Sell house and rent?

[nomindforfinance]

My partner and I are in a HCOL area. We bought a house in early 2019, renovated it, and have seen it well over double in value since then, much much more than we had ever anticipated. When we bought we assumed worst case on everything and only hoped to break even over 5-6 years, so we are definitely in a different boat than we planned. Financially, it's very easy, we are financed at 2.875%, his student loans are being paid for by the state, and we have plenty of income left to save. We owe less than 1/3 of what it is worth as of right now.

However....my partner (he's the doc) seems to be going through a midlife crisis. He's now convinced that we need to sell the house, as he is concerned that rising interest rates and a looming recession will savage our home's value in the coming year or two. There is still very low inventory where we live, and large demand for short term rental properties, so I'm not sure I have these same fears. I don't see things going up at the rate they've been going, but I also don't think we will see prices drop dramatically either. He wants to sell the house, get our equity out, and rent for the next 2-3 years, as our plan is to move elsewhere, most likely a LCOL area, once the loans are paid off.

The anxiety I have is, when I calculate out the cost of selling (real estate commissions, capital gains tax, etc.) we are losing a big chunk of money. His argument is that we will lose that money now or 3 years from now, he's just nervous that we are missing an opportunity to make a ton of money on the house - enough that we could buy a home mortgage free in a LCOL location. He's worried that if the house dropped in value 30% we would kick ourselves down the road.

I feel 50/50 on this proposition - I understand his fears - but I know there is no way of predicting the future. All I know is that we like the house, we have this thing financed super cheap, we would be paying more in rent than our mortgage is currently (very low availability of long term rentals due to everyone doing short term here, resort city). When I calculate out "What would happen if we wanted to rebuy this house for the same price we sold it for?" it would more than double our payment, even if we put all our money back in it, since we would be losing all that money in realtor fees and capital gains taxes, plus we would be financing at 5% and our property tax basis would go up substantially. So we would not be able to ever recreate what we have. That argument could also help his argument, because who in their right mind would pay that much for this house?? I feel like his idea only works if we are COMMITTED to moving to the LCOL area in the future and have no plans to stay here long term, which I'm not 100% convinced of. I've even suggested that maybe we should accelerate the LCOL area idea and use some of our equity to just finish off the student loans so he doesn't feel so obligated to stay here, but he is opposed to it since he's getting "free" money from the state. He says I need to think of this house as a flip.

I'm anxious as can be about this idea, but going along with it for now. Talking with our realtor tomorrow (who will for sure push the idea of selling so he can get a commission). Walk me through the pros and cons of this idea?

[Max Power]

The woman trying to upgrade or keep the house or get a newer one... man trying to be frugal or downsize or get a fixer-upper. Tale as old as time.

Financially, he's right. QOL and emotionally, maybe you are. Figure it out... you know your situ better than internet randoms.

Housing doesn't go up for ever. It goes in cycles... cycles that can climb as high as the credit and debt lets them climb. There are always fools waiting to sign the next 20-30 years of their life away and banks that will make dumb moves and let a cashier making $25k/yr buy a $200k condo. If your house has doubled, you've done well. Fees exist regardless. You can capitalize on that gain before the lending dries up and the market putters. It is a myth of home equity (unless you can't save/invest). Homes bought to live in are usually a forced saving and not much more... these last few years have been quirky. It is paper wealth (you still have the same house... not two of them), and it's no wonder he wants to capitalize.

Personally, I embrace minimalism since it gives you less worry, less upkeep, and that ability to easily go where you're treated best. Many folks have way too much "stuff" and fear moving unless they absolutely have to... or are moving somewhere bigger. So, consider this a chance to jettison "stuff," make money, and find out what you value before you become one of them?

If you choose to stay there, quit Zillowing your value and just enjoy it. If you move, pay debt off and know you came out way ahead (even if that property value goes a bit higher before inevitable correction).

My partner and I rent (open to buying but no real need... I sold back in 06 and have rented since), and I probably make as much as your house is worth and have assets many times that (ditto for my partner). I could buy cash anytime I want, but that's a slow gainer to me with rare exception of the past few years (or 2004-07 lol). It is a myth that rents will fly up or you may lose the place (can't in most areas... rates are logically limited by what people make and can pay). Think of renting as paying for the freedom of moving and not having repairs, no maintenance, no interest, no "stuff" to buy, no dumb insurances and upgrades that aren't necessary, get tax credits instead of pay property taxes, etc. Living is always going to cost you, no matter what (income rentals or speculative land or etc are far different from the house you live in being an "investment").

[CordMcNally]

Selling the house unless you’re moving now doesn’t make a whole lot of sense.

[Max Power]

Selling the house unless you’re moving now doesn’t make a whole lot of sense.

Sure it does... same as hopping out of any market and going to cash or different markets for awhile (except on a big scale, for them). Selling now to move to a more expensive place is selling high and buy high on an even bigger purchase, and that makes little sense - yet we see tons of threads about just that, since credit is liquid and everyone is in the green on "their" house, for now. Selling to rent or downsize or rent-vest is a market timing of sorts to get out of the home equity game, but they have clearly won that game so far... or they wouldn't be considering it.

Renting is never "throwing away your money," it is getting a place to live. Sometimes it's a place to do business, vacation, etc.
Mortgage + insurance + interest + repairs + taxes + etc also gets you a place to live (with a longer and tougher and more expensive to break commitment).

[CordMcNally]

Sure it does... same as hopping out of any market and going to cash for awhile (except on a big scale, for them). It is a market timing of sorts, but they have clearly won... or they wouldn't be considering it.

Renting is never "throwing away your money," it is getting a place to live.
Mortgage + insurance + interest + repairs + taxes + etc also gets you a place to live (with a longer and tougher and more expensive to break commitment).

Did I say renting is throwing money away?

It’s not the same as just hopping out of the market because they’ll still need shelter. They said their mortgage is less than their rent will be. Add in that difference along with the cost to sell their house and that’s basically the monetary break even for how much they can spend on repairs and maintenance. Not to mention they’ll never get a rate that low again in the near future. Plus, nobody knows what house values may do. They may go down, go up, or stay the same.

If the mortgage is comfortable then there’s no reason to make such a drastic move.

[Max Power]

...If the mortgage is comfortable then there’s no reason to make such a drastic move.

I don't disagree. They could stand pat. They will figure it out. She obviously likes the house, and he dislikes debt or not grabbing the housing market spike as a realized gain instead of fleeting paper wealth.

To borrow the Dave Ramsey discussion:
If you had $400k in a suitcase of cash on the kitchen table, would you use it to buy your same house that you bought for $250k a few years ago, or would you do something else with it?
(assume $500k sale turns into $400k after closing and taxes... although it'd net significantly more since the mortgage payoff portion is basically sheltered as exchange and any they slam on student or other debt gains that % by eliminating interest)

[Brains428]

Your time to sell was 3 months ago. Given previously inability to predict the rise in rates to best time the exit, I don't know if you can accurately predict what rates will be or future prices of homes.

Real estate is really location, location, location. The house you are in will depreciate, but the land is what holds it's value and appreciates. In the short to mid term, good schools will maintain the value. In the long term, limited available land in proximity to said HCOL place will maintain property values.

I think you'll be fine staying or selling. The agent will tell you to sell. If you are going to sell, I'd list tomorrow. (I would personally roll the dice and stay put if I was confident in the local market).

[nomindforfinance]

I don't disagree. They could stand pat. They will figure it out. She obviously likes the house, and he dislikes debt or not grabbing the housing market spike as a realized gain instead of fleeting paper wealth.

I think this quote sums up where he is - he likes knowing he's got a for sure win - he's willing to risk that things will keep going up and we will miss out, but as long as he has this big chunk of cash set aside in a safe spot, he will feel better. (For the record, we are both men) He's also still early in his career, so this has been a boon to our total net worth - and means we probably have a larger percentage of our net worth invested in the house than we should, so we should probably consider taking some of that and investing elsewhere.

We rented in this town for two years before buying this house - so we have no problem renting. We actually kind of enjoyed our rental house.

I'm just not a big fan of moving or other big changes, that's probably what's giving me all the anxiety.

[StarTrekDoc]

Remember, if you're not in the market; you're not in the market and simply timing it. If you have NO plans for any ownership, sure -- stay out of the market and simplify with equities 3 fund system and a purely consumption cost of living. There's nothing wrong with that. BUT -- if you're planning for ownership and RE to be part of your portfolio, really rule of thumb is don't time the market.

The issue is your unknown exit plan. If you said for sure, 2-3 years exit to LCOL, there's an argument to tap out. If there's any chance in staying for any extended time, you're better off standing pat.

[Jaqen Haghar MD]

First, accept that you don’t really know if the home value will go up, down or sideways. Weigh the 3 equally probable scenarios and think them through.

You are rolling some expensive dice, trying to get lucky. You already got lucky once…. You bought a place to live and it shot up in value. You are ahead of the game.

I’d stay put, as long as you are OK with the house. Relax, knowing that you’re doing well. Move when you are ready and have a definite plan for the future.

Consider an unforeseen scenario also…. Is there any other reason your partner might seek increased flexibility? (Sorry, I have a habit of peering into dark corners)

[Tangler]

Selling the house unless you’re moving now doesn’t make a whole lot of sense.

Yes.

Do NOT sell. Your husband is being foolish.

Tell him it is a really dumb idea.

You need a place to live where you work.

You have a place and you already paid for the closing costs (realtor fees) etc. so stay.

In 5 years (or longer perhaps) if/when you have a different job in a different place that is when you will sell the house.

You move when you have a different job in a different place.

You don't move to try to time the RE market.

You have a job that is paying your student loans: outstanding.

You have a place to live where you work: outstanding.

The house has appreciated in value: outstanding.

You are saving: outstanding.

Just stick with your plan to stay until it is time to move (and it is possible that you might even decided to stay, never say never).

You are doing well. Don't get cute and try to outsmart everyone. That usually ends in disaster.

[Tangler]

Also, you are correct. RE agents love to buy and sell. That is how they get paid. Asking a RE agent if you should buy or sell is like asking a dog if it is hungry.

There is zero reason to speak to them. If you sell this house you will need to move your family for no reason. Moving sucks. Move when you need to move.

[Tangler]

[QUOTE=The anxiety I have is, when I calculate out the cost of selling (real estate commissions, capital gains tax, etc.) we are losing a big chunk of money. His argument is that we will lose that money now or 3 years from now, he's just nervous that we are missing an opportunity to make a ton of money on the house - enough that we could buy a home mortgage free in a LCOL location. He's worried that if the house dropped in value 30% we would kick ourselves down the road.
[/QUOTE]

Here is the deal. No one knows exactly what the RE market or the Stock market will do in the short run.

In the short run we guess or better yet ignore the fluctuations and focus on being a good doc, husband, father and fisherman (ok just me for that last one, but I recommend it).

In the long run things go up in value.

This is why we buy and HOLD for the long run.

So, this doc thinks he knows the RE market is going to drop 30% and stay down for a prolonged period of time? That is exceedingly unlikely and certainly something I would not gamble on.

If rates cool the market, (and I think / hope they do because it has been crazy, agree) it will not mean a drop of 30% forever. It will likely mean a slowing of the rate of rise or a plateau or a small (probably short term) drop in HCOL areas.

Even if it drops, I don't think it will drop and stay down 30%.

This is doomsday type stuff. This is 1929 type stuff and unlikely and more importantly irrelevant for you.

You have a job which is paying your loans and you need to live near that job and you have a place to live.

You are doing great. Don't screw it up trying to be smarter than you are. Sorry to perseverate.

[White.Beard.Doc]

You need a place to live.

You are not ready to move to a LCOL area.

Your area has high rents due to being an Airbnb haven.

You think prices will go down. But you don’t really know.

Your current mortgage is cheaper than rent.

First, no one knows with accuracy what rents or sales prices will be in the future. Selling means giving up a secure, affordable place to live so you can subject yourself to the unpredictable whims of the real estate market, in a HCOL area. Sounds like a terrible idea to me.

[Nysoz]

Details matter here. When you say partner, are you actually married? If you've lived in the house for 2 years then some of the capital gains from the house sale isn't taxable. $250k single, $500k married. So that can eliminate some of the concern about capital gains.

Other than that, your partner is just timing the market. He may be right or wrong, but you have to consider all the scenarios to see which you're comfortable with. Housing market may go up, sideways, down. What if you guys plan on staying for the long term?

If you're on the fence and your partner really wants to list the house, stand firm on some exorbitant price. A 'make me move' type of price that's some multiple more than what it's worth and even higher than all the comps.

On a side note, have you looked into where you would move for LCOL? There aren't many left anymore as everything is getting more expensive. The ones that are left are usually pretty rural and sometimes not friendly to a 2 male couple, even still in this day and age.