Author Topic: Buying a house, need advice on what to do with my old house.  (Read 1106 times)

hatsix

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Buying a house, need advice on what to do with my old house.
« on: August 03, 2018, 11:26:11 PM »
I'm new to MMM, recommended by a friend. I saw there's a forum for real-estate, but I figured I'd post for opinions, then read through that forum.

My situation:
Assets: 2 lots in Seattle, one with a tiny house, one empty, side-by-side, worth roughly $1M. I owe $342K on the properties. I can invest $5k in the property and get about $2200 in rent. I have decent amount in 401k, but no other investments.
I am moving to Minnesota. I am buying a house for $193K. I have the cash to put 20% down, and my monthly expenses will be about $1400/m.

I have options...
  • Sell lots, buy new house outright, invest the rest
  • Sell lots, put 20% down, invest the rest
  • Keep house, put 20% down, gather rent.


My initial impulse was to keep the lots, as we may move back to Seattle in 3-7 years, and the house value would scale with the seattle market, ensuring that I would be able to afford a house in the new market... but investing could lead to some big gains too. I've never landlorded, and I'll be doing it from out-of-town, which lends some extra stress.

UPDATE: After talking with my accountant, I found out that we'd have to pay capital gains on the increase in value on the land if we sold after 3 years... as well, the house is small, so rent won't cover mortgage + property management + upkeep... so landlording looks like it isn't a good option.
« Last Edit: August 04, 2018, 06:19:34 PM by hatsix »

Fishindude

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Re: Buying a house, need advice on what to do with my old house.
« Reply #1 on: August 04, 2018, 08:12:55 AM »
Why don't you sell the Seattle house, pay cash for the Minnesota house and invest the rest?

former player

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Re: Buying a house, need advice on what to do with my old house.
« Reply #2 on: August 04, 2018, 08:59:37 AM »
The first question that comes to my mind is: if your move to Minnesota is temporary why are you buying a house there?  Much better to rent, surely?

Is Seattle your long-term preference for living?  If so, how about selling the lot with the tiny house and keeping the empty one to develop for yourself when you return?  Then you don't have the long-distance landlord issue but still have a toe-hold in the Seattle market.


I don't know what the answer to your problem is, but there are obviously a lot more options than just the three you list - I think you should start from scratch with a list of all the possible permutations, list the pros and cons of each, and narrow things down from there.

hatsix

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Re: Buying a house, need advice on what to do with my old house.
« Reply #3 on: August 04, 2018, 02:55:39 PM »
@former player: There's nothing for rent that we wanted to move into. We've already picked the house and are closing in 8 weeks, so that part is settled. Because the market is constrained, we assumed we could turn the new property into a rental when/if we move back to Seattle. We have family near our new home, which would make landlording much easier.

We've considered a lot more options than what I posted, the three here seem the most advantageous.
The lot would be a liability with no income and a higher interest rate. The house can at least pay for a portion of it's mortgage, even if we hire the most expensive property management company available.

Through talking with my accountant, I think I've taken renting off the table. Our properties have doubled in value since purchase, and you must sell a property within 2 or 3 years of moving out, OR pay capital gains on the increase in value.  We're unlikely to be moving back within that short of a timeframe, so the new question is:

  • Put $150k into house to buy outright, go debt free
  • Stay with current 20% down, invest the $150k.

I think I'm leaning towards going debt free... but that's my pessimistic side saying that it's the safe option. Is this where the outrageous optimism comes in?

affordablehousing

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Re: Buying a house, need advice on what to do with my old house.
« Reply #4 on: August 04, 2018, 04:07:41 PM »
Can you earn more on your money than your mortgage costs you? That's the only question.

MrUpwardlyMobile

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Re: Buying a house, need advice on what to do with my old house.
« Reply #5 on: August 04, 2018, 04:21:05 PM »
Can you earn more on your money than your mortgage costs you? That's the only question.

It's actually, will you earn more than the mortgage, upkeep, time, etc... cost you?  And then the next question is, would you earn more if you deployed the money elsewhere?

hatsix

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Re: Buying a house, need advice on what to do with my old house.
« Reply #6 on: August 04, 2018, 06:16:51 PM »
It's actually, will you earn more than the mortgage, upkeep, time, etc... cost you?  And then the next question is, would you earn more if you deployed the money elsewhere?

When working it out with our accountant today, we realized that renting won't pay for the mortgage + upkeep + property management... So no landlording for us.

As far as the second question goes... if our new mortgage is at 4.5%. Nearly all us stock market funds from vanguard are at 10% over the past 10 years (which doesn't yet exclude the 08 crash)... So it SEEMS to me that if we take that 150k and invest in a US Stock Blend, it'll be likely to earn more than the interest that it's accruing.... but I'm new to this... if things were this easy, it seems like everyone would be doing it.

MrUpwardlyMobile

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Re: Buying a house, need advice on what to do with my old house.
« Reply #7 on: August 05, 2018, 09:24:53 AM »
It's actually, will you earn more than the mortgage, upkeep, time, etc... cost you?  And then the next question is, would you earn more if you deployed the money elsewhere?

When working it out with our accountant today, we realized that renting won't pay for the mortgage + upkeep + property management... So no landlording for us.

As far as the second question goes... if our new mortgage is at 4.5%. Nearly all us stock market funds from vanguard are at 10% over the past 10 years (which doesn't yet exclude the 08 crash)... So it SEEMS to me that if we take that 150k and invest in a US Stock Blend, it'll be likely to earn more than the interest that it's accruing.... but I'm new to this... if things were this easy, it seems like everyone would be doing it.

Everyone is doing it.