The wife and I are going to have a housing situation change in the next 6 months.

We own and rent out a house at the beach where we moved from 4 years ago. Right now selling it is not in the equation, though it's at about 50% equity.

The last 4 years we have rented for ourselves in an UNBELIEVABLY favorable situation, throwing every bit of extra to pay off debt, but that gravy train is coming to an end in early summer.

We are weighing our options. We both have family that have decades in real estate, and are going to sit down with them and get opinions.

My fear is buying a house right now, at what seems to be a very high market, versus renting at a near budget-neutral rate for a year or two while shifting cash flow from paying off debt to saving 20% for a down payment. And waiting for a downturn to buy.

Our original plan was to have all debt paid off this December and have the 20% next December for a 15 year mortgage. Of course life and best laid plans and whatnot...

I bought my last house at the top of the market, then lost $13,000 when I sold it. That was painful. I really don't want to repeat that.

I retire in 15 years, we live in Charlotte NC, which is growing by leaps and bounds.

What's the opinion of those smarter than me? What am I not considering?

Thank you, all knowing forumites!

Question:
The options we are looking at are:

Choices:
Buy a house, $250,000 budget (which doesn't get what we need long-term around here) with the intention to sell and upgrade in a few years, but worry that the market crashes.
Buy a lot in the country a little and build something on it, same budget but maybe more house.
Rent a house or apartment for a year or two at a nearly budget-neutral monthly cost, and see if the economy comes down, while saving the 20% for a down payment on a $300,000+ house.

 

There is a difference between "high" and "overvalued". In many cases, real estate is expensive, particularly in growing cities. I don't see Charlotte losing much ground...

Central Florida is one of the fastest growing parts of the country, and I saw a presentation from a realtor about two weeks ago on the area. They are predicting an end to the seller's market that has lasted for the last two years or so, and a return to normal pricing, normal inventory and normal, gradual appreciation in values. If similar conditions obtain in Charlotte, that means that buying in the second half of 2019 might not be a bad deal, as the market will likely be in a bit of a pause, but NOT in recession. My point is, from what I am hearing, prices aren't going to drop, but they are going to stop appreciating at the same rate that they have been, and there will be some deals out there as it will once again take 60+ days to sell the average house. People who have to move for work, etc., will sell at a discount to make the property move, and there will be room for negotiation.

I'd buy a good location, even stretch a bit to get the right house. I live in the country, and never again want to live in a dense area. But you have to decide if the commute that you have to accept is worth having the land, peace and nicer house that comes with that.

Good luck.

I didn't vote, but either #2 or #3 makes sense situation dependent. I wouldn't expect the economy to come down in a year though. Renting for a year and saving a down payment for the more permanent house makes sense as does the land approach provided there are decent lots available for a reasonable price.

Building a home is a high-stress and time consuming proposition though.

-Are you renting the beach house annually? If so : consider renting it seasonally. The rental income should increase 3-4 times if the property is on the beach.
-Personally I would not spend money on renting an annual property for myself when that rent money could be used to put towards a mortgage. Add up the annual rent money “lost” versus a mortgage and home owners insurance payment towards something YOU own.
-Get the house of your dreams and pay extra $ toward your mortgage or pay half of the mortgage twice a month. You will pay off your loan much, much faster and not have to settle for an appartment.
-Get a quote from Quicken loans for a 15 yr mortgage.

I sold a house at a loss once, due to a downturn in Houston’s economy. It felt bad, until I calculated how much I would have spent on rent over the several years I owned the house. I came out quite a bit ahead even with the short sale.

You have no assurance the housing market will take a downturn. I’d probably try to buy something to live in and get a ride on the inflation train.

quote:

Originally posted by Turning_gal:
-Are you renting the beach house annually? If so : consider renting it seasonally. The rental income should increase 3-4 times if the property is on the beach.
-Personally I would not spend money on renting an annual property for myself when that rent money could be used to put towards a mortgage. Add up the annual rent money “lost” versus a mortgage and home owners insurance payment towards something YOU own.
-Get the house of your dreams and pay extra $ toward your mortgage or pay half of the mortgage twice a month. You will pay off your loan much, much faster and not have to settle for an appartment.
-Get a quote from Quicken loans for a 15 yr mortgage.

The house at the beach is 2 blocks from the ocean. It's above the Cat 5 storm surge, too. It's in a great spot for longevity, and we prefer the stability of annual renters rather than depending on seasonal gamble.

We would not rent here for more than one or two years. It would be the same timeline we had originally, the change is we are debating going ahead and buying less house now than we could in one or two years from now. The concern is that the housing market might tank again and leave us upside down, as we would want to upgrade after a few years.

We can't afford the house of our dreams without the 20% down, not in this city. It's either rent and save more, or buy something less and plan to resell in 5 years or so.

If we could sell the house at the beach, this would be a non-issue. But that's where we plan to retire to in 15 years.

We have both owned three houses up to this point in our lives, so we certainly appreciate the benefit of buying vs renting. I'm just trying to judge the housing market a little and look at short-term options.

quote:

Originally posted by arfmel:
I sold a house at a loss once, due to a downturn in Houston’s economy. It felt bad, until I calculated how much I would have spent on rent over the several years I owned the house. I came out quite a bit ahead even with the short sale.

You have no assurance the housing market will take a downturn. I’d probably try to buy something to live in and get a ride on the inflation train.

This is one of the things people always miss when they lose money on a house. What would you have lost renting? What did you gain (before standard deductions went up) in deducting tax and insurance in the time you owned? Nobody wants to lose money, but in a lot of cases, it's not as bad as you think.

What you're not considering is this is not a liquid investment like stocks. Although housing markets heat and then cool each has extended periods, sometimes long term. Stocks fluctuate daily, hourly, even by the minute. Don't compare the two.

That said, you lost money in the first instance because of the housing market crash. That ain't gonna happen again - at least not for a long while.

Buy the house. Get the lowest interest rate. Depending on the rate then consider paying additionally.

...those in my extended clan that had the best results with real estate related to their personal residence, all managed to acquire more land with the residence that was later sectioned off as separate parcel.....

my dad managed to convert the dusty old rural acre he bought cheap in 1953, over the decades, into a handy periodic income boost by selling off a lot now & then as the neighborhood continued to metastacize population

I vote for the first option. But I hope that I'm looking your situation correctly.

Is an FHA 30 year loan an option? Pay down until the equity to debt is favorable then refinance? Refinance if rates become more favorable? Convert at the refinance to a 15 or 20 year mortgage but keep your payments the same or slightly more?

I know that 250k you state will not meet your needs, can you and your family adapt to a less than perfect solution?

I'm not a fan of renting. Growing up, lived in rental houses, dumps would be a better description. I swore to not get into that trap/cycle like my parents did.

After the two year time period you state I agree that you will not have a lot of equity in the house but you will have more than if you rented together with the potential income tax reduction due to mortgage interest and property taxes on both houses.

I generally view real estate as a good investment however I wouldn't buy real estate if the intent is to sell it in a few years.

Do you want to stay in the city of Charlotte itself?


I am looking to try and get picked up with Probation/Parole and would like to stay in the area to work.

With that in mind I have been looking at Cabarrus and Rowan Counties. The housing prices are so much cheaper right now along with the taxes.

Almost all the Investigators and even the Pathologists in my office do not even live in the City of Charlotte itself but out in Counties of Mecklenburg, Cabarrus, Rowan etc..

I'm 41, my Dad is 71. I recently had a discussion with him about us moving/building or just staying where we are for a few more years.

I convey ages in this story as it's relevant for some. My dad's advice was to hurry up and buy as much house as I can possibly afford. He told me this over a year ago, but I didn't take it then. Now I am. We have purchased a lot and working with a builder.

His reasoning is simple; interest rates. He would say when he was mid 30's, they built the house I grew up in. Back then, he had an 8% interest rate and he thought that was amazing. Many folks had 12% rates back then.

Folks my age and a little older came into the house buying market with these crazy low interest rates. I can't fathom paying 8% interest, but if you look at history, that's not a bad rate. My generation seems to think these rates will be around forever. We're already up north of 4.3% on the lot now and my credit is well over 800. I'm hustling to get the loan for the structure secured before they go up more.

I just busted out my little mortgage calc app. $250,000 home with $60,000k down (20%) is roughly $1,200/month at 4% (obviously property tax will affect this, but it's close enough for these purposes). At 8% loan, it's $1,700/month. That's a 40% increase in your payment! ($500/month).

That was figured on a 30 year fixed. So over the life of your loan, that $500/month equates to $180,000...You can't possibly lose that much in buying and selling a home. Even if they only go up 1% from 4 to 5, you're still talking about $120/month increase. That's 1,440/year.

I'd be more concerned that you buy a smaller than needed home now, but interest rates prevent you from selling it and buying a bigger one later. That's why I selected buy out a little ways and build bigger.

Obviously we can't be sure what interest rates are going to do, but history says these rates we have to today are too good. Historically, 5-6% is absolutely normal, dare I said "good" even. Keep in mind, 6% is $240/month more that what a 4% loan would be. I can't believe they won't continue to float up. So I'll echo what my dad said, buy as much as you can now and be done with it. We're building our last house because of that advice.

quote:

Originally posted by nasig:
I generally view real estate as a good investment however I wouldn't buy real estate if the intent is to sell it in a few years.

i agree

have owned real estate since '98 until recently - currently renting a 'higher end' property because of the recent significant run-up of real estate in this particular zip code area of FL.... as in $700K + for 2,500 sq ft

not in a rush to be an owner if that comes falling down as we have seen happen before...

and of course - with the Married Filing Jointly standard deduction at $24,000 - tax-wise the property tax deduction didn't really help.

like a lot of things - it just depends... One property we sold and made a bunch on -- one we sold for less than we bought but we did okay based on low interest rate and we lived there so long we were never 'under water' on it.

one thing we are enjoying is not worrying about the nickel and diming that comes from leaks, appliance repairs, yard maintenance, stuff breaking, etc call the landlord

It's not our 'permanent' scenario - but we are quite pleased for the foreseeable future.

good luck -

---------------------------------

(voted for #3)
I'm on the sideline right now myself. Bought my last house right at the peak in 2006 (FL), next year's appraisal was less than 50%. Finally sold it this year at ONLY a $60,000 loss. I had put over 120K as a down payment otherwise I would have been upside down the entire life of the loan. The current RE market looks very 2006-ish to me. I'm renting right now as I have no desire to catch another falling knife.

http://housingbubble.blog Here's a doom/gloom RE website for you.

I lived in Charlotte, now in Matthews. I sold my house in December and reinvested those funds into my current house. Are home prices up -yes. According to the Case Shiller index, prices are up to 47% from their 10 year low as if January, however they are only up 21.4% from their September 2008 pre market crash.
We didn't make much on our last home (I use make as the key word, we had 50% equity, but had done a lot to it), but we knew the growth in that neighborhood sucked, that a hot water heater, roof and A/C system we're within 2-3 years. Find a neighborhood with good schools (bad schools kill home values), and hunker down. We are in our low 40's and plan on being in this house for the next 15 years, and I could not justify staying in our last house with longer commute times, and poor growth, and terrible schools.

I'm not sure if you have seen rent prices in Charlotte, but damn, to rent a house is stupid expensive. We were going to rent until real estate prices dropped, but the availability, location, prices, and amenities of rentals were terrible. You could be in a decent school, but it was a rats nest where it needed a bunch of work with 1 car garage and it was $2100/ month.

For what it is worth, buy and settle in and try to have the home 70% paid for by the time you retire.

If you can find a decent lot, this is an option, but when we looked they seemed more overpriced that actual homes.

Chongo let me know if you want to grab a beer after a shift.

Thinking outside the box and long term....

Buy some property where you think you’d like to retire/use as a second home down the road.

Put in a well, septic and electric.

Buy an RV and park it.

I never understood the "buy a house now and sell it to upgrade in a few years" mentality, unless it is your first house. You are opening yourself up to a lot of risk by doing that. If you buy a house now, knowing it is too small, what happens if the market turns down when you want to move and can't sell it for what you owe? Then you are stuck.

I understand you wanting a 15 year mortgage, but that is really what is hurting you, IMO. There's a huge difference in payments between a 15 and a 30 year mortgage for hte same amount of principal.

My opinion is to get the house you want, your "forever house". If you have to stretch your budget some, then do it. Obviously don't blow your budget, but going $30k - $40k over budget isn't a big deal if it's the house you want. The housing market can go up or down, but if you aren't selling it really doesn't matter. They are all UNREALIZED GAINS or LOSSES. It's all on paper.

Get a 30 year mortgage and pay PMI if you have to. PMI can be removed once you are at 80% LTV, you just need an appraisal. You do not need to re-fi to get rid of PMI. In a few years you can re-fi to a 20 or 15 year mortgage or just make extra payments against the principal and pay it off early that way.

You haven’t given the numbers on your rental other than you are at 50% LTV. If the numbers support this, I would get a HELOC against the rental. You could take that to 75% LTV, and then use that equity as the down payment on your residence. You can then pour money into the HELOC on your own schedule, while getting the loan for your house without PMI. Check with your tax guy, but you also may be able to allocate the HELOC interest to your Sch E, while claiming the standard deduction for yourself. This puts the interest where it can be used to lower your taxes.

I would buy a fixer upper in a great area, not with the idea of selling it in 2 years but with the idea of turning it into your dream home in 5 years. Hire a good handyman to help you with things you may not be good at. Then when you retire you have lots of equity for a nice nest egg.
Rod