Author Topic: Sell/rent/keep in another real estate bubble?  (Read 6053 times)

SFBayAreaMMGrowers

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Sell/rent/keep in another real estate bubble?
« on: June 23, 2013, 10:48:28 PM »
My wife and I bought our home in the usually very expensive SF Bay Area four years ago, near the bottom of the market. We got a mortgage on it at a home value of $328k. We refinanced recently so we have ~$310k on 3.75% fixed APR for a new 30 years. Now, the market has more than recovered and we could conceivably sell it for at or slightly more than $500k. So, do we take this house and sell it or are there other more Mustachian ways to celebrate our good fortune?

Pros:
 * The house is a fantastic price/sqft relative to the rest of the Bay Area because of our timing.
 * The home is relatively new so it is nice.
 * Husband can bike to work easily every day.

Cons:
 * The neighborhood is noisy and very densely populated.
 * There are lots of renters who do not seem to care about maintaining the neighborhood and their homes.
 * Because the neighborhood is poorly maintained and low-income, finding a good rental situation may be a very frustrating experience.

Our financial plan currently has us at 15 years to financial independence and we're looking at this particular situation as a potential way to shorten that timeline. We'll post in another category for details on the rest. Thanks for the input!

arebelspy

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Re: Sell/rent/keep in another real estate bubble?
« Reply #1 on: June 23, 2013, 11:33:53 PM »
As opposed to what?

That is, so many people ask "Should I do X?" without considering their alternatives.  The correct question would be "Should I do X or Y (or something else)?"

You'll need to provide more details on what that other option would be (i.e. rent, buy something smaller, lease to own, move out of the area, etc. etc.)

Without that all the responses you'll get will be random opinions without any facts to back them up ("Sell!  Invest the profits to reach FI quicker and move to a cheaper COL area!"  "Bay Area appreciates 1000% per year, keep it and buy more of them and houses in Hawaii too!").  Noise.
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nktokyo

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Re: Sell/rent/keep in another real estate bubble?
« Reply #2 on: June 24, 2013, 01:45:32 AM »
Yup. Locking in a decent profit after tax is nice, but where will you then live?

dragoncar

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Re: Sell/rent/keep in another real estate bubble?
« Reply #3 on: June 24, 2013, 01:49:32 AM »
What are the places next door renting for?

honobob

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Re: Sell/rent/keep in another real estate bubble?
« Reply #4 on: June 24, 2013, 09:04:04 AM »
If you sell you'll be losing a Prop 13 subsidy of almost $2,000 a year.  But if the neighborhood is going bad you want to get out when you can. 

SFBayAreaMMGrowers

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Re: Sell/rent/keep in another real estate bubble?
« Reply #5 on: June 24, 2013, 09:14:23 AM »
Oh my, I can't believe I didn't finish my post. I wanted to add that we'd prefer to remain within biking distance from work. We're open to all options including selling and buying a new house, selling and renting until house prices go down again, renting out and renting another house until house prices go down again, and (less desired, because husband would have to drive to work) moving 25 minutes away to live with a family friend and paying much cheaper rent.

So it feels tricky that we have work in the expensive Bay Area but we're fortunate to live in a popped-bubble-priced house. We want to capitalize on this windfall but can't see an easy way to do it without giving up the biking distance.

Another Reader

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Re: Sell/rent/keep in another real estate bubble?
« Reply #6 on: June 24, 2013, 09:23:40 AM »
If you are planning on staying in the area for work, I would look carefully at rental and purchase alternatives.  You may find that your mortgage payments are less than rent for something similar.  Also, many of the landlords that bought when you did are probably tiring of the hassles and will be taking profits over the next couple of years, so the neighborhood may change again.

However, if you are in an outer ring suburb where the schools are deteriorating and the crime rate is going up, now might be a good time to sell and bank your profit.  Those areas will not appreciate well in the future.  As interest rates go up, first time buyers and investors will drop out of the buyer pool.  Again, you need to look at rental and purchase alternatives to make a reasoned decision.

If you sell and buy again, you will lose the Prop 13 benefit, but you will also lose the transaction costs of selling and the mortgage and moving costs of buying.  Those costs are not trivial.

arebelspy

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Re: Sell/rent/keep in another real estate bubble?
« Reply #7 on: June 24, 2013, 10:04:17 AM »
In your case I'd lean towards staying, fully depending on the neighborhood though.

(Again, however, see my caveat above about random opinions without data. :) )
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

SFBayAreaMMGrowers

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Re: Sell/rent/keep in another real estate bubble?
« Reply #8 on: July 20, 2013, 12:19:40 AM »
Update: We have decided to stay put for a little while longer. We'd only move (and keep the house) if we can get a smashingly cheap rent with family a few miles away. But in terms of our area, for nice neighborhoods and not-so-nice neighborhoods, rents are way way way higher than our current mortgage, even for smaller properties. The Bay Area is pretty nuts. Thanks for the input, folks.

Paul der Krake

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Re: Sell/rent/keep in another real estate bubble?
« Reply #9 on: July 20, 2013, 04:25:31 AM »
Is there a possibility that the neighborhood gentrifies in a not-so-distant future?

SnackDog

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Re: Sell/rent/keep in another real estate bubble?
« Reply #10 on: July 20, 2013, 08:18:52 AM »
If rents are way way higher than your mortgage, have you considered the opportunity cost of staying in the house rather than renting it out?  E.g., if you are paying $1000/mo mortgage but could rent the place for $3000/mo, you are "losing" $2000 in potential rent for the privilege of living there.  Perhaps you could take the $1000/mo you are paying now, add $1500 of rental income and find a new place to rent or buy.  Or move in with family and pocked $3000/mo for 100 months.  Ka ching.

Johnny Aloha

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Re: Sell/rent/keep in another real estate bubble?
« Reply #11 on: July 20, 2013, 11:58:23 AM »
If rents are way way higher than your mortgage, have you considered the opportunity cost of staying in the house rather than renting it out?  E.g., if you are paying $1000/mo mortgage but could rent the place for $3000/mo, you are "losing" $2000 in potential rent for the privilege of living there.  Perhaps you could take the $1000/mo you are paying now, add $1500 of rental income and find a new place to rent or buy.  Or move in with family and pocked $3000/mo for 100 months.  Ka ching.

Not true.

In your scenario, you haven't accounted for maintenance, vacancy, or other expenses that WILL occur.  Educated RE investors use the 50% rule - 50% of gross rent goes to expenses.  Then you pay your mortgage with what's left over.  Might be conservative on a newer single family home in good condition, so in some cases you might get away with 40%...

If mortgage is $1k and rent is $3k, I'd estimate cash flow at $500/month.

SFBayAreaMMGrowers

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Re: Sell/rent/keep in another real estate bubble?
« Reply #12 on: May 31, 2015, 01:59:12 AM »
Is there a possibility that the neighborhood gentrifies in a not-so-distant future?

Late reply. The answer is yes. We live way too close to Facebook.

Johnny Aloha

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Re: Sell/rent/keep in another real estate bubble?
« Reply #13 on: June 01, 2015, 04:52:54 AM »
So, what did you decide?

Bearded Man

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Re: Sell/rent/keep in another real estate bubble?
« Reply #14 on: June 01, 2015, 03:05:12 PM »
I'd keep it. If what you are doing is working, keep doing it until it stops working or you know with reasonable certainty that it will stop for a specific reason.