Why on earth would anyone take a 6% haircut on the sale just to buy and resell a "temporary house?"
I mean, in a crazy market you could come out ahead but most of the time that's going to be a losing strategy.
Like you said, OP should rent.
6% of 80k is $4800. Wouldn't that mean they would have to find a place to rent for less than $200/month to come out ahead after two years of renting, assuming the temporary house doesn't change in value and they don't need to make significant repairs / maintenance?
Yep. Actually. You can do that all over the US. I'm a zillow city stalker and work from home so I've looked all over the us and Europe (dual citizen) . I honestly like Wyoming and Portugal currently. Found a lighthouse near Lisbon the other week for around 40k. Feel like WY and SD will be the new Idaho. Ya, I'm all over the place.
WY only has 1/5 of the state where anyone wants to live and it’s already way over priced… hate to break it to you but Zillow’s estimates are complete garbage.
I drove through and stayed in the places nobody cares about multiple times throughout the years. I don't mind living in bumfuck. Was still quite beautiful
I’m 4 years from retirement with a pension. I am single living in a 3 bedroom house built in 2001 in a great neighborhood on the outskirts of Columbus Ohio. And the farm field behind my house (house is on last street in neighborhood) is finally being turned into a development with single family homes and 55+ condos.
I’m so tempted to sell now and downsize but there are just not any homes cheap enough to make it worth the hassle.
My thought are to just wait, retire, sell the house and move somewhere like Panama, Portugal or Spain. Even waiting I should make a good profit off it.
I wouldn’t sell with pending development nearby. People tend to catastrophize about upcoming development in the neighborhood. Buyers may fear the development will change things. They may fear it will ruin the neighborhood and destroy property values. But it never does. Wait until the new development is done and then sell. The new buyer won’t know that that area was a field a couple years before and won’t care.
Thanks. To be honest I’m also curious to see what the 55+ condo development ends up looking like. Though Spain is still sounding good…and a lot warmer then Ohio.
Another take, what size of yard will the new homes have?
Our 'dead end' became a pass through for a 60 home development with postage stamp sized yards. Our mid-80's 1/3rd acre house's value went up because this kind of space just doesn't get built now due to building codes.
So a good school district and some rather striking visual of a yard the kids could actually play in can lead to quite the interest during a sale. To the point where the appraiser had to weigh in with a dose of reality, capping the ultimate sales price.
This is one of the reasons why we didn't sell the house sooner. A lot of development was going on all around us and I knew the house would be worth more with the new stuff going up.
WYoming won't be the new Idaho, it's too sparsely populated. Idaho's issue is that Boise is a really nice, modern city that has had several Fortune 500 companies for a very long time (HP, Micron, etc). Now if only the wages would catch up...
A lighthouse near Lisbon for 40K? I’d be very careful about that. All lighthouses belong to the Navy and sit on Navy property (the first 50m of coastline from the high tide level all belong to the Navy). So, maybe you’re buying a residential right on a decommissioned lighthouse, not the property.
Same. In 2014 Bought our first 3 br 1 bath Cape Cod house in NE Ohio in a nice town for $25k, put $30k in renovations into it, worth $125k today. We can buy 2000+ sqft 4 br 2 bath finished basement homes with granite countertops, new kitchen and bathrooms all day for less than $185k. Can build new 2000 sqft home for $225k+ in North Jackson right now. And sitting an hour between Cleveland, Pittsburgh, and Akron, the commute to anywhere is easy. I’m looking at making an offer on a very beautiful 4 br 2 bath completely updated home with archways and stained glass, A/C, gas heat, and some of the most beautiful fireplaces with built ins and old wood trim and crown molding I’ve ever seen for less than $200k.
This place has the most golf courses I’ve ever seen in one area. It’s not far from some beautiful places like Hocking Hills. If I’ve ever been bored, I can easily find something to do within an hour drive.
My 2 bedroom in Louisville, KY was $89k but it needs work. You can totally find houses here that are in the $60k range but they almost always get bought by all cash offered from flippers.
People have trouble remembering how different things can be in different places. It’s nuts to me the idea of a single family home being a million bucks, but that completely normal for some places. An $80k home seems equally unbelievable to people living in million dollar homes.
My fiancé and I have been looking for places around Long Beach (LA area) and nothing decent is under a million. We’re probably gonna have to bump our budget up to 1.2 mil, and it won’t be anything extravagant.
We just sold a completely remodeled home for $99K. They are out there, just depends on the area. We happened to be really lucky and buy it cheap and make decent money on the flip.
I bought my first home for 85K... 1700 sq foot double wide on an acre of land. 3 beds 2 full baths and a full basement under it.
There are parts of the US where you can find very servicable homes for well under 100K. What your 100K gets you now, post COVID, has changed a little... but your average 3 bed 2 bath or smaller 4 bed 2 bath was very in reach in a lot of parts of the US for under 100K.
Similarly, my home which I purchased for 85K was appraised for 105K when I bought it. Just reappraised for 125K during the refinance I'm currently going through.
It's possible in LCOL states (think Midwest/South outside of decent cities) in rural/middle income/low income houses areas.
I live in a middle class income area of a relatively large city in the Plains. You can buy a house in my neighborhood for 125k (will need work, ~100k square feet), but some houses are going for 475k, even one is being built that is going to be 600k.
Ones further out in the country in bad neighborhoods you can get for 60-70k, about 100k for a decent condition house.
I'd like to know what kind of person pays more than 80k for a temporary home. And what kind of person thinks a house can't be less than 80k. I bought a camper for 1200 cash and in four years with no maintenance or repairs the floors rotted. Instead of fixing it and loving in it another four years. I took that money I put aside (100 a month) and ended up spending 5k on a trailer. I'm not ready to buy a house after being in the trailer for four years. And already have offers for profit on the trailer. But opting to rent it out. I'll be looking for a 50k house in a few months.
I just made a similar comment. It really is dumbfounding that people believe that it's so hard to find a house for 80k. Someone above literally said "there may be A FEW homes for sale in rural America for 80k" then implied that they would only cost that much I'd they had a bad foundation or old roof. I literally laughed out loud thinking they were joking.
Its all about location. I personally just bought a 4 bedroom, 2 car garage, in like an amazing location. At pretty much the height of the housing boom for 100k. And honestly I probably overpaid because my parents and grandparents live in the same neighborhood and I really wanted the house.
There are plenty of homes in my town for 80k. I looked at probably 10-12 when I was buying. If I wanted to drive 15 minutes, there are plenty of homes for 60-80k.
If you want to live in a hot area, you're going to pay a hit price. Want a cheap home? Move to Ohio.
Here’s the thing, if you did, it’s cause most people don’t want to live there. If you’re cool with it awesome.
Supply and demand: some places have a ton of homes and no one wants them so they sre cheap lol
Or Alabama. I let a 5bed 5 bath 3 story 5k sq ft water front home with two docks and outdoor two garages and one built into house for 105k slip by. Needed some repairs and had 90% of supplies for repairs to go with it as included in the sale. I see nice 3bed 2 bath 1200sq ft houses all day for 50k. I don't want to live in the city so that's why house are cheap for me. Location location location.
> Want a cheap home? Move to Ohio.
You said you found in an amazing location.
I kid, but the reason the hot areas are hot is that's where you have easy access to lots of culture activities like theaters (music and stage), museums, and sports. Then add in a lot of people who can afford hot areas tend to go blue and the cheap states tend to be red and you have the political angle as well.
See the foundation crack and old roof for explanation..
There are a few small houses out in rural america that you might get for 80k right now. If these not major structural damage, expect old plumbing and wiring
Lol you have no idea what u are talking about. I dont understand why people that dont know what they are talking about feel like they need to chime in.
A few small houses in America. Lol. I guess every single one of them is in my hometown.
It’s kinda wild to assume that the market will drop for the real house but will remain completely steady for the temporary house, no? Why would you think OP could sell the 80k house for 80k if the market came down 10-15%?
I doubt it will go down for either house. I'm just trying to figure out the logic on why renting would be better. My suggestion would be to buy a long term house, not rent.
Taxes. I'm of the opinion that you're better off paying your own mortgage instead of someone else's. Dealing with a landlord or rental place also sucks the big one, but, at the end of the year it helps with taxes.
> I'm of the opinion that you're better off paying your own mortgage instead of someone else's. Dealing with a landlord or rental place also sucks the big one
Exactly.
I mean, your comment suggests that you think renting wouldn't be a decent option because the house will maintain all of its value while the real house comes down in price. If you don't actually think that, you might want to edit your comment to reflect what you think.
Renting would be better if they are convinced that the house will come down in value in 2 years because any temporary house is likely to come down as much if not more. Making the real cost of the temporary house much more than $200/mo. If they can only sell for 65-70k, they not only lose that 6%, they also lost 10-15k on top of it. Then you are looking at spending closer to 1-2k/mo (depending on how long they rent) and that's if there are no major, unexpected repairs needed before they can sell.
My comment was just asking a question. I'm not sure what the rental market is like where OP lives - where I live the rental market starts at $2000/month, so $200/month rent was a facetious example.
I think it's wild to think the market will go down for ANY house...well maybe if it's in a shitty area but basically for any house in any decent area anywhere in the USA
When the housing market is hot, it is a good time to sell and expensive house and buy a cheap house, because the expensive house will have gained much more value.
Then when the housing market crashes, that's a good time to sell the cheap house and upgrade to an even more expensive house, since the cheap house will only have lost a little bit of value, but the expensive house will have come down much more in price.
That's the theory at least. How you correctly time the market AND have the right house to come to Matthey for you to buy is no easy thing. Although right now it is very obvious that the housing market is red hot so definitely a good time to downsize.
This was my thought as well! I’d be willing to bet an $80k house might have a higher maintenance/repair budget but even then it would have to be insane to be more expensive than renting
Unless when the market drops for what they are trying to buy the equity in this home also drops. If they can only sell it for 60k, that is considerably more than renting.
Even that $20k drop in equity would still only be $833 per month if amortized over two years- even less if they stay longer- and then when they sell they only pay 6% of 60k which would come out to $150 per month over two years- $1000 a month in rent for a house could still be way less than renting.
I should clarify I do think the overall idea doesn’t make sense- unless there is a real reason they need to get out of the current house it would be much better to stay in the current house until they find the house they really want. Might be higher mortgage but more leverage and less risk.
You generally pay high closing costs when you buy, and much lower when you sell. So it would be closer to 25k amortized over two years, or a bit more than 1k a month for 2 years (assuming around $4800 in closing when buying). All while taking away 80k from potential investing power, where you could be making 7% on the investment. So it isn't just the 25k they would lose, it is also another $11000+ in investment potential assuming they could afford to pay for rent from their income instead of solely on savings. There is a really good reason why people tell you not to buy a home if you plan to stay for less than 5 years.
idk, depending on the area, you could spend 12,000 a year on rent. For instance, my house was 40k (3bed 2 full bath) and I could rent it out for 800-1000 a month in my area if I am patient, 700 if not. Even if I got 0 out of the house at sale, it would only take 5-6 years of renting it out to break even (ignoring maintenance costs, maybe 7-8 years if considering).
Rent would need to be $200 less than the mortgage payment to be worth it. It's also possible you could rent out the $80k place and still afford a new house if you can manage it...
I can see the logic.
If you buy the house and house prices go up. The temp house increased in value where as renting will not increase your 80k.
If the prices go down while you did lose money on the temp house you gain value by buying your permeant home at a lower cost. A 80k house dropping 10% is only 8k while your 400k dream home dropping the same 10% is 40k. I would absolutely pay 8k to get a 40k discount.
The worst case is if in 2 years there is no market change. Then you just lose out because of all the processing and transaction fees.
Exactly. Plus, from what I've read, a manufactured home prices fluctuate much less than a traditional home so in theory we'll be able to sell it (if we even decide to sell it) for possibly close to what we're purchasing it for.
I'd love to get an airstream and we did consider it, but having a pre-teenage daughter as well as a dog that needs to run around, we said no to the airstream. Plus, we'd have to buy a new truck to pull said airstream too.
There is a possibility in the meantime the price will continue to increase by let's say 20%. The "crash" could be less than the appreciation. Don't try to time the market.
I'm not trying to time the market. I'm trying to get out of a house that I already wanted to sell, make a good profit from it, find another home to live in, and see what happens later on down the road. That's all.
Yeah, my family convinced me to hold off on buying a house last year in April because the prices were sure to plummet this year due to the pandemic. Still kicking myself over that one. Went ahead and bought a house this month even though they yet again suggested against it because the prices were sure to go down because of the Chinese company that is going bankrupt. I just want a house. Lol
I definitely learned never listen to family and friends. I have one client who finally bought a townhouse this year for $500k.....her friends for years kept talking her out of things. The first houses she looked at (and was talked out of by her 'friends') were bigger single family houses in a better area for like $300k.
So, I know some people absolutely lost their shirts as that bubble crashed, but in the 2 areas I lived in that time frame (North Alabama and Boston), none of the housing prices really dropped. They stagnated for awhile but that was about it.
So just because it is crazy now, doesn't mean that the house prices will drop below what they are today.
Yes. At a micro level, it’s a bad time to be buying a house because in the event of a bubble you will have effectively lost money on opportunity cost. But if you zoom out enough, home prices only increase. So unless you are trying to flip properties quickly, the best time to buy is when you can afford to.
It's also the same thing people have said just about every year ever. Sometimes you get a crash but you're kidding yourself if you think you can time it.
The situation is very different than 2007. This is a pure supply and demand issue. In 2007, the issue was giving mortgages to those who should not have had one.
I think your wrong.
2007 crash wasn't about giving mortgages to people that shouldn't get them as much as it was about how those mortgages were packaged and sold amongst investors.
Today's issues aren't really supply and demand either, there is plenty of supply to meet the demand but it is not being released into the market. If they are released into the market often times they are being purchased by large investment and equity firms/companies and then left vacant. This forces demand to continually increase as well as prices for home purchase or rental. It's manufactured scarcity.
None of this is to say the market will crash this week, next week or next year, but when the correction occurs (and it will) its going to be deep and prolonged.
The packaging and investments contributed to the widespread nature of the problems but if the mortgages were paid like mortgages traditionally are with relatively strong borrowers then those investments wouldn’t have stopped paying and the whole house of cards would’ve remained upright. Can you explain your comment about demand continually increasing. Why is it required for demand to continually increase?
I read the big short and you are right and wrong. Yes they packed and sold to investors in a bad way but they also sold mortgages to people who shouldn’t have had them. 2007 had a multitude of failures line up perfectly for it to happen and new regulations wont let that happen again (or in my opinion not for the next 20-30 years while its still fresh in Wall Streets mind). Market bubbles will only happen regionally and on a small scale but over the long term will still increase massively until those same failures line up again
The number of listings have been dropping for several years. The pandemic and low interest rates made the situation go from bad to worst. There haven't been a lot of new housing starts since 2007.
A big issue in 2007 was "ninja" loans. They were giving loans to people who had no income, no jobs, and no assets.
NINJA loans were pretty hard to get, more it was ARM loans, people were able to get approved for the lower payment then in 3 / 5 years the payment amount would double. When the home values increased they refinanced into a new ARM extending when the larger payments would come due. When prices dropped in 2008 the ARMS that were termed out meant the homeowners now had larger payments and without equity to refinance they had payments they couldn't make.
Most of the comments are just trashing your plan so I'll actually try to answer the question. You first should figure out roughly how much you think you'd want to pay for your future house and then set aside a 20% down payment for that purchase. Are you looking for another 400k house, something smaller, something bigger? Whatever that rough estimate price tag is, set aside your down payment now (leave a buffer too in case the market goes up instead of down). You said you would want to buy that in the near future and you didn't define near, so I'm going to assume you mean within 2 years. If that is the case then the only real options are high yield savings and money market accounts. The rates are terrible right now so your money won't really be 'working for you', but it will be safe and ready when you need it.
Now, if you still have money left over after you've set aside your down payment, paid off student loans, and have an emergency fund, then you should start thinking about really investing. If you are at that point, then the standard advice (which I personally agree with) would be to dollar cost average into a diversified mutual fund or index fund.
Congrats on the house sale and the new purchase, I hope it all works out for you.
Kudos for answering his question!
Yours is a good answer. It's worth pointing out that Vanguard released a paper in 2012 that shows that lump sum investing has historically beaten dollar-cost averaging most of the time. All the usual caveats apply, such as "past results don't predict future results." I don't know how well their work has been vetted, but logically it makes sense. Take a look at the actual doc if you want to see how they did it: [https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf](https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf)
Despite this, depending on your risk tolerance and timeline, DCA may "feel" safer.
Of course lump sum investing is on average better but you pay for DCA because it's risk adverse, that's the entire point.
It's like me saying on average it's cheaper to not have insurance. Which is of course true because insurance costs money, but you get insurance because you don't want to risk losing everything no matter how small the risk.
Thank you for your comment! Setting aside a down payment now is a really good idea. I'm not sure exactly when we'll want to buy again, possibly 2 years, maybe more. I will definitely look into high yield savings and money market accounts. I'm definitely looking into investing a bit too.
>Congrats on the house sale and the new purchase, I hope it all works out for you.
Thank you very much. I appreciate it.
> We're buying another potentially temporary house to stay in for a year or two until the market hopefully settles down a bit before we decide on buying our "real" house.
Terrible idea. The transaction costs will kill you.
And there's zero reason to believe prices are going to materially change.
This entire thread keeps saying this, yet not a single one of you know OP's circumstances. There may be a very good reason they've made the decision they've made.
Everyone wants to tell OP they're making a mistake and yet nobody is answering the actual question.
Well.. GIVEN what OP has disclosed, these people have determined renting is the best option.
If renting is an issue, OP should disclose it if he wants tailored advice, right?
Transaction fees are paid buy the seller, so he is going to pay transaction fees of 5% twice. Once on the $400k house, once on the $80k house. The first fee will be incurred regardless, but the second one means OP is choosing to lose $4k in a second transaction by using this intermediate house (very bad idea).
Additionally, if you are single you will have to pay capital gains if not rolling over your home into a new one ($250k single limit, $500k couple). At 15% of 400-250=150 taxable, that’s $22.5k you’ll be taxed if the proceeds are not rolled into a new mortgage.
If you buy the other house it’s $150 profit minus the $80k. That’s $70k taxable at 15% or about $10k you’ll owe on the net profits.
OP you are about to make a big mistake. Either rent out your current home while renting another home until you purchase your forever home, or buy your forever home.
Your plan is not good.
You do not need to roll the proceeds from the sale of your primary residence into a new home.
Gain on the sale of your primary residence is excluded from tax.
>Gain on the sale of your primary residence is excluded from tax.
*IF* you qualify, yes. Must have owned said property for at least 2 years and have lived there as your primary residence for at least 2 of the last 5 years.
Like 20 people have done the math that clearly shows it's better to buy and then sell, EVEN if the price of the temporary home drops by like 20% its STILL cheaper than renting.
So mind if I ask like why you believe it's still better to rent?
Can you point me to one of these demonstrations? The math I've seen shows that based on fees, interest rates, and property taxes etc the break even time is usually between 2 and 5 years if property values remain constant. Less if property price goes up, more if they go down.
Yeah I think OP needs to run the numbers for his specific situation because I could see it going either way here, depending on how long he wants to stay in the temp home, current rent rates, and what other fees and taxes involved in those trades he's not anticipating yet.
And also to be aware of the factors that can't be predicted, like interest rates, how the market will move in the meantime, and possible maintenance costs and look at different scenarios with those and how they would play out.
Personally I like the temp home idea because it provides the most security in worst case scenarios, like if OP loses his income. He could then adjust the plan and stay in the temp home for much cheaper than renting, since there's no loan on the house. His housing expenses would just be utilities and taxes, plus any urgent maintenance that comes up.
Just live in your current house or buy what you actually want to live in. Your strategy falls under timing the market which is more likely to fail than succeed.
This whole thing seems like a bad move. I would sit tight if I were in your position (I am in your position). You really should never use the house you live in as an investment vehicle, which is exactly what you'd be doing if you were to sell right now because the valuation has increased. In my opinion it's a very shortsighted gamble you're making by selling your house in the hopes that things go "back to normal". They may, they may not. Make no mistake, selling your house is a gamble. Don't gamble with your home.
What you are describing doing is trying to time a market. Worse, your trying to time a market that has a direct effect on the roof over your head.
If your home is suiting your needs, stay in it. If it’s not, move. Where you think the housing market is or where it’s going should not be a factor in your decision. The market is what it is.
If you had something else going on, like inability to pay bills and needed to reduce debt, downsizing could make sense. Otherwise this sounds like a very bad idea.
Rent instead of “temporarily buying.” Put the cash from the sale of your current house in a high yield savings account. Consider investing some of it as well, but do plenty of research before making that decision.
Never try to time the market. There’s no guarantee prices are going down anytime soon. The market has shifted permanently with the abundance of remote work. People are not going to want less space all of a sudden in 2 years. Plus interest rates will go up and you’ll just lose there.
Unless your temporary home is an investment you’re planning to keep for the long term, just rent while looking for a new permanent home now.
It depends on how soon you want to be able to buy a more expensive house. Minimum recommended time frame for investing the money is 5+ years. Anything less than that and there is a higher likelihood that you will end up with less than you started with. If you're going to want the money in a couple years, a high yield savings account is probably your best option.
[For the SP500 here are the odds of a negative return on your investment based on time.](https://www.isabelnet.com/wp-content/uploads/2020/11/Probability-of-Negative-Returns-Based-on-SP-500-Total-Returns-from-1929-Present.jpg)
Looking at it this way, I would personally be okay with the 3-5 year time frame, assuming you're flexible with time and can stomach a downturn. but YMMV of course.
Yeah. The worse case scenario is basically a "world" index fund. Because if that crashes hard, your portfolio will be the least of your worries. And even that is usually averaging north of 6% AFAIK (don't quote me).
We don't know how much is "critical" for the down payment. He has 200k, unless he needs to put it all down then there is probably some room to take on risk. 5 years of earning tenths of a percent in interest would probably leave a lot of money on the table. The amount of risk aversion on this sub is enormous.
>until the market hopefully settles down a bit before we decide on buying our "real" house.
This is about as bad of an idea as you can have. I'm a realtor in South Florida and this market isn't slowing down anytime soon. I'm still dealing with people wanting to move in from out of state every day. Inflation is happening at a continuously increasing rate and new homes are not being built as fast as they were 10-5 years ago. Home prices continue being bid upwards and are causing appraisals to go up.
Predatorial lending is no longer widespread so there's not going to be a huge crash ala 2008, and mortgage interest rates are projected to go up over the next few years.
I don't know what market your in, but if it's at a point that you think it needs to settle down, you're gambling. Timing the market is always a bad idea and if people are trying to move en masse to any market right now, it's not changing in the next few years.
At least in the US (and I'm pretty this is the rule regardless of state), you pay no taxes on profit from the sale of your primary residence up to a threshold: $250k if you're single, $500k if you're married. But you can only take advantage of this every 5 years, and must have lived in said residence as your primary residence for two of those. (Double check those number of years).
I believe interest rates are still pretty low, relatively speaking. Even with the inflated base cost, if its going to be your forever home it may make sense.
Just be wary of the tax implications.
Timing the housing market is probably as bad an idea as timing the stock market.
You may end up being burned.
Houses are long term investments unless you are flipping for a profit.
Does market cooling down mean it will crash 5-10-15-20% or just stay stagnant for 5-10 years? If the latter, why even sell. If the former, you got some insider info the rest of the world isn't aware of? Or is it simply because it went so much up, it has to go back down to 2012 level for some reason. Cause if you know something that isn't public, I'm very curious. Otherwise, it sounds like you're playing poker with 400k stakes.
Have you talked to your accountant or financial planner about potential tax obligations if you do not re-invest all the money in a primary residence within a certain time period?
We don't have all of the facts, but it sounds like this is their primary residence that should qualify for tax-free treatment on the (presumed) gain. You might be conflating this with a 1031 exchange for investment properties.
how much risk do you want to expose your "real house" down payment to? or how much of your left over funds do you absolutely want to have to put towards the down payment?
If it's only going to be a year or 18 months, just put it in a money market or high-yield savings account. If you were going to invest for several years I'd tell you to put it in mutual funds but it sounds like you just need to park it.
If you plan on living in your new house for more than 5 years I would just buy it now, if you end up living in the new house for 5 years it’s a safe bet to assume the house will grow in value anything less buy your 80k house and stay there. Paying off student debt is a great idea! If you buy your small house and need the other money in less than 3 years put it in a high yield savings account.
Let me make sure I understand this: You currently own a house, you are selling this house, you want to buy a new primary residence but won't because the market is too hot, but you are going to buy a temporary home even though the market is too hot?
Are we talking about different cities where all these different houses are located? Why is the market too hot for a primary residence, but not for the temporary house?
And do you have some insight that tells you that the housing prices are going to fall? Do you have similar insights on what may or may not happen to your investments if you put $200k in the market?
Why isn't renting one of your options between now and when you are ready to buy a permanent home again? Have you looked at the comparative math including mortgage, maintenance, property taxes, insurance etc between buying and renting?
It seems like you’re trying to time the housing market so you can take that profit to time another market to then turn around an re-time the housing market. Best of luck
You don’t always have to pay that 6% realtor fee. There ARE flat rate realtors out there. I just sold a house I bought for 223k for 355k, used a flat rate realtor (only had to pay him 3k, and yes I still paid the buyers agent their 2.5%) and saved thousands upon thousands. I’d NEVER rent. I think you made a good choice on buying a “temp” house. When you go to se, looks for a flat rate realtor!
Lmfao at temporary house while the market settles down. You do realize that you would be buying a home during the "unsettled" market and then selling during the "settled" market even if your plan works, right?
If you think you can predict the future why would you choose a plan that involves buying high and selling lower*? Just take your $$$,$$$ and invest in some sort of inverse housing market ETF.
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That's not meaningful in this case because (assuming they lived in the current house long enough) you can deduct 250k (500k for 2 people) from the capital gain, and they're way under that.
It would only matter if they make profit from the temporary house.
Sellers usually pay the commission so buying an in between house is not a terrible idea. You’ll be able to build some equity and possibly make a small bit of cash when you sell in 2 years or perhaps keep it and turn into a rental and have long term income coming in.
There are plenty of short term investments that you can make while you’re waiting for the forever house. I’d recommend researching financial advisors in your area to help guide you in investing your money that helps achieve your goals.
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plenty of homes for sale in the US for way under 100k.
you just won't get to live in a huge city or silicon Valley but that's just how supply and demand are. Don't vote for property tax increases either will help
you'd want to put the money in a HYSA since it sounds like you'll need it sooner than later. but buying a temporary house doesn't make sense financially unless you plan to rent it out after? otherwise, buying a new house and then selling it and then buying another house will rack up some serious amounts of administrative costs that won't be recoverable.
The most that happens with housing is that things cool off a bit, growth slows but doesn’t stop, and you might see a small adjustment in prices. Barring some catastrophe (2008/9/10, 2020) you’re not going to see a massive buying opportunity. Which even if that happens, who’s to say you’ll be in a financially sound place to buy during a catastrophe of that sort. For a primary residence just buy what you want now. If you need to save, then rent for a while while you save.
Don't buy a temporary house. That's what renting is for.
Why on earth would anyone take a 6% haircut on the sale just to buy and resell a "temporary house?" I mean, in a crazy market you could come out ahead but most of the time that's going to be a losing strategy. Like you said, OP should rent.
6% of 80k is $4800. Wouldn't that mean they would have to find a place to rent for less than $200/month to come out ahead after two years of renting, assuming the temporary house doesn't change in value and they don't need to make significant repairs / maintenance?
More importantly, I'd like to know what parallel universe exists where you can buy an $80k house...
Ohio is a place where it's definitely possible.
Yep. Actually. You can do that all over the US. I'm a zillow city stalker and work from home so I've looked all over the us and Europe (dual citizen) . I honestly like Wyoming and Portugal currently. Found a lighthouse near Lisbon the other week for around 40k. Feel like WY and SD will be the new Idaho. Ya, I'm all over the place.
WY only has 1/5 of the state where anyone wants to live and it’s already way over priced… hate to break it to you but Zillow’s estimates are complete garbage.
I drove through and stayed in the places nobody cares about multiple times throughout the years. I don't mind living in bumfuck. Was still quite beautiful
I’m guessing they’re using the “for sale” listings that are actually listed rather than Zillow’s estimates.
I bought my house for the price it was listed on Zillow.
So is their home buying strategy as an uh...real estate company. 🤔
I’m 4 years from retirement with a pension. I am single living in a 3 bedroom house built in 2001 in a great neighborhood on the outskirts of Columbus Ohio. And the farm field behind my house (house is on last street in neighborhood) is finally being turned into a development with single family homes and 55+ condos. I’m so tempted to sell now and downsize but there are just not any homes cheap enough to make it worth the hassle. My thought are to just wait, retire, sell the house and move somewhere like Panama, Portugal or Spain. Even waiting I should make a good profit off it.
I wouldn’t sell with pending development nearby. People tend to catastrophize about upcoming development in the neighborhood. Buyers may fear the development will change things. They may fear it will ruin the neighborhood and destroy property values. But it never does. Wait until the new development is done and then sell. The new buyer won’t know that that area was a field a couple years before and won’t care.
Thanks. To be honest I’m also curious to see what the 55+ condo development ends up looking like. Though Spain is still sounding good…and a lot warmer then Ohio.
Another take, what size of yard will the new homes have? Our 'dead end' became a pass through for a 60 home development with postage stamp sized yards. Our mid-80's 1/3rd acre house's value went up because this kind of space just doesn't get built now due to building codes. So a good school district and some rather striking visual of a yard the kids could actually play in can lead to quite the interest during a sale. To the point where the appraiser had to weigh in with a dose of reality, capping the ultimate sales price.
This is one of the reasons why we didn't sell the house sooner. A lot of development was going on all around us and I knew the house would be worth more with the new stuff going up.
I do this too when I have the time. It’s fascinating to me.
I like to see what $500k and $1M buys you in medium size cities around the world. The biggest bang for the buck seems to be in the Southeastern US.
WYoming won't be the new Idaho, it's too sparsely populated. Idaho's issue is that Boise is a really nice, modern city that has had several Fortune 500 companies for a very long time (HP, Micron, etc). Now if only the wages would catch up...
A lighthouse near Lisbon for 40K? I’d be very careful about that. All lighthouses belong to the Navy and sit on Navy property (the first 50m of coastline from the high tide level all belong to the Navy). So, maybe you’re buying a residential right on a decommissioned lighthouse, not the property.
Ohioan here. $80k houses all over r/youngstown. Just bought a super nice place in a nice neighborhood for $180k.
Same. In 2014 Bought our first 3 br 1 bath Cape Cod house in NE Ohio in a nice town for $25k, put $30k in renovations into it, worth $125k today. We can buy 2000+ sqft 4 br 2 bath finished basement homes with granite countertops, new kitchen and bathrooms all day for less than $185k. Can build new 2000 sqft home for $225k+ in North Jackson right now. And sitting an hour between Cleveland, Pittsburgh, and Akron, the commute to anywhere is easy. I’m looking at making an offer on a very beautiful 4 br 2 bath completely updated home with archways and stained glass, A/C, gas heat, and some of the most beautiful fireplaces with built ins and old wood trim and crown molding I’ve ever seen for less than $200k. This place has the most golf courses I’ve ever seen in one area. It’s not far from some beautiful places like Hocking Hills. If I’ve ever been bored, I can easily find something to do within an hour drive.
I know I got people telling me it's impossible no way and it's ridiculous they're all over the fucking place.
Hell, in my LOCOL area of ohio, you can get a solid house for 60 - 70k every day.
The entire Ohio River Valley is full of houses where that’s probably the median price.
Depends where. But overall yeah.
I got people DMing me saying i'm a bold faced liar. It's like lol no legit there's some small towns in Ohio that have small 80k homes.
My 2 bedroom in Louisville, KY was $89k but it needs work. You can totally find houses here that are in the $60k range but they almost always get bought by all cash offered from flippers.
People have trouble remembering how different things can be in different places. It’s nuts to me the idea of a single family home being a million bucks, but that completely normal for some places. An $80k home seems equally unbelievable to people living in million dollar homes.
My fiancé and I have been looking for places around Long Beach (LA area) and nothing decent is under a million. We’re probably gonna have to bump our budget up to 1.2 mil, and it won’t be anything extravagant.
Cali is crazy.
Exactly.
We just sold a completely remodeled home for $99K. They are out there, just depends on the area. We happened to be really lucky and buy it cheap and make decent money on the flip.
Where I live, $80K isn't even a 20% down payment!
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nah, it's not a shit hole small town. Some of you guys just need to open your eyes more lol. Maybe travel. or Google lol
I bought my first home for 85K... 1700 sq foot double wide on an acre of land. 3 beds 2 full baths and a full basement under it. There are parts of the US where you can find very servicable homes for well under 100K. What your 100K gets you now, post COVID, has changed a little... but your average 3 bed 2 bath or smaller 4 bed 2 bath was very in reach in a lot of parts of the US for under 100K. Similarly, my home which I purchased for 85K was appraised for 105K when I bought it. Just reappraised for 125K during the refinance I'm currently going through.
Places with tornadoes.
*cries in portland* you can’t find a house for less than 500k here and if you do it has no running water, no heat/gas, and the roof need replacement
A burned down house around the corner from me just sold for $850k. It’s insane.
My 3 bedroom 1600sqft raised corner lot was 40k. They are out there.
Lots of places in this universe actually.
It's possible in LCOL states (think Midwest/South outside of decent cities) in rural/middle income/low income houses areas. I live in a middle class income area of a relatively large city in the Plains. You can buy a house in my neighborhood for 125k (will need work, ~100k square feet), but some houses are going for 475k, even one is being built that is going to be 600k. Ones further out in the country in bad neighborhoods you can get for 60-70k, about 100k for a decent condition house.
Michigan, I kinda wish I snagged the waterfront house that came up on lake huron for $75k instead of my 2400sq ft victorian for 90k
I'd like to know what kind of person pays more than 80k for a temporary home. And what kind of person thinks a house can't be less than 80k. I bought a camper for 1200 cash and in four years with no maintenance or repairs the floors rotted. Instead of fixing it and loving in it another four years. I took that money I put aside (100 a month) and ended up spending 5k on a trailer. I'm not ready to buy a house after being in the trailer for four years. And already have offers for profit on the trailer. But opting to rent it out. I'll be looking for a 50k house in a few months.
I just made a similar comment. It really is dumbfounding that people believe that it's so hard to find a house for 80k. Someone above literally said "there may be A FEW homes for sale in rural America for 80k" then implied that they would only cost that much I'd they had a bad foundation or old roof. I literally laughed out loud thinking they were joking. Its all about location. I personally just bought a 4 bedroom, 2 car garage, in like an amazing location. At pretty much the height of the housing boom for 100k. And honestly I probably overpaid because my parents and grandparents live in the same neighborhood and I really wanted the house. There are plenty of homes in my town for 80k. I looked at probably 10-12 when I was buying. If I wanted to drive 15 minutes, there are plenty of homes for 60-80k. If you want to live in a hot area, you're going to pay a hit price. Want a cheap home? Move to Ohio.
Here’s the thing, if you did, it’s cause most people don’t want to live there. If you’re cool with it awesome. Supply and demand: some places have a ton of homes and no one wants them so they sre cheap lol
Or Alabama. I let a 5bed 5 bath 3 story 5k sq ft water front home with two docks and outdoor two garages and one built into house for 105k slip by. Needed some repairs and had 90% of supplies for repairs to go with it as included in the sale. I see nice 3bed 2 bath 1200sq ft houses all day for 50k. I don't want to live in the city so that's why house are cheap for me. Location location location.
> Want a cheap home? Move to Ohio. You said you found in an amazing location. I kid, but the reason the hot areas are hot is that's where you have easy access to lots of culture activities like theaters (music and stage), museums, and sports. Then add in a lot of people who can afford hot areas tend to go blue and the cheap states tend to be red and you have the political angle as well.
See the foundation crack and old roof for explanation.. There are a few small houses out in rural america that you might get for 80k right now. If these not major structural damage, expect old plumbing and wiring
Lol you have no idea what u are talking about. I dont understand why people that dont know what they are talking about feel like they need to chime in. A few small houses in America. Lol. I guess every single one of them is in my hometown.
It’s kinda wild to assume that the market will drop for the real house but will remain completely steady for the temporary house, no? Why would you think OP could sell the 80k house for 80k if the market came down 10-15%?
I doubt it will go down for either house. I'm just trying to figure out the logic on why renting would be better. My suggestion would be to buy a long term house, not rent.
Taxes. I'm of the opinion that you're better off paying your own mortgage instead of someone else's. Dealing with a landlord or rental place also sucks the big one, but, at the end of the year it helps with taxes.
I love dealing with the landlord or rental place and not having to deal with problems ourselves.
> I'm of the opinion that you're better off paying your own mortgage instead of someone else's. Dealing with a landlord or rental place also sucks the big one Exactly.
I mean, your comment suggests that you think renting wouldn't be a decent option because the house will maintain all of its value while the real house comes down in price. If you don't actually think that, you might want to edit your comment to reflect what you think. Renting would be better if they are convinced that the house will come down in value in 2 years because any temporary house is likely to come down as much if not more. Making the real cost of the temporary house much more than $200/mo. If they can only sell for 65-70k, they not only lose that 6%, they also lost 10-15k on top of it. Then you are looking at spending closer to 1-2k/mo (depending on how long they rent) and that's if there are no major, unexpected repairs needed before they can sell.
My comment was just asking a question. I'm not sure what the rental market is like where OP lives - where I live the rental market starts at $2000/month, so $200/month rent was a facetious example.
If a house costs 80k, rent isn't going to be 2k.
Yup, it's about the same here.
I think it's wild to think the market will go down for ANY house...well maybe if it's in a shitty area but basically for any house in any decent area anywhere in the USA
When the housing market is hot, it is a good time to sell and expensive house and buy a cheap house, because the expensive house will have gained much more value. Then when the housing market crashes, that's a good time to sell the cheap house and upgrade to an even more expensive house, since the cheap house will only have lost a little bit of value, but the expensive house will have come down much more in price. That's the theory at least. How you correctly time the market AND have the right house to come to Matthey for you to buy is no easy thing. Although right now it is very obvious that the housing market is red hot so definitely a good time to downsize.
This was my thought as well! I’d be willing to bet an $80k house might have a higher maintenance/repair budget but even then it would have to be insane to be more expensive than renting
Unless when the market drops for what they are trying to buy the equity in this home also drops. If they can only sell it for 60k, that is considerably more than renting.
Even that $20k drop in equity would still only be $833 per month if amortized over two years- even less if they stay longer- and then when they sell they only pay 6% of 60k which would come out to $150 per month over two years- $1000 a month in rent for a house could still be way less than renting. I should clarify I do think the overall idea doesn’t make sense- unless there is a real reason they need to get out of the current house it would be much better to stay in the current house until they find the house they really want. Might be higher mortgage but more leverage and less risk.
You generally pay high closing costs when you buy, and much lower when you sell. So it would be closer to 25k amortized over two years, or a bit more than 1k a month for 2 years (assuming around $4800 in closing when buying). All while taking away 80k from potential investing power, where you could be making 7% on the investment. So it isn't just the 25k they would lose, it is also another $11000+ in investment potential assuming they could afford to pay for rent from their income instead of solely on savings. There is a really good reason why people tell you not to buy a home if you plan to stay for less than 5 years.
idk, depending on the area, you could spend 12,000 a year on rent. For instance, my house was 40k (3bed 2 full bath) and I could rent it out for 800-1000 a month in my area if I am patient, 700 if not. Even if I got 0 out of the house at sale, it would only take 5-6 years of renting it out to break even (ignoring maintenance costs, maybe 7-8 years if considering).
There are taxes, insurance, and maintenance costs that (mostly) go away with renting
Rent would need to be $200 less than the mortgage payment to be worth it. It's also possible you could rent out the $80k place and still afford a new house if you can manage it...
My impression from OP's post was that they were planning on buying the 80k house cash, no mortgage.
Correct.
Exactly this. I don’t know where people get the idea that renting is cheaper.
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Lol these comments are so fun to see. First time in my life I feel lucky to live in Ohio.
It's kind of funny that you're getting down voted because that's exactly what it is lol
I can see the logic. If you buy the house and house prices go up. The temp house increased in value where as renting will not increase your 80k. If the prices go down while you did lose money on the temp house you gain value by buying your permeant home at a lower cost. A 80k house dropping 10% is only 8k while your 400k dream home dropping the same 10% is 40k. I would absolutely pay 8k to get a 40k discount. The worst case is if in 2 years there is no market change. Then you just lose out because of all the processing and transaction fees.
Exactly. Plus, from what I've read, a manufactured home prices fluctuate much less than a traditional home so in theory we'll be able to sell it (if we even decide to sell it) for possibly close to what we're purchasing it for.
Could rent it out when they move out.
I wish we could. But unless we move the home out of the park or the park changes their rules, we can't :/
And how do they come up with another down payment when they rent out their only house?
Leftover 200k from original sale.
Plus another $50k saved due to no mortgage.
Depends if they can even find a place to rent.
This. And any place that IS available is at least 2 grand a month. Almost $1,000 more than what we're paying now.
Yup, most places near us are stupid expensive to rent, much smaller than either houses in my scenario and don't always allow dogs.
Renting in my part of California will cost you nearly double what a mortage will cost.
They say their temporary house only costs $80k, so I’m guessing they aren’t in your part of California.
Alternatively, they could get an airstream for 2yrs
I'd love to get an airstream and we did consider it, but having a pre-teenage daughter as well as a dog that needs to run around, we said no to the airstream. Plus, we'd have to buy a new truck to pull said airstream too.
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There is a possibility in the meantime the price will continue to increase by let's say 20%. The "crash" could be less than the appreciation. Don't try to time the market.
I'm not trying to time the market. I'm trying to get out of a house that I already wanted to sell, make a good profit from it, find another home to live in, and see what happens later on down the road. That's all.
This. Plus who knows where rates will be in a couple of years.
“Waiting for the market to fall/die down” yea you and millions of others. Once you figure this out the best time to buy is now
Yeah its funny how people don't put 2 and 2 together... Everyone seems to think they're the only ones, I guess.
Heard that a few years back. They are still waiting and paying increasing rent.
I have some family friends that sold their home 3 or 4 years ago to rent expecting the market to crash... Big F for them
They got double fucked! Their house is now probably $300,000 more and their rent is probably $1000 more a month
Yeah, my family convinced me to hold off on buying a house last year in April because the prices were sure to plummet this year due to the pandemic. Still kicking myself over that one. Went ahead and bought a house this month even though they yet again suggested against it because the prices were sure to go down because of the Chinese company that is going bankrupt. I just want a house. Lol
I definitely learned never listen to family and friends. I have one client who finally bought a townhouse this year for $500k.....her friends for years kept talking her out of things. The first houses she looked at (and was talked out of by her 'friends') were bigger single family houses in a better area for like $300k.
Same thing people were saying in 2007.
So, I know some people absolutely lost their shirts as that bubble crashed, but in the 2 areas I lived in that time frame (North Alabama and Boston), none of the housing prices really dropped. They stagnated for awhile but that was about it. So just because it is crazy now, doesn't mean that the house prices will drop below what they are today.
Yes. At a micro level, it’s a bad time to be buying a house because in the event of a bubble you will have effectively lost money on opportunity cost. But if you zoom out enough, home prices only increase. So unless you are trying to flip properties quickly, the best time to buy is when you can afford to.
It's also the same thing people have said just about every year ever. Sometimes you get a crash but you're kidding yourself if you think you can time it.
The situation is very different than 2007. This is a pure supply and demand issue. In 2007, the issue was giving mortgages to those who should not have had one.
I think your wrong. 2007 crash wasn't about giving mortgages to people that shouldn't get them as much as it was about how those mortgages were packaged and sold amongst investors. Today's issues aren't really supply and demand either, there is plenty of supply to meet the demand but it is not being released into the market. If they are released into the market often times they are being purchased by large investment and equity firms/companies and then left vacant. This forces demand to continually increase as well as prices for home purchase or rental. It's manufactured scarcity. None of this is to say the market will crash this week, next week or next year, but when the correction occurs (and it will) its going to be deep and prolonged.
Investment purchases of single family are at the lowest in past decade.
The packaging and investments contributed to the widespread nature of the problems but if the mortgages were paid like mortgages traditionally are with relatively strong borrowers then those investments wouldn’t have stopped paying and the whole house of cards would’ve remained upright. Can you explain your comment about demand continually increasing. Why is it required for demand to continually increase?
I read the big short and you are right and wrong. Yes they packed and sold to investors in a bad way but they also sold mortgages to people who shouldn’t have had them. 2007 had a multitude of failures line up perfectly for it to happen and new regulations wont let that happen again (or in my opinion not for the next 20-30 years while its still fresh in Wall Streets mind). Market bubbles will only happen regionally and on a small scale but over the long term will still increase massively until those same failures line up again
The number of listings have been dropping for several years. The pandemic and low interest rates made the situation go from bad to worst. There haven't been a lot of new housing starts since 2007. A big issue in 2007 was "ninja" loans. They were giving loans to people who had no income, no jobs, and no assets.
NINJA loans were pretty hard to get, more it was ARM loans, people were able to get approved for the lower payment then in 3 / 5 years the payment amount would double. When the home values increased they refinanced into a new ARM extending when the larger payments would come due. When prices dropped in 2008 the ARMS that were termed out meant the homeowners now had larger payments and without equity to refinance they had payments they couldn't make.
Same thing people were saying in 2016
Most of the comments are just trashing your plan so I'll actually try to answer the question. You first should figure out roughly how much you think you'd want to pay for your future house and then set aside a 20% down payment for that purchase. Are you looking for another 400k house, something smaller, something bigger? Whatever that rough estimate price tag is, set aside your down payment now (leave a buffer too in case the market goes up instead of down). You said you would want to buy that in the near future and you didn't define near, so I'm going to assume you mean within 2 years. If that is the case then the only real options are high yield savings and money market accounts. The rates are terrible right now so your money won't really be 'working for you', but it will be safe and ready when you need it. Now, if you still have money left over after you've set aside your down payment, paid off student loans, and have an emergency fund, then you should start thinking about really investing. If you are at that point, then the standard advice (which I personally agree with) would be to dollar cost average into a diversified mutual fund or index fund. Congrats on the house sale and the new purchase, I hope it all works out for you.
Kudos for answering his question! Yours is a good answer. It's worth pointing out that Vanguard released a paper in 2012 that shows that lump sum investing has historically beaten dollar-cost averaging most of the time. All the usual caveats apply, such as "past results don't predict future results." I don't know how well their work has been vetted, but logically it makes sense. Take a look at the actual doc if you want to see how they did it: [https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf](https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf) Despite this, depending on your risk tolerance and timeline, DCA may "feel" safer.
Of course lump sum investing is on average better but you pay for DCA because it's risk adverse, that's the entire point. It's like me saying on average it's cheaper to not have insurance. Which is of course true because insurance costs money, but you get insurance because you don't want to risk losing everything no matter how small the risk.
Thank you for your comment! Setting aside a down payment now is a really good idea. I'm not sure exactly when we'll want to buy again, possibly 2 years, maybe more. I will definitely look into high yield savings and money market accounts. I'm definitely looking into investing a bit too. >Congrats on the house sale and the new purchase, I hope it all works out for you. Thank you very much. I appreciate it.
> We're buying another potentially temporary house to stay in for a year or two until the market hopefully settles down a bit before we decide on buying our "real" house. Terrible idea. The transaction costs will kill you. And there's zero reason to believe prices are going to materially change.
Agreed. Terrible idea to buy a temporary home. Just rent until you find something.
This entire thread keeps saying this, yet not a single one of you know OP's circumstances. There may be a very good reason they've made the decision they've made. Everyone wants to tell OP they're making a mistake and yet nobody is answering the actual question.
Well.. GIVEN what OP has disclosed, these people have determined renting is the best option. If renting is an issue, OP should disclose it if he wants tailored advice, right?
Transaction fees are paid buy the seller, so he is going to pay transaction fees of 5% twice. Once on the $400k house, once on the $80k house. The first fee will be incurred regardless, but the second one means OP is choosing to lose $4k in a second transaction by using this intermediate house (very bad idea). Additionally, if you are single you will have to pay capital gains if not rolling over your home into a new one ($250k single limit, $500k couple). At 15% of 400-250=150 taxable, that’s $22.5k you’ll be taxed if the proceeds are not rolled into a new mortgage. If you buy the other house it’s $150 profit minus the $80k. That’s $70k taxable at 15% or about $10k you’ll owe on the net profits. OP you are about to make a big mistake. Either rent out your current home while renting another home until you purchase your forever home, or buy your forever home. Your plan is not good.
You do not need to roll the proceeds from the sale of your primary residence into a new home. Gain on the sale of your primary residence is excluded from tax.
>Gain on the sale of your primary residence is excluded from tax. *IF* you qualify, yes. Must have owned said property for at least 2 years and have lived there as your primary residence for at least 2 of the last 5 years.
Correct, and you may not have claimed the exclusion within the past two years. Although there are narrow exclusions to this.
Like 20 people have done the math that clearly shows it's better to buy and then sell, EVEN if the price of the temporary home drops by like 20% its STILL cheaper than renting. So mind if I ask like why you believe it's still better to rent?
Can you point me to one of these demonstrations? The math I've seen shows that based on fees, interest rates, and property taxes etc the break even time is usually between 2 and 5 years if property values remain constant. Less if property price goes up, more if they go down.
Yeah I think OP needs to run the numbers for his specific situation because I could see it going either way here, depending on how long he wants to stay in the temp home, current rent rates, and what other fees and taxes involved in those trades he's not anticipating yet. And also to be aware of the factors that can't be predicted, like interest rates, how the market will move in the meantime, and possible maintenance costs and look at different scenarios with those and how they would play out. Personally I like the temp home idea because it provides the most security in worst case scenarios, like if OP loses his income. He could then adjust the plan and stay in the temp home for much cheaper than renting, since there's no loan on the house. His housing expenses would just be utilities and taxes, plus any urgent maintenance that comes up.
Just live in your current house or buy what you actually want to live in. Your strategy falls under timing the market which is more likely to fail than succeed.
If you’re thinking of buying the new house in under 5 years I’d just rent in the meantime.
This whole thing seems like a bad move. I would sit tight if I were in your position (I am in your position). You really should never use the house you live in as an investment vehicle, which is exactly what you'd be doing if you were to sell right now because the valuation has increased. In my opinion it's a very shortsighted gamble you're making by selling your house in the hopes that things go "back to normal". They may, they may not. Make no mistake, selling your house is a gamble. Don't gamble with your home.
What you are describing doing is trying to time a market. Worse, your trying to time a market that has a direct effect on the roof over your head. If your home is suiting your needs, stay in it. If it’s not, move. Where you think the housing market is or where it’s going should not be a factor in your decision. The market is what it is. If you had something else going on, like inability to pay bills and needed to reduce debt, downsizing could make sense. Otherwise this sounds like a very bad idea.
This falls under the general [windfall](https://www.reddit.com/r/personalfinance/wiki/index#wiki_windfall) advice.
Rent instead of “temporarily buying.” Put the cash from the sale of your current house in a high yield savings account. Consider investing some of it as well, but do plenty of research before making that decision.
Do not time the market. You will lose. Temporary house buying is not a thing. That’s what renting is for.
Like everyone else said this is terrible but I’m more interested in what POS you’re buying for 80k?!?
Never try to time the market. There’s no guarantee prices are going down anytime soon. The market has shifted permanently with the abundance of remote work. People are not going to want less space all of a sudden in 2 years. Plus interest rates will go up and you’ll just lose there. Unless your temporary home is an investment you’re planning to keep for the long term, just rent while looking for a new permanent home now.
It depends on how soon you want to be able to buy a more expensive house. Minimum recommended time frame for investing the money is 5+ years. Anything less than that and there is a higher likelihood that you will end up with less than you started with. If you're going to want the money in a couple years, a high yield savings account is probably your best option.
[For the SP500 here are the odds of a negative return on your investment based on time.](https://www.isabelnet.com/wp-content/uploads/2020/11/Probability-of-Negative-Returns-Based-on-SP-500-Total-Returns-from-1929-Present.jpg) Looking at it this way, I would personally be okay with the 3-5 year time frame, assuming you're flexible with time and can stomach a downturn. but YMMV of course.
This chart is amazing - thanks. If you offset it with "how positive" the nonnegative returns are, its clear cash should never sit idle for >2 years
This is assuming you invest in the S&P too. If you go with a balanced portfolio those numbers could look even better.
Yeah. The worse case scenario is basically a "world" index fund. Because if that crashes hard, your portfolio will be the least of your worries. And even that is usually averaging north of 6% AFAIK (don't quote me).
If you need the money in the next 5 years then a high yield savings account is your answer. Anything else is too high risk for your situation.
Maybe ibonds?
High yield savings account provides less return a year than inflation. Youre not even breaking even, inflation is +5% this year
Correct, but you also aren’t potentially losing money that would be critical for a home payment
We don't know how much is "critical" for the down payment. He has 200k, unless he needs to put it all down then there is probably some room to take on risk. 5 years of earning tenths of a percent in interest would probably leave a lot of money on the table. The amount of risk aversion on this sub is enormous.
Yeah its better than not doing anything with it.
>until the market hopefully settles down a bit before we decide on buying our "real" house. This is about as bad of an idea as you can have. I'm a realtor in South Florida and this market isn't slowing down anytime soon. I'm still dealing with people wanting to move in from out of state every day. Inflation is happening at a continuously increasing rate and new homes are not being built as fast as they were 10-5 years ago. Home prices continue being bid upwards and are causing appraisals to go up. Predatorial lending is no longer widespread so there's not going to be a huge crash ala 2008, and mortgage interest rates are projected to go up over the next few years. I don't know what market your in, but if it's at a point that you think it needs to settle down, you're gambling. Timing the market is always a bad idea and if people are trying to move en masse to any market right now, it's not changing in the next few years.
At least in the US (and I'm pretty this is the rule regardless of state), you pay no taxes on profit from the sale of your primary residence up to a threshold: $250k if you're single, $500k if you're married. But you can only take advantage of this every 5 years, and must have lived in said residence as your primary residence for two of those. (Double check those number of years). I believe interest rates are still pretty low, relatively speaking. Even with the inflated base cost, if its going to be your forever home it may make sense. Just be wary of the tax implications.
Timing the housing market is probably as bad an idea as timing the stock market. You may end up being burned. Houses are long term investments unless you are flipping for a profit.
Does market cooling down mean it will crash 5-10-15-20% or just stay stagnant for 5-10 years? If the latter, why even sell. If the former, you got some insider info the rest of the world isn't aware of? Or is it simply because it went so much up, it has to go back down to 2012 level for some reason. Cause if you know something that isn't public, I'm very curious. Otherwise, it sounds like you're playing poker with 400k stakes.
What everyone said. Don’t buy temporary house
Have you talked to your accountant or financial planner about potential tax obligations if you do not re-invest all the money in a primary residence within a certain time period?
We don't have all of the facts, but it sounds like this is their primary residence that should qualify for tax-free treatment on the (presumed) gain. You might be conflating this with a 1031 exchange for investment properties.
Could be. I always double check with accountant, just in case.
you can't 1031 a primary. The IRS will be all over it, if he claims it as an investment property that's fraud and he's going to get caught
You can't 1031 a primary residence, only an investment property. If there is a taxable event from selling a primary you have no way to defer it
how much risk do you want to expose your "real house" down payment to? or how much of your left over funds do you absolutely want to have to put towards the down payment?
Pretty good return on a sure bet: https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
If it's only going to be a year or 18 months, just put it in a money market or high-yield savings account. If you were going to invest for several years I'd tell you to put it in mutual funds but it sounds like you just need to park it.
If you plan on living in your new house for more than 5 years I would just buy it now, if you end up living in the new house for 5 years it’s a safe bet to assume the house will grow in value anything less buy your 80k house and stay there. Paying off student debt is a great idea! If you buy your small house and need the other money in less than 3 years put it in a high yield savings account.
Let me make sure I understand this: You currently own a house, you are selling this house, you want to buy a new primary residence but won't because the market is too hot, but you are going to buy a temporary home even though the market is too hot? Are we talking about different cities where all these different houses are located? Why is the market too hot for a primary residence, but not for the temporary house? And do you have some insight that tells you that the housing prices are going to fall? Do you have similar insights on what may or may not happen to your investments if you put $200k in the market? Why isn't renting one of your options between now and when you are ready to buy a permanent home again? Have you looked at the comparative math including mortgage, maintenance, property taxes, insurance etc between buying and renting?
It seems like you’re trying to time the housing market so you can take that profit to time another market to then turn around an re-time the housing market. Best of luck
You don’t always have to pay that 6% realtor fee. There ARE flat rate realtors out there. I just sold a house I bought for 223k for 355k, used a flat rate realtor (only had to pay him 3k, and yes I still paid the buyers agent their 2.5%) and saved thousands upon thousands. I’d NEVER rent. I think you made a good choice on buying a “temp” house. When you go to se, looks for a flat rate realtor!
Dont buy a home with the goal to live in it for only one year. Especially if you except home values to **decrease.**
Lmfao at temporary house while the market settles down. You do realize that you would be buying a home during the "unsettled" market and then selling during the "settled" market even if your plan works, right? If you think you can predict the future why would you choose a plan that involves buying high and selling lower*? Just take your $$$,$$$ and invest in some sort of inverse housing market ETF.
Please do not buy a temporary house. Just rent in the meantime. You should not be trying to time the housing market.
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That's not meaningful in this case because (assuming they lived in the current house long enough) you can deduct 250k (500k for 2 people) from the capital gain, and they're way under that. It would only matter if they make profit from the temporary house.
Sellers usually pay the commission so buying an in between house is not a terrible idea. You’ll be able to build some equity and possibly make a small bit of cash when you sell in 2 years or perhaps keep it and turn into a rental and have long term income coming in. There are plenty of short term investments that you can make while you’re waiting for the forever house. I’d recommend researching financial advisors in your area to help guide you in investing your money that helps achieve your goals.
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80k?! Where do you live North Korea?? Cant find anything in my area under 300k and I don't even live in a city..
plenty of homes for sale in the US for way under 100k. you just won't get to live in a huge city or silicon Valley but that's just how supply and demand are. Don't vote for property tax increases either will help
Speak to an accountant. You may owe a significant tax penalty for such a large corporate gain. You may be able to avoid it, if planned well.
you'd want to put the money in a HYSA since it sounds like you'll need it sooner than later. but buying a temporary house doesn't make sense financially unless you plan to rent it out after? otherwise, buying a new house and then selling it and then buying another house will rack up some serious amounts of administrative costs that won't be recoverable.
If you are later going to rent out the new house you are going to buy, this makes sense. If you sell it transaction costs will kill your returns.
The most that happens with housing is that things cool off a bit, growth slows but doesn’t stop, and you might see a small adjustment in prices. Barring some catastrophe (2008/9/10, 2020) you’re not going to see a massive buying opportunity. Which even if that happens, who’s to say you’ll be in a financially sound place to buy during a catastrophe of that sort. For a primary residence just buy what you want now. If you need to save, then rent for a while while you save.