Sell house and rent?

[Tim]

If you sell the house, the question is “What do you do with the assets?”

You think the stock market?
You think cash?
You think bonds?
You think real estate?

This is a short term capital allocation problem. Pretty easy to dream up a scenario where 10% per year loss for the next three years in anything.
Stop looking at the tree and instead look at the forest.

Suggestion is to both stop making capital allocation choices on emotions and rationalizing them with numbers. Optimism or pessimism is not a reason to make these types of choices.

The reality is you could sell and incur costs and taxes and the lose an additional 30% on the net proceeds. Out of the frying pan into the fire. Where is a “safe place” for capital? Long term, equities and real estate. Why change now? It’s not the past, it’s the future. Stay put and follow your plan.

[StateOfMyHead]

I don’t believe buying low and selling high with real estate should be compared to timing the stock market. That said I don’t delude myself that I will garner the lowest or highest at either step. All other things aside the lack of inventory and frantic FOMO will not last. This is an unusual probably once every decade or so opportunity. You will likely make money either way but if I was certain I was moving in a couple of years I would sell now.

[Tangler]

I don’t believe buying low and selling high with real estate should be compared to timing the stock market. That said I don’t delude myself that I will garner the lowest or highest at either step. All other things aside the lack of inventory and frantic FOMO will not last. This is an unusual probably once every decade or so opportunity. You will likely make money either way but if I was certain I was moving in a couple of years I would sell now.

Terrible advice IMO.

You don't buy or sell based on the market unless it is an investment property.

These people need a place to live. They have a place to live. They are stuck in this city for a few years until the student loans are gone.

So, sell, incur selling / closing costs (make the realtors another 6%) and then look for a rental and have to move, knowing it will mean another move in less than 5 years from now based on "this time it is different" and "I know how to time RE" and "The RE market is going to crash" and "unusual once in a decade or so opportunity."

I know people who waited to buy in San Diego in 2018 because: "this market seems like a bubble.....it cannot possibly go any higher......I am going to wait until it drops....."

How did that turn out? They are still renting and their rent has risen and risen and risen and the RE market, well....it went up.

If you do it, do as some others have said. List the house for an insanely high price and then only agree to an offer if you have a rental property ready to move into.

This sounds like a mess full of regret and a great way for a spouse / partner to say: "I told you this was a bad idea" every time something annoying happens in this process.

[Tim]

“This sounds like a mess full of regret and a great way for a spouse / partner to say: "I told you this was a bad idea" every time something annoying happens in this process.”

The way they are framing this decision, the “I told you so.” is unavoidable. I am uncomfortable with the decision making process (or at least the appearance). Examining alternatives is not the same as advocating one or another.

Full disclosure: I get that all the time. You never listen to me! Stuff from 20 years ago.

[MPMD]

OP this is a mess.

sit tight and sell when you are ready to move.

as others have said this only works if you decide to actually move.

if you don't move then you could be in the worst of both worlds -- renting, wanting to buy, and sitting in an even hotter market. how are you going to feel if you don't move and are looking at buying back your prior house for even more than you sold it?

everyone has PTSD from '08 understandably, but i will tell you that i personally do not think this is a bubble. all the smart people i read say that this is a supply issue. limited housing supply is a very different issue from subprime lending. people are sitting on cash right now, it's not that they are broke it's the opposite problem. i know that this isn't a politically popular thing to say but the economy is actually in good shape right now aside from a few months of inflation. unemployment is very low, jobs are relatively easy to find, the market is down a bit but still <10% of the all time high. stop viewing this as something that has to end, it doesn't.

i am not quite as old as WCI or others on the forum but in my experience money is lost trying to predict the future. your partner is making doctor income, is on track for loan forgivness, and you say that you owe less than a third of what the house is worth. which means that if it dropped by 30% (your example of WCS) you would still make money.

[JBME]

I would not sell. That said, I believe you are wrong on one thing and your husband is wrong on at least one thing. For you, you've lived in the house for at least 2 of the last 5 years. Therefore, you guys are entitled to get up to $500k in capital gains from the sale tax free. I doubt you'll get more than that and so no capital gains. Second, even if housing values go down, down 30% is very unlikely. I know we had a housing crash not that long ago but it seems very unlikely that the another crash would be just as, or even more, severe. All prediction I know but you said you're in a HCOL area and I bet a lot of people will still want to move and live there, so that would lead me to think the drop will not be as severe as 30%

[Tangler]

OP this is a mess.

sit tight and sell when you are ready to move.

as others have said this only works if you decide to actually move.

if you don't move then you could be in the worst of both worlds -- renting, wanting to buy, and sitting in an even hotter market. how are you going to feel if you don't move and are looking at buying back your prior house for even more than you sold it?

everyone has PTSD from '08 understandably, but i will tell you that i personally do not think this is a bubble. all the smart people i read say that this is a supply issue. limited housing supply is a very different issue from subprime lending. people are sitting on cash right now, it's not that they are broke it's the opposite problem. i know that this isn't a politically popular thing to say but the economy is actually in good shape right now aside from a few months of inflation. unemployment is very low, jobs are relatively easy to find, the market is down a bit but still <10% of the all time high. stop viewing this as something that has to end, it doesn't.

i am not quite as old as WCI or others on the forum but in my experience money is lost trying to predict the future. your partner is making doctor income, is on track for loan forgivness, and you say that you owe less than a third of what the house is worth. which means that if it dropped by 30% (your example of WCS) you would still make money.

I never agree (OK almost never agree) with this guy and I do here. He is right.

The world is not going to end. In fact it will get better after the republicans take the midterms (just kidding).

Sit tight. don't sell!

OK, I will stop (sorry for all the posts).

[StateOfMyHead]

Terrible advice IMO. You don't buy or sell based on the market unless it is an investment property.

Perhaps I think your advice is "terrible" but instead of sharing that unnecessary tidbit I simply added my opinion and experience with real estate which includes primary residences and investment properties over the past few decades. You are indisputably incorrect on one thing, I do in fact buy and sell based on the market when it comes to real estate both primary and investment.

[Zaphod]

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?

Tell him to get a grip, couldnt even finish reading the whole way. Your rate is way below market and inflation, what its doing is ravaging your debt, you are lucky and benefiting.

If you talk to a realtor, remember they will personally benefit if you sell.

Also if you sell, transaction costs/taxes are forever.

Instead of benefiting from the effects of inflation you'll be subject to them as renters and in a year you'll buy again with a bunch more transaction costs.

Basically a massive financial mistake.

[StarTrekDoc]

I do in fact buy and sell based on the market when it comes to real estate both primary and investment.

A lot of people do that for both RE and stocks. People day trade.

It is timing the market and not the best method for the average Joe.

[Tangler]

Perhaps I think your advice is "terrible" but instead of sharing that unnecessary tidbit I simply added my opinion and experience with real estate which includes primary residences and investment properties over the past few decades. You are indisputably incorrect on one thing, I do in fact buy and sell based on the market when it comes to real estate both primary and investment.

That is fair. Poor choice of words on my part. Not my best post. I will try to do better next time. Sorry.

[MPMD]

I never agree (OK almost never agree) with this guy and I do here. He is right.

The world is not going to end. In fact it will get better after the republicans take the midterms (just kidding).

Sit tight. don't sell!

OK, I will stop (sorry for all the posts).

OP i guess you have your answer!

the 2 extremists agree!!

[StateOfMyHead]

A lot of people do that for both RE and stocks. People day trade.

It is timing the market and not the best method for the average Joe.

Absolutely and it sounded to me like OPs husband is trying to avoid being the average Joe. It also didn’t sound like they have kids they are uprooting etc hence my thought cashing out early is worth considering.

[SpacemanSpiff12]

Your mortgage is 2.875%, inflation is 8.54%, and you can easily cover the mortgage payments. That's fantastic arbitrage. I can assure you that rents are increasing faster than 2.875%.

Try to talk with your partner about the other benefits of not selling: you're paying down principal with every mortgage payment, you're winning the interest rate arbitrage, it sounds like you enjoy the home, and moving is terrible!

[nomindforfinance]

I want to give a little more context to why I'm still on the fence:

We rented for two years after moving here - I thought the market then was too high, and we were coming from flyover country, so the pricing took a lot of time to get used to. We finally bought since we agreed we would stay at least 5 more years.

We bought for $950,000 in April 2019 - a large, dog of a house in the best possible location, walk to downtown, large lot, etc. Did a physician mortgage with 5% down, used the rest of our (I'm slightly older and I owned a house while he was in med school and residency) equity cash to do a first round of renovations, thinking it would take us 4 years to do everything. Then my partner became sole doc at his clinic, so his call schedule went crazy. His salary essentially doubled for two years, and he also found a discrepancy in his contract that required they pay him out an additional big chunk of money - so we accelerated the house and completed it in two years rather than 4. After a year and a half of being solo doc, the call schedule was wearing him out - so a year ago we considered other jobs in other cities for him, and considered selling at that time. This was during covid - a LOT of people flooded our city from larger cities. At that time we were given comps showing the house worth $2m. He changed jobs in this same city, so we stayed put and refinanced at 2.875% in April 2021. Dropped our payment substantially. New job was much less stress, but also less income. House still affordable. Now we are seeing houses similar go for high $2m range - like 2.7-2.9. At 2.7m, after 5% realtor fees, pay off $860k mortgage, capital gains tax (yes, I'm accounting for exclusion) we would net around $1.5m. We have about $400k that we have put in for renovations, so a large chunk of that is "our" money that we invested in renovating, so our actual profit is about $1.1m after paying taxes, etc.. I know we can exclude $250k each or $500k as a couple.

We like the house, we like the location, but I'm also trying to be open and understanding to where he is coming from - we have a lot of potential net worth tied up in a house that we think is overvalued - we would never pay this much for it - we couldn't. It doesn't make sense to us that people are paying this much for these houses. It's helped our net worth advance a lot more than we thought it would, so he wants to treat it as the unexpected blessing it was and cash out. We can rent in a nice new development - cookie cutter, definitely a small lot compared to what we have - for about $1,000 more than we are currently paying in mortgage. Houses in that development sell for around $1.4-1.5m when they actually come on the market. But since they are cookie cutter and multi story, they don't command the premium that our current house does, and their values have not accelerated in the same way either since they don't allow short term rentals. I would not be mad renting or buying one of those, and they would actually make a nice second home if we wanted to keep our foot in the door here, which is something we have talked about - but I feel like our exit plan is so unclear for the next few years, that I don't want to buy right away. Also, $1m would buy a lot of house in our flyover country hometown that we talk about going back to, and we could invest the other $500k elsewhere. I think we definitely have a three year exit plan, and I keep telling him we can exit even sooner if we just use part of the $1.5m to pay off his remaining $189k in student loans. He just hates missing out on the "free money" from the state.