 1) Break even, or 2) be reversed on our mortgage.

    So this is what my spouse and I have been discussing.. Should we sell our house today (priced to sell quickly) and come out ahead about 35K after all said and done and rent until we find a house we can live in for at least 10 years that we like and that would be an upgrade for us. We would only rent an apartment or house that would roughly be what we are currently paying on our mortgage.
    My train of thought would be is to invest the 35k plus the 100K we have saved in something that would give us a return of at least 5%. That way our money will grow some more to help us get into a better house at a better price in a year or so.

    The other option is that we stay in our current house and not move up.

    Thoughts?

    I have a client who actually just did what you want to do. We sold their current house and they're going to rent for a year. Granted, they did it for many other reasons other than just financial, because their job situation is somewhat fluid at this moment in time. But if you know you're not going to stay in your house much longer, it's probably a very good option.

    You could also always look for a lease option right now as well. Do a lease with an option to buy in 2 years. Then if the market recovers the beginning of 2009, you've hedged against further inflation. If prices drop for the next 2 years, then you back out and all you did was rent for 2 years.
  • Thanks for the responses so far. We are just starting this process of figuring everything out. I have been checking out the rental market in the area we would move into and I was pleasantly surprised to see there were houses within our budget that would work for our family until we find something. Even though these houses would be a downgrade in quality (just seriously outdated) we could swing it. We already have 100K saved to put towards a down payment.. the main dilema was to sell our house now to get out the remaining equity before we are reversed. And if we went reversed it would only mean we would have to wait a lot longer to move up.

    I thought about the whole lease option thing too.. but I just see too many people out there doing the lease option thing which the investors/home owners are taking advantage of people by over inflating the value of the house only to increase the value if you wait an additional year. If the lease payments were in line with FMV of todays rental market then that would completely different.. but the lease amount is just crazy high. I also know a few RE investors who are doing these lease to own deals because they are in over the heads with ARMs about to reset and they don't seem to care that they are leading sheep to the slaughter house to save their own hides.
  • And also if you're looking for a lease option specifically, you're severely limiting yourself as to what kind of house you end up getting.
  • Just to clarify,.. I am not looking for a lease option. I am not very fond of them.
  • I think your plan is a real good one, AME. Even a year from now you should be able to find that prices will have continued to drop, and possibly fairly significantly. and that's the same reason you should sell now, especially if you price it to sell.
  • AME, I decided to sell and rent in the process of switching houses. I'm in sniglet's camp, with the exception that I'm betting only that prices will fall more than enough to have made selling & renting worthwhile. I'll keep my assets in cash and as safe as I can while still trying to earn some interest, until the house price bottom is apparent. For those of us without money to burn, I think there's just too much risk in being a homeowner now. There's still opportunity in Seattle to sell at a decent price, because most sellers here still list for peak bubble prices (no competition for you).
Sign In or Register to comment.