Moving up in house..
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?
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
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%).
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.
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.