I *love* your phrase: snapping out of the real estate echo chamber of myths.

Why are you not going to sell that condo? Do you think it can hold its value somewhat? If it’s not too intrusive, can you provide an insider’s view of the ARM situation – why you got it, how much it will go up, and what are your plans when it does?

Why can’t you sell before your ARM resets? – prepayment penalty?

I am not as familiar (forunately) with all the machinations of ARMs — is the 6 mo. prepayment pentaly:

a) a prepayment penalty that is in effect for six months after loan originates (in other words, you could pay off after 7 months)? If this the case – how much is the penalty?

or

b) is the penalty six months worth of interest? If this it the case, how long is prohibition on repaying?

Just curious. Good luck!

I had a prepayment penalty but I only had to pay it if I refinanced. When I sold, I did not have to pay the prepayment penalty even though we were within the prepayment penalty period. If you are thinking of selling, contact your lender and find out if you can sell without paying the penalty.

Don’t sell.

Really, I mean it .

Yeah, I know I’m on a limb here with that statement, but stop. You’re at 50% of current market already. Research it. It’ll be hardpressed to drop much below $500K if it is a well kept house, with a real yard, and functional living space.

Think about it. Are you going to go through two or more moves, a year or more of renting, to buy at what your current loan is at +/- 10% possibly at much higher rates not to mention future fixes/modernization?

If you sell, you’ll generate 6% or so in commissions, that’s on the inflated price. You then move and rent. Then go through the house hunt again, find a good place. Fix it up again. Hopefully all us wise people haven’t forgotten just what kind of condition the majority of homes we in during the mid-late 90s.

You look at homes today and it’s frequent to see new granite countertop kitchens, new sinks, new fixtures, new bathrooms, new carpet, new paint, new tile, etc. Not a chance of that after the downturn. It’ll be 5-6 years worn with 3 or more years of neglect on top of it. Remember looking at homes in the mid-90s? Or worse, window dressing paint, carpet cleaning etc.

If you’re really at 1/2 of were the market peaked for your zip code on comps, it may be cheaper staying put. Even after looking at the bulk of capital gains you may get if you try and sell now.

Socalarm, depends on what you want to maximize, profit on the house, your family cashflow, family happiness, family wealth, they may not all stem from the same thing.

Here’s my thoughts, you could make a chunk of change selling, and maybe, maybe pay it back in transaction costs.

In the end, it really depends on four things:
1. Is this a home you’re happy to live in for the foreseeable future?
2. Can you afford to live in it?
3. How much hassle and uncertainty in living situation do you and your family want?
4. How much money is one way going to save over another?

I assumed the answer to 1 is yes. You answered 2 as yes. The answer 3 typical is who cares if you’re single and very little if married with school children.

So, that leaves you with an expected value question #4. That boils down to assumptions and you pretty much make the result come out any way you you.

Probably the easiest thing to do is hunker-down and really guess at how much you’ll clear out and how much it’ll cost to get back in.

For getting out, are comps, bed for bed, sq ft for sq ft comps in the neighborhood really moving in the last 30 days at $1,000,000? Or are they priced at $1,000,000 already only geting $900K and looking at $850K to get it moved if you want out quick?

To be fair, if you can sell, and sell quickly for $1,000,000 pocketing $450K and getting it tax free if you’re married, that’s a hard one to say no to. However, you really need to get the $450K clear. If it isn’t that much, you may end up burning all the profit up in trading fees. The commission, closing costs, new fix up. Plus… if rates return towards 8% and lending tightens, you’ll be looking at reinvest a chunk of that profit as the down payment on the next house.

Hypothetically, let’s say you can get out, but only at $850K if you want to go quickly. After commissions, it’s $799K, basically $300K profit to you.

Now, homes correct, from peak, quicky, say 2-3 years. Say, 30% (40% inflation adjusted), your original peak value home of $1,000,000 is now $699,000, needing a bit of work. Maybe just cosmetic, maybe more substantial.

$140,000 of your $300,000 is down payment. Est. $7,000 or so may get eaten in closing costs etc. Figure $25,000 in fixing, some bathroom upgrades, not remodels just fixtures, new appliances, carpet etc. Minor stuff, just adds up quickly. With tighter lending rules and increased tax base (~$400K to $700K) You’re looking at a $15,000 a year increase in monthly costs. Plus, you have to survive in the LA rental market for 2-3 years and time your lease right… for ease, let’s assume rent is a wash on your current costs.

So basically, you may be doing all that hassle for $130K clear and future negative cashflow of $15,000/yr. for 30 years. Do you have plans to do something great with the money in the short term?

Of course, if we go back to 8% mortgages, people will freak. But I think 7.5% is very realistic and it only changes that cashflow about $1000/yr.

One thing to keep in mind on the historical down turn numbers, the price decreases aren’t necessarily nominal, a big portion is inflation adjustment.