Selling house - what is best option post sale?

How to avoid signing your life over to a mortgage
Post Reply
davebobk47
Posts: 10
Joined: Tue Dec 13, 2016 10:41 am
Location: Colorado
Contact:

Selling house - what is best option post sale?

Post by davebobk47 »

So here is the scenario:
Starting to get my wife (semi) onboard with FI. We live in a very expensive touristy area and our house value is way up. So before things crash down it is time to sell. (we've actually been planning this for a year and decided to move forward despite all that is going on).
Selling current house (list price low-mid $800s) (paid $460k 6 years ago)
Mortgage $342k
Cash on hand for housing: $60k
Expect to have approx $478k total on hand after sale ($450k-$500k is what a house in the new town costs that would be equivalent to current house)
Currently own rental property in nearby City ($67k still owed but received 5.5%-6% RoR over past 12 years)
Likely timeline would require short term rental between selling current house and moving into next house

I see 3 options as follows:

Option 1:
Buy house in new town for cash, have no mortgage
Pros: simple, no debt
Cons: ?

Option 2:
Buy 2nd rental house in nearby city ($200k cash, live there short term if needed)
-Estimated RoR is 5.25% (This is after management fees, etc)
-Same city and management company that I am already established with
Then buy house in town we want to move to using remaining money down and loan of approx ~$200k
Pros: adds another income stream, no need for short term rental
Cons: adds debt (likely low interest rate), housing market likely to slow/crash in next year, could possibly buy 2nd rental house in future for less money

Option 3:
Pay off current rental house immediately ($67k)
Purchase new house and depending on final price have no loan or small loan for remainder
Pros: not adding to debt, pays off rental house
Cons: potentially requires loan of unknown amount

Option 4: ???

Would be interested to hear people's insight/thoughts as I can see any of the options as being viable. (side note: I know a cheaper house would be better for FI but my wife wants an equivalent house. She won't downsize since we have 2 small kids)

Riggerjack
Posts: 2906
Joined: Thu Jul 14, 2011 3:09 am

Re: Selling house - what is best option post sale?

Post by Riggerjack »

Option 4. Sell house. Sell rental house. Rent new home in new town, get familiar with the area, wait for housing prices to finish reacting to the present crisis. Buy new home and new rental property at new values, no mortgages.

Obviously, this presupposes that a drop in employment and population at a time of all time high real estate prices doesn't lead to even higher prices. Markets... irrationalities... solvency, and all that.

Good luck.

davebobk47
Posts: 10
Joined: Tue Dec 13, 2016 10:41 am
Location: Colorado
Contact:

Re: Selling house - what is best option post sale?

Post by davebobk47 »

Riggerjack wrote:
Mon Mar 30, 2020 5:11 pm
Option 4. Sell house. Sell rental house. Rent new home in new town, get familiar with the area, wait for housing prices to finish reacting to the present crisis. Buy new home and new rental property at new values, no mortgages.

Obviously, this presupposes that a drop in employment and population at a time of all time high real estate prices doesn't lead to even higher prices. Markets... irrationalities... solvency, and all that.

Good luck.
Thanks, I like both those ideas.

One issue I may run into with the rental house is taxes. Since I have not lived in it recently (as a primary residence) I would get hit with taxes on anything I make.

Alphaville
Posts: 849
Joined: Thu Oct 03, 2019 10:50 am
Location: Walkscore 92, Bikescore 93

Re: Selling house - what is best option post sale?

Post by Alphaville »

an argument for getting a mortgage instead of paying cash is that you’d get a dirt-cheap loan with tax-deductible interest, which would free up your cash to then buy stocks at bargain basement prices.

see the brett doyle comment under this article here for something along those lines:
https://jlcollinsnh.com/2013/05/29/why- ... ment-90917

not sure if he’s right or wrong, and i’m not making a recommendation one way or another, i’m just offering a bit of lateral thinking i came across some years ago.

User avatar
Bankai
Posts: 816
Joined: Fri Jul 25, 2014 5:28 am

Re: Selling house - what is best option post sale?

Post by Bankai »

+1 on getting a mortgage, interest rates are already super low and there's a good chance for high inflation after the current situation resolves. Those trillions need to be paid somehow and inflating them away is probably the way. You want to be in the winning team (governments, corporations, borrowers) and not the losing one (savers).

Riggerjack
Posts: 2906
Joined: Thu Jul 14, 2011 3:09 am

Re: Selling house - what is best option post sale?

Post by Riggerjack »

If you were taxed, that means you made a profit.

Now consider how that changes, should your asset decrease in value. Then consider the economy, and prospects for your asset to increase in value.

Then consider that the rules have changed on how proceeds from residential rentals are taxed and how much living in the house would save you in taxes at the time you choose to sell.

Then make the reasonable decision given your outlook. There are times to be all in, times to hold the line, and times to cash out.

What does today look like to you?

CS
Posts: 555
Joined: Sat Dec 29, 2012 10:24 pm

Re: Selling house - what is best option post sale?

Post by CS »

Also, make plan B for what you would do if it is already too late to sell at a high valuation.

Post Reply