Author Topic: Sell house @ $2,200,000 and invest profit or stay and work longer...............  (Read 8495 times)

Common sense

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Hi there,

I'm going to present a quick background into my financial world and then ask for all the mustachian's out there to share their opinions of which way I should go....

I'm 36 years old.  My working life did not begin until I was 31 secondary to 13 years of education and training to begin work.  From age 18-22, I made circa $6000/year.  From 22-26 I made no money, and from 26-31 I made about $6.83/hour.  I have always lived my life very simply,  I went through 4 years of college on full scholarship, and 4 years of post grad education with only $80,000 debt, when my friends were going into debt $250,000.  I drove a 40 year old car for 14 years during all of this.  My household income growing up was very low, I was aware of that, and worked hard to ensure my income was more solid than when I was growing up because I saw the tension it created in my home.

Ok on to my current financial situation.  My girlfriend now wife sold her first house at the peak of the last bubble in 2006 and made $200,000.  We sat on that until the fallout of the housing bubble crash, and bought a 3321 sq foot house for $746K in 3/12. We made improvements on that place and sold for $1.2 Mil.  I live in Orange County in Komifornia where crazy stuff like this happens apparently more frequently than other parts of the country.  We parlayed that profit into the worst house in the best neighborhood in 9/13, totally renovated it, and our house currently is appraised for $2.2 million.  Our mortgage is currently $750K.

I max out my solo 401K each year and we have retirement savings of $300,000 in Vanguard total stock market index fund, and cash because bonds scare me right now.  Plus I recently acquired two rental properties in another state that cash flow approx $320/month each.  Our cash savings that we don't have invested, I keep fairly low and have it in a chase checking account.

We have no debt other than my student loan payment that I consolidated in 2005 @ 1.9% over 30 years which is $350/month and the aforementioned mortgage.  Last year we saved $160,000 between tax deferred and cash savings.  This year should be on track for the same.

My mustachian ways have always been deep rooted in my soul secondary to my up bringing, but only recently have I really put the screws to enacting more of it.  I drive a 2006 Honda civic that I bought for $8000 with 80,000 miles on it, our electricity bill is $70/month, etc etc.  I've controlled much of what I can.  The wife isn't exactly on board with everything I want to do (cancel cable tv, get rid of her X5, etc), but she humors me most of the time.  We drive my car on the weekends and keep her pig in the garage as much as possible. 

So now for some help.  I have this terrible urge to sell our house, free up circa $1,450,000, pay cash for a house for maybe $600-700K and take the $700,000 and invest it.  I don't despise working, but I would definitely not choose to do it if I FIRE'd, that's for sure.  If I stayed in the house, my plan would be to have it paid off in 9-10 years, putting $60-70K toward that per year, while saving $100,000 to tax deferred and taxable investments per year.  If we sold I could cut back on work now and probably be retired in 5 years instead of 10 depending on what the stock market has done/what my investment properties are doing.  If we moved out of Komifornia which I have been lobbying for for a long time, I could probably fire even sooner.

Any input would be appreciated, pros, cons, or otherwise.  Thanks so much. 

 

forummm

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Wow. I would liquidate, downsize, and put that money to work.

waffle

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Wow. I would liquidate, downsize, and put that money to work.

+1 If you can buy another fixer upper and the cost of fixing it up is reasonable I'd go that route. A million investable and a paid off house is my target for FIREing. I wouldn't be living in California though...


2Birds1Stone

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I would liquidate and buy 5 years of freedom.

lhamo

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Serially renovating and then selling houses in an appreciating market is certainly an excellent way to increase your networth.  Congratulations on your well timed/smartly executed real estate deals to date!

We are sitting on a similarly appreciated piece of real estate in Beijing (though we paid less than you) that I am eager to sell in order to lock in our gains. However my spouse/daughter are still living in it for at least the next year.  I did not want to push my spouse to sell as we are already have enough to deal with at the moment.  So far the market is still going strong so hopefully it won't crash in the next 12 months.  How does your partner feel about the idea of selling?  Could you talk her into it by saying you'll let her have cable in a cheaper house :)  Might be a worthwhile trade!

Do keep in mind that you will have to pay capital gains on the portion of the profit that exceeds the $500k you can exclude for sale of a primary residence.  So you won't pocket $1.45 million. 

humbleMouse

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This one seems like a no-brainer.  Sell the house and enjoy your life!

CommonCents

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Why do you refer to it as Komifornia?

Find out whether it's really $2.2 million or if a house recently sold that Zillow thinks is like yours but isn't.
If it really is $2.2, sell and invest.  Know the wife may not be happy going from a $2.2m house to $600-700 (which is less house than the $746k place you sold as the whole market has likely risen), and consider that you may end up compromising (e.g. a ~$1m house), leaving less for investing particularly after taking out the taxes noted above.

Another Reader

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My biggest concern would be a substantial shift in the market, especially with the troubles in the Chinese stock market.  We are already seeing the effect here in Silicon Valley.  For that reason alone, I would at least consider selling it.

That having been said, I would determine if I owed my Uncles Sam and Jerry any capital gains tax on the sale and I would think about how being in this house for 5 to 15 years would make our lives better or easier than the alternative.  I would also consider how concerned I would be if at the time in the future I decided to sell, the house was worth significantly less than it is today.

Common sense

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Why do you refer to it as Komifornia?

Find out whether it's really $2.2 million or if a house recently sold that Zillow thinks is like yours but isn't.
If it really is $2.2, sell and invest.  Know the wife may not be happy going from a $2.2m house to $600-700 (which is less house than the $746k place you sold as the whole market has likely risen), and consider that you may end up compromising (e.g. a ~$1m house), leaving less for investing particularly after taking out the taxes noted above.


Komifornia is my term of endearment for my state of birth since they steal 11% of my money each year, and because sales tax is 9%, and because gas tax is higher here than many other states. 

Yes my house is really worth $2.2 million.  I follow the real estate marken in my niche extremely close, as in getting daily updates from redfin on new/pending/sold homes.  The wife actually is inviting of the change and is very supportive of having no mortgage and me working less.  She sees how hard I've worked and how hard I continue to work. 

Correct me if I'm wrong:  If I buy a new house for circa $700K and that leaves approx $700K left over, I keep $500K tax free, and then would "only have to pay taxes on $200K.  That's how I always understood it.


This one seems like a no-brainer.  Sell the house and enjoy your life!


True words............  It's a no brainer in my mind, but in practice after having moved 5 times in 6 years, it gets a little muddied up.

Serially renovating and then selling houses in an appreciating market is certainly an excellent way to increase your networth.  Congratulations on your well timed/smartly executed real estate deals to date!

We are sitting on a similarly appreciated piece of real estate in Beijing (though we paid less than you) that I am eager to sell in order to lock in our gains. However my spouse/daughter are still living in it for at least the next year.  I did not want to push my spouse to sell as we are already have enough to deal with at the moment.  So far the market is still going strong so hopefully it won't crash in the next 12 months.  How does your partner feel about the idea of selling?  Could you talk her into it by saying you'll let her have cable in a cheaper house :)  Might be a worthwhile trade!

Do keep in mind that you will have to pay capital gains on the portion of the profit that exceeds the $500k you can exclude for sale of a primary residence.  So you won't pocket $1.45 million. 

Congrats to you as well on your real estate deals!  My wife would be totally fine selling now, it's just cognitive dissonance about moving for the 6th time in 6 years.  But no pain no gain.  You don't realize your primary residence appreciation until you sell right?  Like another reply said, if the house price goes down which it very well could, then I would definitely be bummed out because that would mean I just have to work longer.  About the capital gains, see my reply above.


Congrats to you as well on your real estate deals!  My wife would be totally fine selling now, it's just cognitive dissonance about moving for the 6th time in 6 years.  But no pain no gain.  You don't realize your primary residence appreciation until you sell right?  Like another reply said, if the house price goes down which it very well could, then I would definitely be bummed out because that would mean I just have to work longer.  About the capital gains, see my reply above.

I would liquidate and buy 5 years of freedom.


Thanks for the input.

Wow. I would liquidate, downsize, and put that money to work.


Thanks for the input.

+1 If you can buy another fixer upper and the cost of fixing it up is reasonable I'd go that route. A million investable and a paid off house is my target for FIREing. I wouldn't be living in California though...

I've been trying to get out of this state since the lats real estate bubble.  It's a love hate relationship I have with the place.  I was born and raised in so cal, it has allowed me to build net worth through equity in  my house faster than anywhere else, but man they just beat you down here with COL and taxation.

My biggest concern would be a substantial shift in the market, especially with the troubles in the Chinese stock market.  We are already seeing the effect here in Silicon Valley.  For that reason alone, I would at least consider selling it.

That having been said, I would determine if I owed my Uncles Sam and Jerry any capital gains tax on the sale and I would think about how being in this house for 5 to 15 years would make our lives better or easier than the alternative.  I would also consider how concerned I would be if at the time in the future I decided to sell, the house was worth significantly less than it is today.


True words. Those are all things we are looking at.  We love our house, and we love the location.  Anything would be a down grade for sure with location but the house is only 2500 sq feet so the house itself would be comparable.

Wow. I would liquidate, downsize, and put that money to work.

Thanks for the input.

Erica/NWEdible

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I have this terrible urge to sell our house.

Uh yeah....your real estate urges so far seem to have worked out pretty well for you. I know that this forum tends toward hyper-rational decision making, but I'd just say - go with your gut on this. Your gut is a good real estate advisor.

clifp

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I'd hold off until you guys are eligible for the $500K capital gain exclusion which is basically every two year.  http://www.irs.gov/taxtopics/tc701.html

Common sense

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I'd hold off until you guys are eligible for the $500K capital gain exclusion which is basically every two year.  http://www.irs.gov/taxtopics/tc701.html

Yeah that will be September 30, 2015.  A few months away. 

I have this terrible urge to sell our house.

Uh yeah....your real estate urges so far seem to have worked out pretty well for you. I know that this forum tends toward hyper-rational decision making, but I'd just say - go with your gut on this. Your gut is a good real estate advisor.

Hi Erica,

I appreciate you taking the time to comment.  I think the big unknown here which i always an unknown is if prices will go down and if/when they do how much?  We love the area and the house, and any change in location is going to be a down grade.  Newport Beach will likely always be very desirable and we bought at a "reasonable" time, however this will extend my working life approx 5 years. 

I wanted to make this post more for other mustachian's opinions that think along the same lines as me.  Everyone seems to be on the same page as me.

CommonCents

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Correct me if I'm wrong:  If I buy a new house for circa $700K and that leaves approx $700K left over, I keep $500K tax free, and then would "only have to pay taxes on $200K.  That's how I always understood it.

Hmm.

I thought it was Sale Price - Purchase Price - Improvements (documented) - $250k tax exclusion per spouse (if you qualify).  I don't know what your purchase price or improvements have been.  But I don't think whether you buy a new house for $700k (...or $800k or $600k) plays into the taxes you pay on the old (current) home.

Forgot to say before in a welcome, but nice name :)

Common sense

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Correct me if I'm wrong:  If I buy a new house for circa $700K and that leaves approx $700K left over, I keep $500K tax free, and then would "only have to pay taxes on $200K.  That's how I always understood it.

Hmm.

I thought it was Sale Price - Purchase Price - Improvements (documented) - $250k tax exclusion per spouse (if you qualify).  I don't know what your purchase price or improvements have been.  But I don't think whether you buy a new house for $700k (...or $800k or $600k) plays into the taxes you pay on the old (current) home.

Forgot to say before in a welcome, but nice name :)

I think you're right, and that would be even better for me because I would be right around that $500K mark.  Purchase price was $1.3 million.  Renovation improvements inside/outside all told were $300,000 for total invested of 1.6 mil.  So if I sold for $2.1 no tax, but 2.2 would pay tax on $100K, not terrible either way. 

I saw your name too, that's a better play on it than mine, good work :-)

Bob W

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So you are basically in the "find a great house at below market prices,  renovate and sell business."    The plan seems to be working thus far.   So yeah,  sell in September.    Then buy you a 700K fixer upper.    Rinse and Repeat every 2 years.   

I keep forgetting how crazy the Kalifonia real estate market really is.

I don't see the housing market going down in the next few years.  For what it is worth your tide has not yet hit the Midwest and there are still plenty of bargains around here.   2.2 would buy you 2 18th hole mansions on the best course in town here. (Springfield, MO) 

If you can do a couple of more flips like this in the next few years you may decide to take your degree and move to Missouri.   Income tax 6%,  sales tax 7%, real estate taxes dirt cheap.   Income is far lower I'm sure.   But then again your income will be generated from your 2 million in investments which will buy you 50 rental units for cash paying you 20K a month.   

Common sense

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So you are basically in the "find a great house at below market prices,  renovate and sell business."    The plan seems to be working thus far.   So yeah,  sell in September.    Then buy you a 700K fixer upper.    Rinse and Repeat every 2 years.   

I keep forgetting how crazy the Kalifonia real estate market really is.

I don't see the housing market going down in the next few years.  For what it is worth your tide has not yet hit the Midwest and there are still plenty of bargains around here.   2.2 would buy you 2 18th hole mansions on the best course in town here. (Springfield, MO) 

If you can do a couple of more flips like this in the next few years you may decide to take your degree and move to Missouri.   Income tax 6%,  sales tax 7%, real estate taxes dirt cheap.   Income is far lower I'm sure.   But then again your income will be generated from your 2 million in investments which will buy you 50 rental units for cash paying you 20K a month.

LOL!  You summed things up very nicely.  Most folks don't want a beater house.  My wife and I actually like it.  I, like MMM himself, am a handyman carpenter and enjoy building stuff.  I know enough about the trades to know who's doing good or bad, and with the city inspecting, I feel I could run my job myself like I have very comfortably.  So far so good, like you said, but all it takes is one bad move and they the wheels stop.  I've been pulling to get out of Cali for some time, like I said above, but the wife isn't down with the that.  It's been a little humid here in Orange County, and I swear she says she's melting.  It's pretty comical actually. 

You actually summed up what I'd like to do:  cash out, buy a bunch of rental properties and just cash flow to the next century.  I don't think I'd buy a giant house again for my personal residence: more electricity, more hvac, more gas, more water, more headace.  I like about 2000 sq feet.  That's more than enough for the three of us.  Our last house was 3321 and it was too big, that's part of the reason why we moved.

And yeah, income would be less too, but my skills travel with me and it wouldn't  be hard to find part time or full time work wherever I went.  Harder actually in densely populated areas than elsewhere.  My wife's brother is actually in Warrensburg Missouri so we have family there, but she said she hated it then when we visited and could never live there.  Sux.  I could live anywhere if that meant I could retire tomorrow!!!!

It would just take some cojones to take the leap and sell and move somewhere else, again, for the 6th time in 6 years, ugh.  My daughter is 2 so we have about 2-3 years before the musical chairs stop and we need to be somewhat settled for her sake.  We'll see.............

lhamo

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I would start looking for the crappiest fixer-upperable 2 or 3br house in the best school district/individual elementary school zone in your area.  It will be an excellent investment as people will pay through the nose for a nicely renovated house in a good school district (small renovated bungalows are going for $600-700k here in such neighborhoods in Seattle).  That will give you some flexibility to either stay (no need to worry about school quality for your kid 3-4 years out) or continue upgrading as you time/energy/the market allows.

 

Common sense

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I would start looking for the crappiest fixer-upperable 2 or 3br house in the best school district/individual elementary school zone in your area.  It will be an excellent investment as people will pay through the nose for a nicely renovated house in a good school district (small renovated bungalows are going for $600-700k here in such neighborhoods in Seattle).  That will give you some flexibility to either stay (no need to worry about school quality for your kid 3-4 years out) or continue upgrading as you time/energy/the market allows.

That's a great idea, and would hedge my best allot.  Houses in good school districts in orange county that are fixer upperable are very expensive, not far off of what you listed for seattle.  I think that's what we would do though, exactly what you said. 

I really appreciate your, and everyone elses, insight.  It mirrors my thoughts exactly and it's great to see that I'm not far off in my thinking.  Our QOL would take a hit, but everything else would not. 

Trifele

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It would just take some cojones to take the leap and sell and move somewhere else, again, for the 6th time in 6 years, ugh.  My daughter is 2 so we have about 2-3 years before the musical chairs stop and we need to be somewhat settled for her sake.  We'll see.............

I agree with the other posters -- sell.  Just wanted to add that you are very correct that in a few years you will feel much less like moving, with your daughter reaching school age.  So I would do it now.  Nice job on avoiding lifestyle creep and increasing your net worth!

Common sense

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It would just take some cojones to take the leap and sell and move somewhere else, again, for the 6th time in 6 years, ugh.  My daughter is 2 so we have about 2-3 years before the musical chairs stop and we need to be somewhat settled for her sake.  We'll see.............

I agree with the other posters -- sell.  Just wanted to add that you are very correct that in a few years you will feel much less like moving, with your daughter reaching school age.  So I would do it now.  Nice job on avoiding lifestyle creep and increasing your net worth!

Hi Trifele,

Thanks so much for posting.  I think that selling now when the house is freshly renovated without any wear and tear would also fetch a higher price to some degree.  It is going to be tough to leave since it really is an ideal location/house but at the expense of my labor and working for an extra likely 5-7 years.  If we sold, I think I could be retired in 5 instead of 10 years at the current savings rate.  The savings rate would also increase (clearly) if we moved, because we wouldn't have a mortgage. 

Lifestyle creep did happen to a degree.  Our last house was in a worse location and we hated living there.  This is ideal but at the expense of being more costly.  We got lucky with the market still appreciating to some degree.  We bought our place at $525/foot, and now it is $800+/foot in our niche neighborhood. 

clifp

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So you are basically in the "find a great house at below market prices,  renovate and sell business."    The plan seems to be working thus far.   So yeah,  sell in September.    Then buy you a 700K fixer upper.    Rinse and Repeat every 2 years.   

I keep forgetting how crazy the Kalifonia real estate market really is.

I don't see the housing market going down in the next few years.  For what it is worth your tide has not yet hit the Midwest and there are still plenty of bargains around here.   2.2 would buy you 2 18th hole mansions on the best course in town here. (Springfield, MO) 

If you can do a couple of more flips like this in the next few years you may decide to take your degree and move to Missouri.   Income tax 6%,  sales tax 7%, real estate taxes dirt cheap.   Income is far lower I'm sure.   But then again your income will be generated from your 2 million in investments which will buy you 50 rental units for cash paying you 20K a month.

LOL!  You summed things up very nicely.  Most folks don't want a beater house.  My wife and I actually like it.  I, like MMM himself, am a handyman carpenter and enjoy building stuff.  I know enough about the trades to know who's doing good or bad, and with the city inspecting, I feel I could run my job myself like I have very comfortably.  So far so good, like you said, but all it takes is one bad move and they the wheels stop.  I've been pulling to get out of Cali for some time, like I said above, but the wife isn't down with the that.  It's been a little humid here in Orange County, and I swear she says she's melting.  It's pretty comical actually. 

You actually summed up what I'd like to do:  cash out, buy a bunch of rental properties and just cash flow to the next century.  I don't think I'd buy a giant house again for my personal residence: more electricity, more hvac, more gas, more water, more headace.  I like about 2000 sq feet.  That's more than enough for the three of us.  Our last house was 3321 and it was too big, that's part of the reason why we moved.

And yeah, income would be less too, but my skills travel with me and it wouldn't  be hard to find part time or full time work wherever I went.  Harder actually in densely populated areas than elsewhere.  My wife's brother is actually in Warrensburg Missouri so we have family there, but she said she hated it then when we visited and could never live there.  Sux.  I could live anywhere if that meant I could retire tomorrow!!!!

It would just take some cojones to take the leap and sell and move somewhere else, again, for the 6th time in 6 years, ugh.  My daughter is 2 so we have about 2-3 years before the musical chairs stop and we need to be somewhat settled for her sake.  We'll see.............

You that approach is pretty much what parents did. I think it's the only way my dad managed to retire at 55.  They were ok but not great savers and awful investors, but my dad could build or fix anything.  Find fixer up houses in good or great neighbors fix them up, and flip them every few years.  The 500K exclusion every two years gives you a great target to work for, and the $75K (at least) you save in capital gains adds up quickly.

Common sense

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So you are basically in the "find a great house at below market prices,  renovate and sell business."    The plan seems to be working thus far.   So yeah,  sell in September.    Then buy you a 700K fixer upper.    Rinse and Repeat every 2 years.   

I keep forgetting how crazy the Kalifonia real estate market really is.

I don't see the housing market going down in the next few years.  For what it is worth your tide has not yet hit the Midwest and there are still plenty of bargains around here.   2.2 would buy you 2 18th hole mansions on the best course in town here. (Springfield, MO) 

If you can do a couple of more flips like this in the next few years you may decide to take your degree and move to Missouri.   Income tax 6%,  sales tax 7%, real estate taxes dirt cheap.   Income is far lower I'm sure.   But then again your income will be generated from your 2 million in investments which will buy you 50 rental units for cash paying you 20K a month.

LOL!  You summed things up very nicely.  Most folks don't want a beater house.  My wife and I actually like it.  I, like MMM himself, am a handyman carpenter and enjoy building stuff.  I know enough about the trades to know who's doing good or bad, and with the city inspecting, I feel I could run my job myself like I have very comfortably.  So far so good, like you said, but all it takes is one bad move and they the wheels stop.  I've been pulling to get out of Cali for some time, like I said above, but the wife isn't down with the that.  It's been a little humid here in Orange County, and I swear she says she's melting.  It's pretty comical actually. 

You actually summed up what I'd like to do:  cash out, buy a bunch of rental properties and just cash flow to the next century.  I don't think I'd buy a giant house again for my personal residence: more electricity, more hvac, more gas, more water, more headace.  I like about 2000 sq feet.  That's more than enough for the three of us.  Our last house was 3321 and it was too big, that's part of the reason why we moved.

And yeah, income would be less too, but my skills travel with me and it wouldn't  be hard to find part time or full time work wherever I went.  Harder actually in densely populated areas than elsewhere.  My wife's brother is actually in Warrensburg Missouri so we have family there, but she said she hated it then when we visited and could never live there.  Sux.  I could live anywhere if that meant I could retire tomorrow!!!!

It would just take some cojones to take the leap and sell and move somewhere else, again, for the 6th time in 6 years, ugh.  My daughter is 2 so we have about 2-3 years before the musical chairs stop and we need to be somewhat settled for her sake.  We'll see.............

You that approach is pretty much what parents did. I think it's the only way my dad managed to retire at 55.  They were ok but not great savers and awful investors, but my dad could build or fix anything.  Find fixer up houses in good or great neighbors fix them up, and flip them every few years.  The 500K exclusion every two years gives you a great target to work for, and the $75K (at least) you save in capital gains adds up quickly.

Fortunately for my wife and I (me more than her) we are fairly good savers as well as renovators.  Plus I always have my education to fall back on, as much as I wouldn't want to. 

But yeah you're right. The capital gains exclusion every two years adds up really quick. The hardest part is not the renovating though........ It's the moving. Ugh.

patrickza

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Another +1 for selling. But I wouldn't buy a $700k house, I'd either rent, or go mobile and enjoy life. Oh and PS, really well done on the house business.

dess1313

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Congrats on the smart moves and hard work. 

I would sell, but only if you can find a house that you will enjoy even if it was a fixer uper.  location/access needs to be a priority.  If it meant you were to move into an area you hated, or greatly increased your commute it may not be worth immediately selling until you can find that right house

Common sense

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Congrats on the smart moves and hard work. 

I would sell, but only if you can find a house that you will enjoy even if it was a fixer uper.  location/access needs to be a priority.  If it meant you were to move into an area you hated, or greatly increased your commute it may not be worth immediately selling until you can find that right house


You hit it on the head. We lived in south OC with our first house and hated it. Hence the move to our current location which really can't be beat. Any move is going to increase my commute unfortunately because we didn't like living in south OC which is where my business is.

Another +1 for selling. But I wouldn't buy a $700k house, I'd either rent, or go mobile and enjoy life. Oh and PS, really well done on the house business.

Going mobile isn't an option just yet because of my business and our two year old. Renting would be a fine idea if I could roll all my capital and get a good return. But $1.4 mil is about $60k per year. Not going to cut it renting. I'd still have to work for a minute.  The best would be to pick up and leave this state to a better cost of living better taxation place. We'll see...

Thanks so much for the input. 

Pooperman

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Congrats on the smart moves and hard work. 

I would sell, but only if you can find a house that you will enjoy even if it was a fixer uper.  location/access needs to be a priority.  If it meant you were to move into an area you hated, or greatly increased your commute it may not be worth immediately selling until you can find that right house


You hit it on the head. We lived in south OC with our first house and hated it. Hence the move to our current location which really can't be beat. Any move is going to increase my commute unfortunately because we didn't like living in south OC which is where my business is.

Another +1 for selling. But I wouldn't buy a $700k house, I'd either rent, or go mobile and enjoy life. Oh and PS, really well done on the house business.

Going mobile isn't an option just yet because of my business and our two year old. Renting would be a fine idea if I could roll all my capital and get a good return. But $1.4 mil is about $60k per year. Not going to cut it renting. I'd still have to work for a minute.  The best would be to pick up and leave this state to a better cost of living better taxation place. We'll see...

Thanks so much for the input.

$60k/yr (after tax) is plenty for a family of 3 in basically anywhere that isn't California/North East. If you were me, I'd be packing it in today.

Common sense

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Congrats on the smart moves and hard work. 

I would sell, but only if you can find a house that you will enjoy even if it was a fixer uper.  location/access needs to be a priority.  If it meant you were to move into an area you hated, or greatly increased your commute it may not be worth immediately selling until you can find that right house


You hit it on the head. We lived in south OC with our first house and hated it. Hence the move to our current location which really can't be beat. Any move is going to increase my commute unfortunately because we didn't like living in south OC which is where my business is.

Another +1 for selling. But I wouldn't buy a $700k house, I'd either rent, or go mobile and enjoy life. Oh and PS, really well done on the house business.

Going mobile isn't an option just yet because of my business and our two year old. Renting would be a fine idea if I could roll all my capital and get a good return. But $1.4 mil is about $60k per year. Not going to cut it renting. I'd still have to work for a minute.  The best would be to pick up and leave this state to a better cost of living better taxation place. We'll see...

Thanks so much for the input.

$60k/yr (after tax) is plenty for a family of 3 in basically anywhere that isn't California/North East. If you were me, I'd be packing it in today.

True words...................................

Villanelle

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Heading a bit inland (since you don't want to go South) will stretch that money much more.  Anaheim Hills, Yorba Linda, and areas like that are so much cheaper than the beach, yet you can still find good schools.  You are West of Corona so you don't have (most of) the 91 freeway nightmare.  Depending on where in South County you work and what it was you didn't like about living there, it might be an option.

Common sense

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Heading a bit inland (since you don't want to go South) will stretch that money much more.  Anaheim Hills, Yorba Linda, and areas like that are so much cheaper than the beach, yet you can still find good schools.  You are West of Corona so you don't have (most of) the 91 freeway nightmare.  Depending on where in South County you work and what it was you didn't like about living there, it might be an option.

We were actually looking in Orange/Anaheim Hills, because then I could take the 261 to the 133, but if we did that, then I'm building in $200/month of toll costs, which would also drive me nuts.  It would be best if we just bought a place within biking distance of my work, but both me and my wife agree, that we don't like living down in south oc.  I grew up in Long Beach and much prefer that area to even Newport Beach, but that drive would be even worse.  Maybe foothill ranch or something like that.  I don't know. We've been brainstorming about it for a while.   

Fiveyearclub

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You've done a fantastic job.  I think it's a no brainer to sell your house though, because it is too high a percentage of your net worth.  You have way too much risk in real estate, and you could sell it and have a very nice place for less than half (plus potentially kill all your debt).  I have the same problem, except that I'm already on the low side of the real estate spectrum, so there's nothing I can downsize to.  That's why I'm just going to pay off my mortgage in 12-18 months and then focus on other income opportunities.

NorCal

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I agree with the other advice to sell, run, and be happy.

The one complicating factor is taxes.  The tax exemption for gains on a primary residence is $500K I believe (but don't know for sure).  You could be paying some massive taxes (particularly in CA) by selling.

While your neighborhood is almost certainly horrible for rentals by traditional rental metrics, look at your after-tax returns of both selling it and turning it into a rental.  A couple hundred-thousand in taxes might swing that calculation towards renting it out.

Common sense

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I agree with the other advice to sell, run, and be happy.

The one complicating factor is taxes.  The tax exemption for gains on a primary residence is $500K I believe (but don't know for sure).  You could be paying some massive taxes (particularly in CA) by selling.

While your neighborhood is almost certainly horrible for rentals by traditional rental metrics, look at your after-tax returns of both selling it and turning it into a rental.  A couple hundred-thousand in taxes might swing that calculation towards renting it out.

Based on a few earlier posts, what we figured out is that we would only have to pay on anything above $500K from the sale.  So Sale price - purchase price + improvements if that is more than $500K then I pay tax on the amount above $500K.  I could rent my house out for $6-7K/month.  I haven't given any thought to renting it out at all.  I'd have to look at the metrics of that and then have to save up for the dp for the next place.  But man that would seem like a huge waste of capital to rent it for $6-7K.  I'm pretty sure the bigger pockets folks would say sell immediately if I was thinking of renting it out.  Nowhere near the 1% rule.  I use the 2% rule for my investment properties.

You've done a fantastic job.  I think it's a no brainer to sell your house though, because it is too high a percentage of your net worth.  You have way too much risk in real estate, and you could sell it and have a very nice place for less than half (plus potentially kill all your debt).  I have the same problem, except that I'm already on the low side of the real estate spectrum, so there's nothing I can downsize to.  That's why I'm just going to pay off my mortgage in 12-18 months and then focus on other income opportunities.

I think I've been more lucky than good with the houses.  I always buy under market value but beyond that I've just been lucky with the ROI.  It only gets realized when you sell though.

You're right, a large part of my net worth is in the house, more because of the fact that living in So Cal sucks to high heaven when it comes to housing costs and the fact that we hated living in south orange county.  I'd be totally good with moving more north but then work would not be tenable.  There is some risk, but I wouldn't qualify it as "too much risk" since my location will always be desirable and we have a large cusion between what we have invested and what market value is currently.  Market value could go down 30% and we would still be fine.  I don't see that happening any time soon, but I can't predict the future. Thanks for your help.

Villanelle

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It is a lot more effort on your part, but you might also look into VRBO/share economy rentals, especially if you are walkable to the beach, to see if that would make more financial sense than a rental. 


Common sense

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It is a lot more effort on your part, but you might also look into VRBO/share economy rentals, especially if you are walkable to the beach, to see if that would make more financial sense than a rental.

Not walkable to the beach.  But amazing proximity to the beach, shopping, fwy's etc.  Appreciate your help.  i'll email my accountant.

Bob W

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Addendum to my original reply --


If you net out at $1,500,000  -- In Springfield Misssouri you could buy a nice house to live in for 125K.  You could take the remaining 1.375 Mill and buy 20 properties that need your golden touch and would rent for $600 per month.    You average net monthly rental income after expenses would be around 10,000 or 120,000 per year.    Net 95 after taxes.

Your expenses since your house is paid off would be around 20K leaving you 75K per year to play with.    So for that 75K you could winter in Belize for 8 weeks,  Summer in Colorado for 6 weeks and take a few weeks in the spring and fall wherever.  Fall and spring are bearable here for someone accustomed to Cali.  The summers and winters take an attitude adjustment.    Your trips would end up costing you around 25K so you could cash purchase another unit each year with the 50K.

I would suggest keeping you money invested in S and P 500 index while acquiring rentals,  which may take a few years.

So many good options for you ---- so many!

Common sense

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Addendum to my original reply --


If you net out at $1,500,000  -- In Springfield Misssouri you could buy a nice house to live in for 125K.  You could take the remaining 1.375 Mill and buy 20 properties that need your golden touch and would rent for $600 per month.    You average net monthly rental income after expenses would be around 10,000 or 120,000 per year.    Net 95 after taxes.

Your expenses since your house is paid off would be around 20K leaving you 75K per year to play with.    So for that 75K you could winter in Belize for 8 weeks,  Summer in Colorado for 6 weeks and take a few weeks in the spring and fall wherever.  Fall and spring are bearable here for someone accustomed to Cali.  The summers and winters take an attitude adjustment.    Your trips would end up costing you around 25K so you could cash purchase another unit each year with the 50K.

I would suggest keeping you money invested in S and P 500 index while acquiring rentals,  which may take a few years.

So many good options for you ---- so many!

wow! What an eye opener. Very much a too big to fail plan right there.

Yeah I agree......

Addendum to my original reply --


If you net out at $1,500,000  -- In Springfield Misssouri you could buy a nice house to live in for 125K.  You could take the remaining 1.375 Mill and buy 20 properties that need your golden touch and would rent for $600 per month.    You average net monthly rental income after expenses would be around 10,000 or 120,000 per year.    Net 95 after taxes.

Your expenses since your house is paid off would be around 20K leaving you 75K per year to play with.    So for that 75K you could winter in Belize for 8 weeks,  Summer in Colorado for 6 weeks and take a few weeks in the spring and fall wherever.  Fall and spring are bearable here for someone accustomed to Cali.  The summers and winters take an attitude adjustment.    Your trips would end up costing you around 25K so you could cash purchase another unit each year with the 50K.

I would suggest keeping you money invested in S and P 500 index while acquiring rentals,  which may take a few years.

So many good options for you ---- so many!

I would net out approx $1.45-1.5mil.  Plus the $300K we have in retirement accounts so net work would be about $1.75 to 1.8mil at that point. 

With the investment Properties I have acquired I have been able to get approximately $100-150/month per $10,000 out of pocket investment after expenses.  So If I have 20K oop I get $200 in return.  If I could find enough deals at that rate with my extra $1.5 mil my passive income would be $15,000/month.  I wouldn't want all my eggs in one basket though with real estate but clearly I understand that my money can work harder than I do.  Or I could even buy a few commercial apartment buildings and live off that passive income as well.  Like you said, many many options, they just require the leap to make it happen:  one selling and two moving away for good.  Then I could retire now at age 36. 

As an aside, I spoke with my accountant and he assured me that I can buy and sell every two years and have $500K profit exempted, which means of the $1.45-1.5 million check I would get for the sale of the house, I would only owe taxes on any amount above $500K profit on this sale only.  Which in my case would be taxes on $0-100K depending on sale price.  The wheels are turning in my head constantly.