Author Topic: Sell a house I love, for a house that will increase the net worth?  (Read 3424 times)

ncornilsen

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So, a friend has presented me with an opportunity. they're basically offering to sell me thier grandparents 270K house for 235k. (appraisal set the 270 value) There are a few minor stipulations, mainly they can keep a room or two worth of the estate's stuff there for up to 90 days so they can deal with it... doesn't bother me.  Other advantages: closer to work, (1 mile closer) has a huge lot, 2 floors (one unfinished) is much larger, has alot of upgrades done, such as new insulation, wiring, windows, roof and heating system. It needs some updating... but nothing needing fixed now. A mustachian approach to updates could see a solid 100K added to the value of the house, based on the sales of other homes in the area even in this just-starting-to-recover market.  Interest rate is lower, so PMI results in only a 20 dollar increase in monthly payments... for six months. see below. 

The problem is, it doesn't have a shop, and the style of the outside of the house isn't my favorite. It's that really wide fir-shingle type siding. I could replace it with hardie plank I suppose, in the future.

Now, my current house was purchased at the bottom of the market, and I have about 20K in equity in it. I really like my house... it has a large shop, remodeled 3 years ago, (by previous owner) and is easy to maintain. The problem is, it's next door to some appartments (admittedly, they're decent neighbors and I've become friends with some of the people that live there) and has been re-zoned for high-density housing, and is on a small lot. It's near a future station for the Portland area MAX system, and it's the stated goal of the city to increase population densities around those stations...  not sure what that means for the future.

So, my plan for buying this house is as follows:
-Finance on a 7/1 arm to get in the house. I'm forced paying some PMI since I'm only bringing 7% down to the deal (the bank only uses sale price to calc this).  I plan to re-fi at six months into a 30 year, at which point I can use the appraised value. I'd be well under 80% LTV at that point, especially if I do some of the easy upgrades to the house. I risk some up-ticks in interest rates, but I'm thinking it won't be much in six months. I'll let the houses equity pay re-fi costs, if I can do so without exceeding 80% LTV.

What it really comes down to... is do I give up a house I really love, for an instant 35K increase in non-liquid net worth, and a house that may consume some of the 35K to make the way I want it?  It seems like, if I look at it one way, I'm just buying a liability, since i would put some money in it over time. On the other hand, I'm buying a house at 13% off in an appreciating market, and I'd still sink 15K into my existing house building a 2nd bathroom anyway. Either way, those invested dollars would pay off, but those invested dollars are pretty non-diversified!

Does anyone have any thoughts?

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Re: Sell a house I love, for a house that will increase the net worth?
« Reply #1 on: February 23, 2013, 08:50:15 AM »
You haven't factored the costs of selling your house and buying the other house into your calculations.  What is your current house worth?  What will it cost you to sell it?  What are your purchase costs for the new house?  Loan fees and closing costs?

Where did the $270,000 appraisal come from?  Are you sure it is valid?  How is the sale being handled?  Is the probate court involved?

From what you have stated, I would consider buying this house only if I could keep and rent out my current house at a rent where the numbers made sense.  Before this "opportunity" was presented to you, you were not actively seeking a project house, so I would think about that as well.

ncornilsen

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Re: Sell a house I love, for a house that will increase the net worth?
« Reply #2 on: February 23, 2013, 09:06:14 AM »
The 20K in equity factors in $2000 in  listing fees,cleanup/repairs/landscape gussying up I'd do, as well as $5K I'd pay toward a buyer's agent commission. I suppose I should have stated that.

the 270K came from an appraisal that I ordered and paid for, seller had no contact with appraiser. house is not involved in a probate court and has a free and clear title according to the prelim title report the seller provided me.

I could clear $100/month over the mortgage of my house by renting it out, however, I am newly on the path to being FI, so I haven't amassed the 7% down I'd need to buy this other house without selling my existing house.

I shouldn't say this house is a project house, it's fully livable and marketable as is.

mc6

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Re: Sell a house I love, for a house that will increase the net worth?
« Reply #3 on: February 23, 2013, 09:10:07 AM »
This doesn't seem worth it to me.  I would stay put until something better suited to your taste/needs comes along.  1 mile closer is in relation to how far? 

I've been toying with the idea of moving also, and I've decided to stay put a little longer until there is a bigger financial benefit. 

arebelspy

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Re: Sell a house I love, for a house that will increase the net worth?
« Reply #4 on: February 23, 2013, 09:11:14 AM »
Based just on the information given, I vote to keep the house you love.

What price do you place on your happiness?

What the hell does a higher net worth give you?

What's the point of Mustachian living if not a more full, rich life?

(One side comment: that may actually be achieved by taking the other house, and learning to be even happier with that.  But that's speculation.)

Who cares about 35k net worth?  If you love your house so much more than it will impact your happiness, it's not even a question, in my mind.
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Spork

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Re: Sell a house I love, for a house that will increase the net worth?
« Reply #5 on: February 23, 2013, 09:31:47 AM »
So... when I calculate my net worth, I do include my house, but...  when I am looking at FIRE numbers, I do not.

I have to live somewhere.  There are all sorts of arguments for "which house is better for me".  Those need to be looked at and assessed.  But I don't think "net worth" enters into that equation.

When it comes to retirement numbers, I use "monetary assets" only.  (I don't have rental properties or I'd probably include those).  And like arebelspy says... $35k isn't going to make an enormous difference to the bottom line.

Another thing to consider is: will this step up house come with more expenses?  I.e: higher property tax, more cost to heat/cool, more cost to maintain, etc.  Sometimes a higher valued house has higher expenses.

[Edit... forgot to finish, dammit]
« Last Edit: February 23, 2013, 09:34:22 AM by Spork »

anastrophe

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Re: Sell a house I love, for a house that will increase the net worth?
« Reply #6 on: February 23, 2013, 11:54:18 AM »
It's near a future station for the Portland area MAX system, and it's the stated goal of the city to increase population densities around those stations...  not sure what that means for the future.

I would not include this in your estimations. You have no idea what the effect will be or if the project will go through. If the project does go through, you very well may see your property value rise if the area gentrifies, but you can't assume that. I'd work with what you know now...which is that you love your house, it has a shop which you use, you like your neighbors...vs. the new house, which seems to be largely speculative.