Sell and rent today or payoff house in 5 years

[aguho]

Hi everyone

This is one of my favorite sites(thanks Rich !!).There is always excellent information here and the forum participants really have a wealth of knowledge and ideas!

Here is our situation.We own a newer house in Chula Vista and had planned to pay this off in April of 2011.We have a 10 year fixed 4.85% with an outstanding balance of 190,000.Our PITI is $2700.00 per month but we are adding an additional 1100.00 per month in order to pay this off early .So we are really paying almost 4000 a month.We have owned and lived in it for 3 years.We own a business and work about 80 hours a week so we are never at home anyways(except to sleep).

Ultimately,we are planning on buying a home in coastal Orange County in 5 years when this real estate cycle hits the bottom.

There are 2 homes in our cul de sac that are trying to sell and are asking 600,000-625,000.If we were to sell I would probably start at 575,000 and under cut my neighbors to sell it quicker.

To quote the immortal Clash “Should I stay or should I go now”.

What would you do?

I’m leaning toward selling,but my wife needs a little bit more convincing.

Thanks for your input

Bob Kenney

[nhamlin]

If you liked your home and you like San Diego I would recommend that you pay off the house. If you consider the costs and inconvenience of buying and selling plus the loss of a low property tax basis, I think you would find that it would take a really large price drop to come out ahead.

On the other hand you have thrown the possible Orange County Move into the equation. How certain is that move?

I believe the things that Rich Tuscano says about a housing decline in San Diego. Am I positive the crash is going to happen? Absolutely not. I also believed some other smart people that told me CDMA technology would dominate the worldwide cell phone business and Qualcom was a great buy at 30% more than today’s selling price.

There are no sure things when it comes to investing. We could have another bout of raging inflation or we could replace a large number of poor peoble with a large number of rich ones. The direction of markets cannot be reduced to mathmatics.

A house is a very special thing even to someone who works 80 hours per week. Living in a rental is just not the same.

Would you have more money in five years if you sell and rent? Probably. Is it worth the agravation and risk?

If prices actually crash, that house in the beach area of Orange County will drop a great deal more than your Chula Vista house. The spread between your present home ant the O.C. home could easily shrink several hundred thousand dollars. I for one would be happy with that improvement. I do not like to speculate on my personal residence.

My recommendation is stay where you are until you are ready to move.

Norm Hamlin
[email protected]

[john67elco]

My post shows I 100% would have more money renting than buying even if the market goes up 3% a year for 7 years. I would still lose $36,000 in that 7 year span. If the new home did not go up in value I would have lost $110,000 in that same 7 years. Depens on how much aof a risk taker you are. If it was me (being married with no kids and 0 debts) I would sell 100%, but thats just me. Have the equity and run is well worth it. I just sold my (unwanted) California City property dirt lot without electricity on it for $35,000. Everyone involed said “take it and run”, thank god I did. Lot now in same tract is selling for $25,000 list price.

[Steve Beebo]

If I were you, I would definitely stay put. Who wants to rent a house for 5 years? Who knows how many different rentals you may have to move to if the owner sells or wants to move into his rental? If I told my wife we were going to sell our house and rent a house for the next 5 years she might kill me. I’m sure the market value on your house will drop at least some in the next two years, but by 2011 the value may be close to today’s value, plus or minus.

[powayseller]

I recommend that anyone who either wants to take profits, or who still has a mortgage, Sells Now.

I am puzzled by the people who say renting is not advisable. I wrote a long post about the advantages of renting. I have 3 children, and my entire family loves our rental house. We live in a great neighborhood, they attend the same schools as before the move, the house is cozy and at 2100 sq ft big enough for us. We are painting this summer, and going 50/50 with the landlord on installing an A/C. We plan to be here 4-5 years.

I know this might make some people mad at me, but I’m used to that, so here it goes: women who prefer losing $200K-$500K equity just because they want to “own” rather than “rent” are fools. Usually it comes down to wanting to be able to paint. Go ahead, paint your rental. Geez…. Put in a garden. I just had some curtains made for my rental.

Anyway, it’s obvious to anyone with a slight knowledge of economics and commons sense (all excesses correct), that housing will revert to the mean.

The only reason to stay in a house in San Diego, would be if it’s paid off, and you cannot afford the rent, or you like having no rent/mortgage. Taking profits is always a great alternative.

[North County Jim]

My wife and I were in a somewhat similar situation. As we saw things getting pretty nutty, we would unseriously discuss selling and renting. As the craziness continued, we entertained it more seriously.

With the ability to ride out any economic storm, we asked ourselves two questions.

1. Are we in the house we want to be in?

That was a yes.

2. Are we in the neighborhood we want to be in?

That was a big no. Weeds are a pet peeve of mine and they seemed to be getting worse in the old neighborhood. And don’t get me started on the neighbor next door.

So we sold last September. Not a single regret.

[zk]

Bob,

I’d be a little leery of any statements of certainty regarding the future of the housing market. To me, such certainty indicates a basic misunderstanding of the fact that the housing market is incredibly complex and dynamic. Thousands of factors are in play, and nobody can say with certainty what’s going to happen. Besides, if you interpret the phrase “housing will revert to the mean” to mean that the ratio of prices to income will revert to the mean, then that doesn’t necessarily mean that nominal prices will come down. As has been discussed on this site many times, if prices stay level and inflation really takes off, the price/income ratio could revert to the mean without nominal prices dropping.

That said, I think there’s a good chance nominal prices will come down. Will they come down enough for it to be worth it for you to rent? That, obviously, is the question. And the only thing you can do, it seems to me, is decide how much you think they’ll come down, and then decide whether you think that’s worth it or not. For instance, if you think there’s a 30% chance that prices will either come down less than 10% or go up, a 40% chance prices will come down 10-30% and a 30% chance prices will come down more than 30%, where does that leave you? Keep in mind that you’re taking a chance either way. If you sell and prices come down a total of 5%, you’ll probably wish you hadn’t gone through the hassle of moving, renting, etc. If you don’t sell and prices come down 40%, you’ll wish you sold.

If you’re going to rent until you buy your new house, then it really doesn’t matter if you lose your low property tax basis. Your property tax basis on your OC house will be the same regardless of what you do in the meantime. The comparison to make to determine costs for the next 5 years is between the costs of renting and the costs of owning your current house, property tax and all. And, of course, you have to factor in any appreciation or depreciation of your house.

If you’re going to sell one house and buy one house and the only variable is when you’re going to sell, then you really don’t have to take into account the costs and inconvenience of buying and selling, either. It adds up the same either way.

You do, of course, have to figure in the inconvenience of moving an extra time (or more than one extra time) and the inconvenience of renting. If you rent an apartment, you don’t usually have to worry about the landlord deciding he wants to sell or move in or otherwise kick you out (although a conversion to condos can usually not be ruled out). But you have to live in an apartment. If you rent a house, you’ll generally have to concern yourself with the landlord’s intentions. And you have to keep in mind that if the house you’re renting is an investment property for your landlord (which, of course, it usually is) then there’s an increased chance he’ll want to sell if prices really start to come down.

Only you and your wife can put a value on such intangibles such as “pride of ownership,” freedom from worry about being forced to move, etc. What’s important to you might not be important to someone else, and vice versa. So don’t let anybody tell you what’s foolish and what’s not.

And only you can put a (obviously negative) value on any tension that may arise from “convincing” your wife to move if that’s not really what she wants.

Good luck, I hope it works out for you.

[sdrealtor]

Actually he could be wrong on one pretty significant point. If you are 55 or will be when you plan to move to OC you may be able to use Prop 13 to take your tax basis with you. Make sure you factor this into any decision you make. Prop 13 is a major reason I plan on never selling my house and passing it onto one of my children who will enjoy a very low tax basis.

[powayseller]

You raise some valid counterpoints. If wages go up, then house prices wouldn’t have as far to fall to revert to the mean. However, wages in this country have been stagnant for over 10 years. Outsourcing and illegal immigration have put downward pressure on wages. Ex: wages for Computer Engineers are down over 10% in the last few years. And this is happening despite high inflation (I know, CPI is low, but I don’t buy it).

So I respectfully disagree, and maintain that housing prices will fall, and wages will continue to stay stagnant or fall in real terms.

[zk]

As I said, I think nominal prices will come down. So actually, we agree. I think your point about wages is a good one. The problem of outsourcing will only grow, it seems to me.

Of course, if the US decides to print its way out of this ridiculous debt we’ve incurred in the last 5 years, real wages and real home prices could fall while inflation soars (and nominal wages and nominal home prices stay flat). That very real possibility all by itself is enough to keep me from being very certain of the future of nominal home prices in SD. And I think that’s the only place we differ, is our level of certainty.

[CharlieG]

Try to seperate your excellent financial situation (e.g. that you are essentially living well below your means) from your overall asset portfolio.

Add up all your assets, including your house, figure out what percentage you are into RE. If you are uncomfortable with this allocation, you should sell.

A lot of people have no investments other than RE…which happened by default when they kept paying their mortgage but didn’t put a dime into savings.

[barnaby33]

Somehow I doubt illegal immigration puts wage pressure on engineers. Its just a guess but I would bet carne asada chefs and construction workers feel the brunt of that one.

Josh

[powayseller]

Outsourcing is putting downward pressure on white collar jobs, while illegal immigration is putting downard pressue on blue collar jobs. The “jobs Americans won’t do” cliche is totally bogus. What happened is that the illegals have depressed wages so much, that Americans are not willing to work for that wage. If you pay someone the market wage, you will get plenty of applicants. Econ101. The point is that wages are stagnant or declining, and there is no reason to think they will go up. Real hourly wages are the leading indicator of consumer spending, and I assume, for home purchases as well. Until wages go up, people can’t pay more for housing, regardless of how loose the lenders want to get.

[sdrealtor]

Check the rental ads in a nice area then give me a call;)

[sdduuuude]

You, undoubtedly need a good spreadsheet for this and should take into consideration all of the factors involved:

Appreciation/Depreciation of the asset.

Your taxable basis in the property and any capital gains taxes you may pay when selling.

Real Estate Transaction Costs – for selling, then buying again.

What portion of those Real Estate Costs are tax-deductible.

Change in Property Tax Base and how much your property taxes will increase (or decrease).

The amount of tax you will save due to interest write-offs.

The cost of moving.

The cost of maybe moving a couple of times if your new rental gets sold out from under you.

The value of your time and the state of your career. Doing this stuff (selling houses, moving, buying houses) just sucks time from your life. If you have a serious enough career to be putting $4K into housing each month, you may be able to get better use of your time by hunkering down and earning money at work rather than monkeying with real-estate.

The quality of your investments – what will you do with the cash you take out of the house? Put it under a mattress or invest in a CD, or play the stock market?

My intuition tells me that if I were in your shoes I would be more content staying put, but you really need to do some serious number crunching. If you are younger and have more energy than me, maybe the moving/shifting would be less of a pain.

Also, as the rates on CDs grows higher than the interest rate on your mortgage, you might consider making that extra payment into investments which pay better than 4.85% with no risk.

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