Sell or Hold?

[Mustache ride]

I think I made a mistake... We recently bought a house last August for $410K in a highly desirable area. DW was intent on moving out of the rental, and I was nervous about COVID causing a RE crash. I talked my wife into buying one of the cheapest SFH in the area instead of buying our "forever" home for $600-650K. I'm fine with the house, but the wife can't stand it. As we all know, prices have skyrocketed and now we're in a pickle. I think the house is now worth $490-500K, and we're debating selling to buy our forever house. 

I know we should have never purchased the house with such a short-term expected stay, but it's a sunk cost at this point. My question is, does it make sense to cut our "losses" and sell to buy or forever house which is now in the $650-750K range? I'd prefer to wait until we've lived here for two years to take advantage of the capital gains exemption, but with the way prices are going up, I'm worried about paying the price again for trying to be cheap and saving money. We would probably clear $70K, and it would be subject to 15% capital gains tax.

[clarkfan1979]

It's normal to pay around 2% of the house in transaction costs when you buy. When you sell, you will pay 6% in real estate fees and another 1% in other transaction fees. If you sell the house for 500K, you will have around 47K subject to capital gains. At 15%, we are talking around 7K in capital gains taxes. If your wife hates it, 7K doesn't seem worth it to me.

 

[waltworks]

Seconded. Just move on.

-W

[alcon835]

I agree with the above. The costs to your family are small enough that it's worth it to keep them happy.

Sell your house, move to your forever home. Buying a house to live in is, first and foremost, a lifestyle decision with some financial benefits. In this situation, you made the wrong lifestyle decision and the financial negatives are minimal.

Fix the lifestyle problems - they are the most important problems you can fix.

[dougules]

How much of a strain would $650-750K be on your budget?  If it's not a stretch I would just say jump and be done with it, although there may be something to be said for just waiting until the pandemic isn't a factor in daily life.  Hopefully that is only a few months away. 

[Mustache ride]

Thanks for the replies. I plan to use Redfin since houses are selling themselves right now, so hopefully I can get the realtor fees down to 3.5 or 4% and pocket a bit more. I guess next step is to talk with a few realtors to get their opinion on selling price. I wasn't planning on selling so soon and have been plowing money into retirement accounts. Are there any major downsides to taking a 401K loan for a portion of the down payment? I have healthy roth contributions thanks to having access to megabackdoor, but I want to keep that money growing. We also have enough in the brokerage account to cover it, but I'd rather not pay taxes on the gains and the basis is pretty low. Is the only downside to the loan that I lose out on market gains until I pay it back? I'm aware that I may have to pay it back in full if I'm no longer employed, but my job is secure and I can fully cover it from the brokerage if SHTF.