Crazy or great idea? Cash out stash to buy a new home, then sell?

[sf_raskol]

We've owned our condo for 5 years and are really happy here.  The list of things we'd like in a new place is fairly small, but an exciting opportunity has popped up that satisfies all of them.

To afford the new place we'd need to raid most of our stash - about 500K - for a down payment on a (bigger) new mortgage.  This is in a liquid mixed stocks/bonds betterment account today.

If we sold our current home, we'd probably get 650K+ after the sale.

So, my thinking is, cash out the stash, buy the new place, take our time to make small changes to the new place and move in, then sell the current place, and dump it all back into re-start our stash.

I can't see any real downsides of this plan, other than having to pay some capital gains taxes next April, and also maybe some tax on the home sale profit beyond the 500k exemption.  Are there any pitfalls that might make this a really dumb idea?  Are there other good ways to use cash from selling a current place to buy the next one?  Contingencies and such?

Other details on the new place - this opportunity isn't a sure thing, involves an off-market transaction including someone who is currently renting a unit there, who wants to find other families with children to buy into the building at the same time, from an owner who seems genuinely interested in making this happen, in the next month or two. 

The unit next door to ours, in our current building, sold for 200k over asking after 2 weeks on the market, 3 months ago.

[Wile E. Coyote]

Personally, I would sell the existing house and move into the new place, then make the "small changes."

If that won't work for you, you could look into getting a HELOC on the existing home to minimize the amount of your stash you need to liquidate.  I wouldn't cash out if I could avoid it.  A HELOC shouldn't be too expensive, but check with your bank.  I would do what I could to limit the recognition of capital gain, particularly if there is a potential for $150K gain on the sale of your residence in the same year.  Pay off the HELOC with proceeds from the sale of the home.

[Sibley]

This is MMM. Do you NEED the new house? Or are you just inflating your lifestyle? Realistically, you're taking on a lot of risk for what sounds like a WANT, rather than a NEED.

[Spitfire]

I like the HELOC idea for a down payment, assuming it doesn't mess up your income ratios for getting the new home. It's better than paying capital gains taxes on money you are just going to reinvest a month later.

[sf_raskol]

Thank you for the responses!  Going to explore the HELOC option.  I'd assumed these wouldn't be big enough, but I've looked around and it might work great.

Need vs want - good question and one I struggle with.  Primarily a want, with elements of need mixed in as well.

[Hargrove]

This is MMM. Do you NEED the new house? Or are you just inflating your lifestyle? Realistically, you're taking on a lot of risk for what sounds like a WANT, rather than a NEED.

/tag

IT'S MUSTACHE MANIA!

/shirtrip

We've owned our condo for 5 years and are really happy here... should we spend a pile of money to leave?

NO, BROTHER!

/foldingchairswipe

[Dicey]

Uh, I am concerned about the new place. Is it also in the City? There's a great blog called "Granola Shotgun" that you might want to check out. The author, Johnny, writes about a wide range of issues, including the joys of real estate ownership and attempts at cooperative living in SF, which is infamous for its arcane building codes. He's a great writer, you won't be bored. I think you are focusing on the money when you should be scrutinizing the feasibility of what you're proposing to do. Reading about Johnny's experiences should give you some valuable insight.

[clarkfan1979]

We've owned our condo for 5 years and are really happy here.  The list of things we'd like in a new place is fairly small, but an exciting opportunity has popped up that satisfies all of them.

To afford the new place we'd need to raid most of our stash - about 500K - for a down payment on a (bigger) new mortgage.  This is in a liquid mixed stocks/bonds betterment account today.

If we sold our current home, we'd probably get 650K+ after the sale.

So, my thinking is, cash out the stash, buy the new place, take our time to make small changes to the new place and move in, then sell the current place, and dump it all back into re-start our stash.

I can't see any real downsides of this plan, other than having to pay some capital gains taxes next April, and also maybe some tax on the home sale profit beyond the 500k exemption.  Are there any pitfalls that might make this a really dumb idea?  Are there other good ways to use cash from selling a current place to buy the next one?  Contingencies and such?

Other details on the new place - this opportunity isn't a sure thing, involves an off-market transaction including someone who is currently renting a unit there, who wants to find other families with children to buy into the building at the same time, from an owner who seems genuinely interested in making this happen, in the next month or two. 

The unit next door to ours, in our current building, sold for 200k over asking after 2 weeks on the market, 3 months ago.

Of the 650K, how much is profit? You might be right around 500K and not owe any capital gains. Based on 5 years of owning the condo you might have 50K of principle pay down and another 75K of transaction costs. If you have 25K worth of repairs, you will not owe any capital gains.

[sf_raskol]

Uh, I am concerned about the new place. Is it also in the City?

Yes, new place is also in the city.  I am interested in learning about what arcane building codes I might run into, and how that complicates things, or doesn't given what we'd want done.  Our hope here is that we'd move from a place we knew we'd grow out of in 3-4 years (wrong location for raising kids mostly), to a place we could stay for 10-20+.

The new could use some interior work - restoring a previously removed wall, removing a wall between kitchen/dining, kitchen remodel, bathroom remodel.  None of that needs to be done before move-in - could happen slowly over time.  I'd like to do as much of that myself, with help from family/friends who have remodeling experience.  The yard just needs cleanup/landscaping. 

There's a great blog called "Granola Shotgun" that you might want to check out. The author, Johnny, writes about a wide range of issues, including the joys of real estate ownership and attempts at cooperative living in SF, which is infamous for its arcane building codes. He's a great writer, you won't be bored. I think you are focusing on the money when you should be scrutinizing the feasibility of what you're proposing to do. Reading about Johnny's experiences should give you some valuable insight.

Thanks for pointing out this blog!  Any particular posts you'd recommend?