Author Topic: Advice on selling house  (Read 2078 times)

thismuch

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Advice on selling house
« on: May 15, 2015, 08:17:11 PM »
Hello all.   Advice requested. I purchased my very un-mustachian house about 4 years back. Gut rehabbed / move in ready. Nicest house in a nice neighborhood in a major city.  Little over $1m when avg homes going in the hood for $800. Fast forward 4 years, we've found the mustachian path and want to down size. Put the house on the market after New Years and having trouble finding a buyer at a price point that makes us whole for purchase price + transaction costs. We are close to FIRE but can hold off if needed.  House now listed at what we paid, so minimum we lose 5% / $50k + if we sell. Flip side is we get most of our down payment back ($250k?) and can invest and perhaps make up the loss though investment income and lower housing costs.

Question for the group:  take the pain of a not insignificant loss now and try to make it up over time, or hold off on sale and wait for market to catch up with my (potentially overpriced) purchase.

Calimandc

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Re: Advice on selling house
« Reply #1 on: May 16, 2015, 03:07:20 AM »
I wrote this post about a year ago, but it may be useful to you:

Greetings fellow Mustachians,

My wife and I have been reading the site for almost a year, but have held back from posting until now.  Just this past weekend we concluded the process that eliminated our debt, downsized our house, and moved our family to a more walkable neighborhood.  All things we wanted to do before we started reading MMM, but were re-motivated to do by what we saw on the site.  We were so excited to find ourselves natural mustachians when we discovered the world of mustachians.  Here is a breakdown of how we lived (pre-mustachian with mustachian tendancies), how we’re currently doing, and where we are headed.

First, a little background.  We are a family of dad, mom, and 3 yr old son. We live in one of the most expensive parts of the country, the Washington, D.C. area, and are currently stuck here until FI is achieved. Wife has stayed home with our son since he was born, but will be doing some consulting in the near future, as well as going back to work part-time when he goes to kindergarten.

Almost five years ago we bought a house that we thought would be a good place to raise a child.  We paid $475K for it, taking out a mortgage for $415K.  Over the course of the time we owned the house it required $115K worth of work, half of which I did myself, half of which we had to hire folks to come in and help us out.  In order to achieve that, we depleted our savings, and took out a HELOC, which (until the houses sale) maxed out at $75K.  The house was in a place where we could walk to very little, and had to drive to work or even to the metro (subway).  (Although, two years into owning the house, I got a new job that I could walk to (3 miles each way), which helped my health a lot!) My wife and I had, combined, student loans of approximately $70K when we purchased the house.

Doesn’t sound too Mustachian, does it? Of course not.  We did it because we thought that our kid would need a house, that I would love doing the house reconstruction (which I initially did), and that it would give us some roots after having moved about a lot before that.

Despite the debt situation that this choice of home ownership was forcing upon us, we were increasing our net worth by an average of $50K per year on a modest salary. None of this is attributable to home value, as the value of the house went up less than the cost of refurbishing it combined with the cost of selling it. We maxed out our retirement contributions, paid extra on the mortgage, eliminated my student loan (at 6.5% interest it was ridiculous) and lived frugally (although quite well!) everyday in between. (Ideally, we should have been paying off the debt faster and investing less in my 401K and our ROTHS, but we felt good about taking big bites out of everything and were focusing on a balanced approach.)

Now, for where we are.  Over the course of living in the house we realized it was way too big, way too much work, and not in the location we wanted to live (in terms of walking or biking to what we find important).  Therefore, we sold the house, moved into a sufficiently sized 2br 2ba apartment in a location that is walkable to a grocery store, the metro, and is much closer to my son’s preschool.  In the process, we cut our expenses over $2K a month.  Not bad, right!
Even better, though!
With the sale of the house, we paid off the HELOC and the remaining student loans, leaving us DEBT FREE!

Now we are no longer paying interest on any debt, have an emergency fund if it’s needed, and are able to continue maxing out my 401(K), our ROTH’s, and even have a little left over to buy some Vanguard  Total Stock Market Index Fund (VTSAX) on a monthly basis. The best part is, this in no way takes away from the opulent living we get to experience every day. 

Our new apartment is next door to a library from which my son loves to check out tons of books, a public park where he can ride his bike and play on a playground, free gas grills, and a free community pool where we can dip our toes or swim on hot days.  Oh, and did I mention, we’re right next door to a Trader Joes, a Whole Foods, and a very infrequently patronized by us Peet’s Coffee?

We were initially concerned that moving out of a house and into an apartment would be too much of a shock for our son, but it turns out he loves it.  He likes to play in his sandbox on the balcony, stare out at the passing trucks (that we only hear when out on that balcony), and walk by the trash dumpsters every time we enter or leave the building (There is a nicer entrance, but he wants to pass the dumpsters, so we pass the dumpsters).

All in all, we’re quite happy to be debt free, not have a money pit sucking our savings dry, and living in a comfortable and walkable community near the things that bring us free joy.

Thank you, as a community, for helping inspire this change in our lives.
Best,
Jeremy

FrugalFan

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Re: Advice on selling house
« Reply #2 on: May 16, 2015, 04:55:33 AM »
I'm obviously no expert, but I would take a balanced approach. If you are not in a huge hurry to sell, there is no need to cut the price dramatically and take an even bigger loss. I would think there are very few potential buyers at that price point so it might take a while to sell just because of that. Hopefully you have a good real estate agent who can tell you what you should be expecting in terms of showings, etc, at that price point. But I wouldn't worry about the 50 k loss too much either. Assuming you buy a much cheaper house with smaller property taxes and smaller utilities, you will make up that 50 k pretty fast.

Retired To Win

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Re: Advice on selling house
« Reply #3 on: May 18, 2015, 06:20:23 AM »
... Question for the group:  take the pain of a not insignificant loss now and try to make it up over time, or hold off on sale and wait for market to catch up with my (potentially overpriced) purchase.

If you were asking about a big block of stock in a down-on-its-luck company instead of asking about a house, you would have your answer already.  What you paid in the past is a sunk cost and totally irrelevant to what the market thinks your asset is worth now.

If you don't agree with the market's assessment, then you'll just have to wait.  And absorb both the carrying costs and lost opportunity costs of doing that waiting.

But, if you don't actually have good reason to disagree with the market or an arguable case for expecting the market value of your asset to rise in good time, then you may be waiting in vain.

Good luck.

thismuch

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Re: Advice on selling house
« Reply #4 on: May 18, 2015, 06:33:30 AM »
Good advice. Thanks all

Bob W

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Re: Advice on selling house
« Reply #5 on: May 18, 2015, 08:39:36 AM »
The thing about houses is that the market determines the price.

So a big factor is what is the direction of price movement in your micro market?  Homes going up or down?

For me this would be a no brainer and I would sell,  take the money and run.   You have a huge potential liability there with an equally huge risk.    If something happens,   as it often does,   you could see the value of the home diminish by 30% pretty quickly.   Just when the stock market takes a hit your house price could be hit and you would find yourself essentially stuck for perhaps many years. 

If you are wanting to fire ----- sell for what the market will give you.    Then rent a smallish place until you finalize your plans.

250K will buy a mansion in many nice Midwestern towns or it could provide the income to travel abroad indefinitely.   

People become emotionally bonded to their houses but often find once they cut the tie that they feel a great relief.


As I always mention    "People don't own houses --- the house owns the people."