Author Topic: Take $300,000 and run or stay put?  (Read 5802 times)

YTProphet

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Take $300,000 and run or stay put?
« on: March 26, 2015, 08:02:27 AM »
Posted a bit of my dilemma a while back, but have a few updates. Here's the long and short.

We own a house and the vacant lot next door in a really nice, small downtown area. People love living down here due to the quaint feel, restaurants, events, etc. So, our property is worth significantly more than that in the surrounding area. We got it during the depths of the downturn and got a crazy bargain on it. Like, really crazy. We paid $200k for the house and the lot combined.

The lot is buildable and similar lots in the area have sold for around $200k recently, give or take $15k. Our house alone is now worth around $270k, too. So, if we were to sell today, I'd estimate that we'd walk away with $200k (the lot) + $110k (our downpayment plus the increase in value in the house).  And it'd all be tax free.

The only catch is - we love living where we live. Our house doesn't quite work for us as it's pretty small, but we're in one of the best locations in the city. We can walk everywhere and I can bike to work. However, we can't afford to buy a bigger house because they're so expensive now (I mean, we theoretically can, but we don't want to spend that much money). I'm torn.

If we remodeled our house and sold the lot to pay for renovations, we'd spend a fortune on remodeling plus the house would lose much of its old-time charm. If we built on the lot, we'd have a huge percentage of our net worth tied up in our home. If we sell both, we'd end up paying a ton to move a few blocks away or we'd move to other areas nearby which aren't nearly as nice, aren't walkable, don't have great events, etc.

On top of all that, I'm worried that the popularity of the area may fade at some point and I'd lose out on the chance to make a ton of money on this. There are no signs that this will happen (in fact, just the opposite), but it's still a fear I have.

The freedom that would come from having $300k completely liquid is extremely enticing, but I feel like I'll regret moving if I end up in a semi-junky subdivision, even with a paid-for-in-cash house.
« Last Edit: March 26, 2015, 08:05:46 AM by YTProphet »

firewalker

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Re: Take $300,000 and run or stay put?
« Reply #1 on: March 26, 2015, 08:09:35 AM »
What do these 2 lots cost you in property / school taxes etc?

YTProphet

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Re: Take $300,000 and run or stay put?
« Reply #2 on: March 26, 2015, 08:13:35 AM »
What do these 2 lots cost you in property / school taxes etc?

House is around $4000/year and the lot is around $1500/year.

firewalker

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Re: Take $300,000 and run or stay put?
« Reply #3 on: March 26, 2015, 08:19:20 AM »
And, what is your current mortgage monthly payment and interest rate?

YTProphet

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Re: Take $300,000 and run or stay put?
« Reply #4 on: March 26, 2015, 08:28:13 AM »
And, what is your current mortgage monthly payment and interest rate?

All in, I pay about $1300/month on a 30/year at 4.2%. I make around $130k so it's definitely affordable.

snshijuptr

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Re: Take $300,000 and run or stay put?
« Reply #5 on: March 26, 2015, 08:28:48 AM »
If you love the location and don't want to update the house, look into how you can downscale your life. There are plenty of ways to redesign the furniture in a house to meet your needs. Apartmenttherapy.com has a whole section on Small Space Living.

Another option is to sell the house and build your dream home on the lot.

What is your specific need for bigger space? A garage/workshop? An office/craft room? Kids rooms? Backyard? Entertaining space?

firewalker

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Re: Take $300,000 and run or stay put?
« Reply #6 on: March 26, 2015, 08:42:23 AM »
I would stay in the current house, optimize your space as best possible (even using a storage unit if practical), gradually design your own house plan, and target building on the empty property at a relaxed pace. Meanwhile, save, enjoy your neighborhood, and take peace of mind knowing that your purchase price and reasonable cost of living has gotten you ahead of the game.

Bob W

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Re: Take $300,000 and run or stay put?
« Reply #7 on: March 26, 2015, 08:43:50 AM »
So many options!

You could rent your house out and rent another home several blocks away and see how you like it and adapt for a year. 

You could build a house or a duplex on your lot and rent it.

You could take the 300K and buy 6 50K houses in Springfield Mo that rent for 500 a month each and retire on the 3K per month income.

You could raise the price of the lot and house to what you think is a very unrealistically high amount and you might be surprised to see the 300K go to 500K in less than a year.   At that point selling would seem logical.   You could even do this while renting it out and living in the other house you rent. 

You could just sit tight and see where you are in 1 year. 

My pick, without knowing all the details,  would be to raise the prices to the "well hell if I could sell it for that much I definitely would" range.   In that scenario it might take 1-5 years to sell but you would know you sold for the absolute highest price.  Don't be fooled by realtors who want to list it at what they perceive as a sellable price.   Go with a price that is clearly 30-45% above the current market.

You could just sell the lot at a very high rate and pay off our house. 

Your house sounds very rare to me and some people will pay top dollar for "rare."   

By the way,  good job on buying at the market bottom!   Like many things,  you make your money going in and you have put yourself in a very nice situation to have. 


WhatIsFrugalAfterAll

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Re: Take $300,000 and run or stay put?
« Reply #8 on: March 26, 2015, 08:45:24 AM »
Have you considered selling the empty lot, but staying put?

Right now you are very long (310k+) in the real estate of your neighborhood. Selling a lot for 200k would put you down to being 110k long.. if you moved that 200k to index funds or something else, would diversify your stash a lot. And instead of paying $1500 tax a year on the lot, your greenbacks would be working for you earning interest.

YTProphet

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Re: Take $300,000 and run or stay put?
« Reply #9 on: March 26, 2015, 08:48:06 AM »
I would stay in the current house, optimize your space as best possible (even using a storage unit if practical), gradually design your own house plan, and target building on the empty property at a relaxed pace. Meanwhile, save, enjoy your neighborhood, and take peace of mind knowing that your purchase price and reasonable cost of living has gotten you ahead of the game.

I guess I'm just hesitant to build on the lot since it's worth so much money. I'm a bit greedy, but I think it'd also be insane not to sell it.

The current house is just so small. It's tough to have more than three guests for dinner. And we entertain a lot (even given the small space). Plus, we've got a few kids with another on the way.

misschedda

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Re: Take $300,000 and run or stay put?
« Reply #10 on: March 26, 2015, 08:48:33 AM »
Have you considered selling the empty lot, but staying put?

Right now you are very long (310k+) in the real estate of your neighborhood. Selling a lot for 200k would put you down to being 110k long.. if you moved that 200k to index funds or something else, would diversify your stash a lot. And instead of paying $1500 tax a year on the lot, your greenbacks would be working for you earning interest.

This sounds like the best option to me. You sound really attached to your house and the neighborhood. I think you should look into furniture rearranging and small space living like another poster said and sell the lot next door.

ShoulderThingThatGoesUp

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Re: Take $300,000 and run or stay put?
« Reply #11 on: March 26, 2015, 08:50:40 AM »
There's no reason to believe the lot and house would sell better together, right? As another poster said, you're really long on real estate right next to your house. Might as well see if the lot is as valuable as you think.

YTProphet

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Re: Take $300,000 and run or stay put?
« Reply #12 on: March 26, 2015, 08:54:29 AM »
There's no reason to believe the lot and house would sell better together, right? As another poster said, you're really long on real estate right next to your house. Might as well see if the lot is as valuable as you think.

If I sell the lot and not the house, I have to pay capital gains tax on the full $200k. If I sell both, I can avoid capital gains since it's an adjacent property that's counted as part of my homestead per IRS rules. That's like a $60k swing in taxes on the lot.

ShoulderThingThatGoesUp

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Re: Take $300,000 and run or stay put?
« Reply #13 on: March 26, 2015, 08:56:32 AM »
There's no reason to believe the lot and house would sell better together, right? As another poster said, you're really long on real estate right next to your house. Might as well see if the lot is as valuable as you think.

If I sell the lot and not the house, I have to pay capital gains tax on the full $200k. If I sell both, I can avoid capital gains since it's an adjacent property that's counted as part of my homestead per IRS rules. That's like a $60k swing in taxes on the lot.

OK, that's a good reason. That said, land prices can swing wildly and that $60k is probably within the range of the swing.

Retire-Canada

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Re: Take $300,000 and run or stay put?
« Reply #14 on: March 26, 2015, 09:29:10 AM »
I'd sell and find somewhere else to live. It's easy to get locked into the mindset that where you are is the only great option.

That's rarely true.

I'd take the $300K from the sale and put $200K into a the market and use $100K as a deposit on a new house that meets your needs better.

You'll have to find a new neighbourhood that you like and can afford.

-- Vik

zolotiyeruki

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Re: Take $300,000 and run or stay put?
« Reply #15 on: March 26, 2015, 01:36:47 PM »
I second Bob W's suggestion, mixed with Vikb's perspective.  Yes, you love your neighborhood and area.  But it's not the only area you can love.

Barring that, I'd build a "just right for you" house on the adjacent property, then sell your current home.  Don't keep so much of your NW tied up in the property values of your neighborhood.

partgypsy

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Re: Take $300,000 and run or stay put?
« Reply #16 on: March 26, 2015, 01:42:04 PM »
I second Bob W's suggestion, mixed with Vikb's perspective.  Yes, you love your neighborhood and area.  But it's not the only area you can love.

Barring that, I'd build a "just right for you" house on the adjacent property, then sell your current home.  Don't keep so much of your NW tied up in the property values of your neighborhood.

this is what I would do. We had the chance to buy the lot next to our house, and still kick myself that we didn't do it.

Sibley

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Re: Take $300,000 and run or stay put?
« Reply #17 on: March 26, 2015, 02:18:39 PM »
To assist with the current space issues - embrace minimalism. At least a little! It's amazing how much stuff we accumulate, including kids. Get rid of some of the  stuff you don't use or need, do some rearranging to maximize space (including getting rid of unneeded furniture), and you may be amazed.

There's a thread in the Throw Down the Gauntlet section that is about getting rid of stuff. Go read some, maybe you'll be inspired.

lhamo

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Re: Take $300,000 and run or stay put?
« Reply #18 on: March 26, 2015, 03:24:09 PM »
I would probably sell the current house (no cap gains because you lived in it), rent somewhere in the neighborhood while building on the lot, and then move back.  The advantage of building is you can get EXACTLY what you want/need.  A duplex is a great idea.  Or if you have the cash flow to finance a build, it might also be worth staying in current house while you build -- the construction mess will be a pain, but you would be able to keep an eye on the project easily and then when the house is done you have a nice little rental right next door.  Or you could still sell it within 2 years and still not have to worry about cap gains. 

You could also consider a remodel on the original house after you move into the other one, which might allow you to eventually move back in and then sell the second place at a considerable profit (newer construction will probably go for more, I'm guessing).  I think you are overly worried about a remodel ruining the character of a house.  Crappy remodels are crappy remodels, but you don't have to get one of those.  Get yourself a good contractor, or even an architect if you are really worried about it, and see what options they can present.  A good builder who understands design and old houses can probably add space pretty seamlessly without destroying the character of the house.


seattlecyclone

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Re: Take $300,000 and run or stay put?
« Reply #19 on: March 26, 2015, 03:40:30 PM »
I would probably sell the current house (no cap gains because you lived in it), rent somewhere in the neighborhood while building on the lot, and then move back.  The advantage of building is you can get EXACTLY what you want/need.  A duplex is a great idea.  Or if you have the cash flow to finance a build, it might also be worth staying in current house while you build -- the construction mess will be a pain, but you would be able to keep an eye on the project easily and then when the house is done you have a nice little rental right next door.  Or you could still sell it within 2 years and still not have to worry about cap gains. 

You could also consider a remodel on the original house after you move into the other one, which might allow you to eventually move back in and then sell the second place at a considerable profit (newer construction will probably go for more, I'm guessing).  I think you are overly worried about a remodel ruining the character of a house.  Crappy remodels are crappy remodels, but you don't have to get one of those.  Get yourself a good contractor, or even an architect if you are really worried about it, and see what options they can present.  A good builder who understands design and old houses can probably add space pretty seamlessly without destroying the character of the house.



+1

Real estate transaction costs can be pretty big. Sometimes it's unavoidable to sell one home to buy another, but this is not one of those times. Keep the property, pay to build a suitable house on the other lot when you can afford it, and when that's done you can rent out your current house or sell it without owing capital gains.

Bob W

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Re: Take $300,000 and run or stay put?
« Reply #20 on: March 26, 2015, 08:44:52 PM »
Did I mention that building a house can be a fast track to divorce?