Author Topic: Revisiting housing options  (Read 550 times)

joenorm

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Revisiting housing options
« on: February 22, 2019, 08:26:54 AM »
I've posted on this before, but enough time has passed its worth re-examining.

I have $290K loan out on two properties. One of which has a home on it in which I currently live. The other property is next door and I plan start building a second house this spring.

I have close to $100K to start the second home, but to my best guess, that will get me about half way to completion(I will be GC and do a lot of the work).

My current monthly payment is $1725 a month, roughly $20K per year. Interest rate is 4.75%

I could sell my current home for anywhere between $375K-$425 (Theoretically, in current market)

If I sold it I would have enough to finish second home and live mortgage free, which is appealing.

The funny thing is, almost everyone I discuss this with urges me not to sell, saying it is always better to own real estate than not. This idea likely stems from super high growth in the last 20 years.

In fact, I get this response so often, "why would you sell?" that it makes me question my own strategy.

I could rent current property for around $1500 max per month. I could probably get $30K a year for it if I really pushed it as a vacation rental. But, $30K a year is really only $10K a year if you factor in mortgage payment, and a lot of work for $10K

I'm on the west Coast, in a highly regarded vacation/second home type of area. We have a very "localized " real estate market for that reason.

Any thoughts appreciated on this situation. Trying to gain some clarity on a good decision.

JoJoP

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Re: Revisiting housing options
« Reply #1 on: February 22, 2019, 09:07:22 AM »
It seems like you'd rather sell and live without a mortgage, so that's a factor. 
How would you finish the second house if you didn't sell?  Could the rental income cover an equity line or something like that, so you'd have 2 houses for the price of 1?

joenorm

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Re: Revisiting housing options
« Reply #2 on: February 22, 2019, 01:07:03 PM »
That sure seems nice, to live without mortgage, but I don't want to be missing something.

Just curious what people think of the numbers. Renting current place vs selling.

If I didn't sell I'd have to just fund the build over time with cash. Which is doable, but those things tend to drag way out

AMandM

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Re: Revisiting housing options
« Reply #3 on: February 22, 2019, 01:36:08 PM »
If you sell, where will you live while the second house is built?

joenorm

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Re: Revisiting housing options
« Reply #4 on: February 22, 2019, 03:46:27 PM »
If you sell, where will you live while the second house is built?

I've considered a trailer, but the property is next door, so it sure is tempting to just live in the house while I build the other. But if I sell sooner than later I could put roughly 20K per year more into either the new build or the stock market

FINate

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Re: Revisiting housing options
« Reply #5 on: February 22, 2019, 04:08:31 PM »
The funny thing is, almost everyone I discuss this with urges me not to sell, saying it is always better to own real estate than not. This idea likely stems from super high growth in the last 20 years.

In fact, I get this response so often, "why would you sell?" that it makes me question my own strategy.

The first question you need to answer is: do you think RE in your area is a good investment? In other words, do you want to increase, maintain, or decrease your exposure to RE? This is not a question of timing the market, but one of valuation. Owning a property is like owning 100% of a small business - either it's a good value or it isn't. If you aren't sure, or aren't comfortable with the risk, then I suggest reducing your RE exposure. Even if RE continues to appreciate it's not worth losing sleep over. And your instincts are correct to question the conventional wisdom w.r.t. RE appreciation - current thinking is largely the result of the market cycle along with a big dose of survivor bias.

I don't make any predictions about the future of the RE market (or any market), but it has gotten too rich for me so I've been reducing my RE holdings.