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.
