The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: WanderLucky on October 20, 2017, 07:38:33 PM
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I am currently living in a HCOL (and rising) city in a house that I bought for $500k in 2008. The house is currently appraised at $870k and is in an area that is zoned for multi-unit housing. I often get letters in the mail from developers who want to buy it for the land it sits on and build town houses or condos.
Yesterday, I got an offer on my house that is kind of hard to refuse. I was offered $1.2M for a closing date at the end of summer (or $1.1M to close end of January). For once, I’m actually tempted and not sure what to do.
Some details:
*I have a total of $552k in loans against the house
*$325k @ 3.875% on a 30 year mortgage; Monthly Payment is $2217 ($545 P + $1050 Int + $622 T&I)
*$227k @ 4.74% adjustable on a HELOC (with option to lock any of that amount into a 15 yr HEL @ 5.02%).
*In ~ 1 year, I should be getting paid back ~$185k from a loan I made. I had planned to put this money towards paying down the HELOC.
Reasons to stay:
* I love my house; it’s old (110 years) and has character, but is solid.
* Awesome, sought after location that is convenient to my life (and makes it desirable for AirBnB, which I’ve been doing)
* Dealing with the real estate market right now sounds awful - slim pickings and super competitive
* Keep my low rate mortgage
* Taxes? From my googling, I think $250k of profit is exempt (I’m single), though I could marry my SO for $500k exemption (I always said it was just piece of paper, but…..)
* Maybe the price will keep going up?
* I would feel super guilty about this sweet, old house being torn down. Seems like such a waste. And they would cut down the gorgeous trees, and where would the birds and butterflies go? :(
Reasons to leave:
* $1.2M!!! Paying off the debts and leaving $648k (minus any fees and taxes) to put towards another house.
* I could find a “better” house. For me, that means one with a MIL apartment that I could rent out or AirBnB (yes, I’ve been a landlord before and AirBnB host, and I enjoy both) and possibly one with a view. Maybe one that is more energy efficient.
* My house does not have a great layout - kitchen is closed off, sunroom is not insulated, only 1 bathroom and it’s on the upper floor. I was planning to remodel when I saved the money.
* High density area so parking is bad and can be loud.
* My life is fairly flexible - I don’t commute to a job so I could be in another neighborhood (or even another city, though I think I want to maintain a home base here).
From what I’ve written, what do you think I’m forgetting to consider? What would you do?
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There are many pros and cons on both sides here. I love that you consider the birds and the butterflies. It's a shame we keep bulldozing natural habitats in suburban areas.
One thing you might consider is simply waiting (kinda what you're doing anyway), and take some time to do some serious, calm, extensive visualization scenarios of what each option might look like.
From all you describe, I'm leaning towards either take the money or wait for a slightly higher offer. The rate of development will continue and with it the quality of life stuff. Also I don't know how this works, but is it possible the city might decide to use the land for something and use eminent domain? You would still be compensated, but maybe less than the developer's offer.
Good luck either way!
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Thanks for that advice. Yes, I think I will need to think for awhile longer on this one. In the meantime, we went to some open houses today to get a feel for what's out there in our price range. There are some cool houses, and it was pretty exciting to think about living in them, and I was convinced for a few hours that selling was the right decision. But of course there was always something not perfect about each one, and it was really nice to come home. So maybe I'm more confused now than I was before.
No, I don't think the city would do any kind of eminent domain thing here - hasn't happened to yet to my knowledge, and I don't think our place would be right for anything other than putting up some townhouses.
There's no real rush I suppose, other than the housing prices going up for the places we are interested in, but our place would likely also go up. And I just read that 90% of the houses for sale here have bidding wars, so I'd rather not try to buy something in the summer at peak season.
Anyway, I'll keep mulling this one over in the meantime...
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Just found this thread after reading your other one. It's definitely a dilemma, but I think you're in a relatively strong position. The million dollar price point may not be as great as you think, unless you want to move to a less expensive area.
Buying here is NOT fun. It feels like a stupid life choice, even if your reasons for owning are sound. To "succeed" buyers typically make huge life decisions in as little as one day, waive all contingencies, pay for numerous pre-inspections and sewer scopes, and do fast closings. Then again, I was scraping the bottom just trying to get a decent starter home in our walkable neighborhood.
Getting some more skin in the game might help your decision process. Keep going to open houses, tour houses regularly with your agent, get a detailed run-down of what a "competitive" offer is here, practice trying to decide if you want to buy a house within 1 day of seeing it. Ha, you could even pay for a few pre-inspections and make a half-hearted offer that gets rejected - that will get your blood boiling! We went through a few cycles of offering, rejection, backing away, getting our rent jacked, wishing we could leave Seattle, etc. My husband landed a professorship at the UW, something definitely not to be thrown away, so we decided to stay in Seattle. We kept looking, tried another offer, felt like giving up again, but then got unexpectedly lucky. [I reviewed my reasons for buying in another thread: our rent skyrocketed, we intend to stay for 7, 10, or 20 years, desire to own a home, and need stability to sustain my neighborhood-based home business]
There's not really a smooth way to buy in Seattle right now, but if your life is here, patience, frugality, financial preparation, and stubbornness can go a long way. Give yourself lots of time!
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Based on the pros and cons you listed I'd stay. Who knows......in a year's time someone might come knocking on your door offering $2m. And good on you for considering the potential impact on the environment and the loss of another precious older building if you sell and the house gets torn down. i hate how we just bulldoze stuff without giving a shit about the other creatures we share the planet with.
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I don't think you can just marry your SO and double the exemption as they won't have met the "owned the house for 2 of the last 5 years" part of the test.
I'd be more inclined to stay put. It's unlikely that Seattle economy is going to break all of the sudden, so unless you're planning to leave the Seattle area, I don't see a reason to sell now. Play the game on "easy mode"-let it ride.
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Before making any decision, I would find a good real estate lawyer and accountant. Let the lawyer field offers and negotiate, while the accountant helps with any possible tax reduction opportunities. If you can get a good sales price, consider renting or buying a smaller condo. You might even be able to get a contract with the builder to include a unit built to your specs and guaranteed at a specific price (this is a stretch but think creatively).
It’s possible the market in your area will never really cool off but there will likely be a point where there aren’t multiple over list price cash offers.
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