The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: La Bibliotecaria Feroz on January 09, 2016, 03:07:02 PM
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So we bought a house in March. It was Mr. FP's idea, but now he doesn't like our neighborhood and maybe not the city as a whole. But he's not sure yet whether he is advocating that we move to a new city (if he could even get a job in his preferred location) or to move to a different neighborhood in Denver.
A couple different real estate types have convinced him that our home has increased in value by some $80K BUT that the planned increase in interest rates will cool off the super-hot Denver housing market. Therefore, he thinks we should put our house on the market as soon as February to get the most money possible for it--even if we don't know where we're going next. He is seeing dollar signs and wants to cash in.
I hate that idea. That scenario has us living in a short-term rental (while we figure out the next move) with two preschoolers (who are already on their fourth home--I don't think we should jerk them around for a questionable payoff). I think we should wait until we know what we* want to do and then worry about selling our house.
Am I wrong? Is there likely to be enough money at stake here that I should be willing to move not once, but twice?
*By which I mean "him," because I would be happy to stay put. Sigh.
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With 2 small kids I would not do it. Moving is hard on kids. REaltor and closing costs will eat up some of those profits and you will need to keep your house spotless for showing with 2 little ones. Ugh!
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Frugalparagon,
Moving again with two little ones will be tough.
Is the profit worth the trouble of showing, selling and moving, especially with little ones? Only you and your partner can decide that.
Can the real estate market be timed? Yes and it's easier than the stock market because it moves less quickly. Take a look at http://www.realestatetiming.com/ (http://www.realestatetiming.com/). In early 2006 I heard the author speak and bought his book. Based on this information I listed and sold a house realizing a substantial profit (it sold for 235% of my 1989 purchase price). I executed a 1031 tax deferred exchange and invested in a different geographic market which survived the real estate crash much better. Zillow shows that the house is still not back to the value it sold at ten years ago.
If you try to challenge your partner's money decision with emotion (solely based on the pain of moving) it will likely not be met well. Instead assess the data behind his a suggestion.
Pay the few bucks to see the chart from the website and determine if Denver really is at the top. You won't be able to do a 1031 exchange because it's your primary residence, but you can calculate the sales expenses and taxes to determine what the profit would really be. If it's small, don't disrupt the family. If the profit is huge and Denver really is at the top, determine what you would do with the profit (buy again, invest, save, splurge, ???). Then compare that benefit to the disruption to the family.
Depending on what you find, you may change your mind. Or, you may find compelling information to stay right where you are. Either way, the data will likely change the nature of the conversation and make it easier.
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Yes it is as dumb as you think, possibly dumber. If you want to time the real estate market, do it with your investment properties not your primary residence.
Also people have been sure interest rates will increase for the last 5 years, they are not going to shoot up to 10% overnight in 2016. Anyone who tells you they can predict interest rates is a fool.
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After transaction costs, this likely won't net you much at all. And, as you say, you still need a place to live.
Also the correlation between interest rates and home prices is very different than you might think. I wouldn't count on prices going down even if (and it's no sure thing) rates go up.
The people convincing your husband are likely looking to make money off you (via commission). Be wary of people trying to sell you something.
If your DH genuinely doesn't want to live there, can you find a new place first? Can you turn it into a rental? Explore all your options before making a rash decision on a transaction with huge frictional costs.
Above all, communicate with each other, and try to understand the other person's point of view. Use phrases like "I feel...because..." to help each person understand what the other is thinking.
Your marriage doesn't need to have a rough point because of a disagreement over some wood and nails.
Good luck! :)
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Don't forget that you WILL be paying capital gains taxes on that $80k (or whatever it ends up being after realtor fees, closing costs, etc) unless you stay in the house for 2 years. If you wait 2 years before selling, any profit will be tax-free (up to a limit of $250k or $500k of profit).
https://www.irs.gov/taxtopics/tc701.html
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Thanks, guys--this is really helpful.
ARS, thanks for the reminder to take a less strident tone :-).
Didn't even think about capital gains tax! That's a big point! We've sold a house after a year before but we didn't make any money, so it didn't come up.
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Thanks, guys--this is really helpful.
ARS, thanks for the reminder to take a less strident tone :-).
Didn't even think about capital gains tax! That's a big point! We've sold a house after a year before but we didn't make any money, so it didn't come up.
Unless the law has changed (and you should find out) you CAN pro rate the capital gains exclusion if you do not meet the 2 of 5 rule.
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This isn't a real estate answer, but it sounds like he wanted to fix something by buying a house, and it didn't change. That's probably where you want to focus your research.
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Just a reality check. If your house went up 80k in the past year then nearly every other house in the area has gone up that much also. So you won't be making any money if you end up buying a replacement house. You'll be paying more for it than if it was priced a year ago when you bought your house. Once you factor in capital gains and real estate costs, this move (unless moving away from Denver metro) could actually make you LOSE a decent chunk of change.
I don't think Denver housing prices are going to dramatically collapse any time soon. The year on year increases of 15-20% are certainly unsustainable and have already began to slow down. Prices are expected to only raise nominally or stay relatively stable.
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Timing the market is not really possible for a primary house unless you are moving to a different economy. Even if you make a little money that will need to go to the down payment for another house because they are going to be more expensive this time around.
One of my friends and husband to be are getting married and sold their townhouse in Denver last week. Under contract within 2 days and got 20K over asking. They were super thrilled about the big payout but are now shocked and concerned about purchasing their next residence because it's a lot more expensive than they thought.
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I'll chime in to advocate for selling.
Yes you probably will make money, this is not a dumb move.
You also will may more tax and fees then you realize
You will have to move somewhere.
I'd look into a flat fee listing if your serious. I've used them in the past and it's just $500 to get on the MLS and it's much cheaper then paying 3% to a realtor.
Moving is a PITA and some things are more important than money. You have to ask yourself is this one of them.
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If your house has gone up 80K in a year without any decent remodel, then everyone else's has too. I'm looking at condos now in Denver and it's crazy how much they sold for just a year or 18 months ago. Makes me nervous to buy, but I also don't think a collapse is coming anytime soon.
So if you're planning to stay in Denver, then selling this house is just going to cause you to spend more on your next house unless you downsize or move to cheaper hood.
If you sell and want to move to Ohio, then you'll probably come out ahead.
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I live in Denver and keep a pretty close ear to the real estate market (landlord and homeowner) and every year since 2012 myself and everyone around me has said "I can't imagine prices will get much higher than this." Timing the top of this market is impossible, could be next month, could be next year, could be a decade from now. Hell, Denver could be the next SF where demand outweighs supply for the next 30 years.
Also, in the city of Denver itself, each neighborhood has it's own micro housing law of economics (ie West Highlands), so a lot depends on your type of house and the climate of the neighborhood and comps.
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It is quite difficult to predict the changing price trends in the real estate market. Well I would say you
should not shift to other city just because your neighborhood is not good.