Serious Real Estate and Finances Question

[Qwikshot]

So I'm throwing this out there...there is a lot to unpack.

I live in a 10 year old 4 bedroom townhouse with an HOA. Mortgage left is about 150k.

I like the town but not the neighborhood. The neighborhood is about 25 units and mad scramble for parking.

One house just sold for 180k...another is on the market for 240k.

I've tried to sell our home before but I was not successful.

Now I have a 401k that has a loan of about 22k...but a vested balance near 300k.

My father has offered to give us 60k towards a new home.

The real estate market is very hot here and most desirable homes are being snapped up as soon as they hit market. There is also an inventory of extremes...either cheap little cape cods that are smaller than my townhome or mega mansions starting at 600k.

I'm no stranger to commuting so we could leave the area and move further to parents/brother and my 5 year old would go to school with his cousin (instant friend connection). I have a 17 month old who is not an issue.

The challenge is my 16 year old who after years of moving around schools...is in her Junior year with us (she started in my district in the 8th grade).

If I wait until she graduates, my son will have to start 2nd grade at a new school...

BUT

I'm not sure what the market will be in two years.

The neighborhood isn't bad because of people...but it's congested and most of the neighbors I moved in with have or are moving out. And one of my son's best friends is part of this group.

What would any of you do in this situation...I think we missed the window to get a good deal on a house and would now face the either rising price war or rising interest rates (or both).

Do I pay off the mortgage and rent out the townhome? Do I pay off the mortgage and get a new mortgage for a desirable home (if possible) and then don't feel stressed trying to show a cluttered home? Or do I hold steady and wait it out...

[Flasch186]

Whats the rate on the mortgage of the TH?

IS the 60K being offered a loan or gift?

[Qwikshot]

Originally Posted by Flasch186

Whats the rate on the mortgage of the TH?

IS the 60K being offered a loan or gift?

Rate is about 4.5% I think.

60k is out right gift.

Wife and I make about 110k combined.
We do have about 10k in credit card and about 5k car loan.

[CU Tiger]

I love rental real estate. Have a bunch of it and will buy more.

As a result while I am neither a real estate agent nor an attorney I have closed on just over 120 real estate transactions (buys and sells) so I think I have a different perspective than some.

I just had a very similar conversation with a close friend who doesnt have a lot of real estate experience having only bought 2 previous personal residence homes.

He was considering a very similar situation to the one you describe.

I think there is a very clear right and wrong strategy here unlike most other real estate discussions.

Take out lots of other factors for a second and think of this like any other investment (stock, mutual fund, bond, business, etc) the super simplified key to making money in real estate is to buy low and sell high.

In my local market we are in the middle of a 5 year historic price run. If your market is significantly different then this wont apply.

I dont look at personal residences as investment property when it comes to real estate. Just a personal preference. My home and where my family lives is more than a financial decision.

All that said, if you buy a home during a price run you are paying top of the market. If you sell during the same price run you are reaping the market timing benefits on the sell to offset the higher price paid on your new home. Stated differently you are choosing to buy high, but offsetting it by also selling high.

Speaking just for me personally, there is no way, I would buy a personal residence now at the top of the market and keep my current home and not ring the cash register on the sell side.

To illustrate this more think of the potential consequences.

Lets say you keep your current home as a rental, (which btw if you dont have other rental properties there are numerous added costs there you potentially aren't considering) and in two year the market does 1 of 3 things.

It skyrockets up another 25%.
Best case scenario. You obviously win and can then sell your current home and take profit then. Or you can continue renting it and making monthly income. Downside? Really none. Everyone wins in a skyrocketing market who owns property.

It crashes down 25%.
Now the decision gets interesting. When housing prcies crashed renters bought houses. You have to lower your rental rate to keep tenants, your asset is worth less than it is today. You are potentially upside down on your new home. You are stuck without options you cant sell your new home or your old home. This sucks. Of course much like the sky rocket it always sucks in a down turn...unless you want to be a landlord/real estate investor then you can buy. If you sold your current home today and want to own it as a rental you can buy it in 2 years at a 25% discount in thi scenario.

Option 3 - Things stay the same or close to the same
This is most likely outcome in my opinion. Again in my market we are reaching a threshold of pricing. Can't really sustain much higher than it is. But the economy is good enough there isnt (today-yet) the stimulus for a crash.

Ok so in 2 years things are the same. If you still have the current home, you can unload it then for the same money you could today no gain no loss. Your new home has the same basic value it had, no harm no foul there. However I would argue that if you want to be a landlord/investor there are probably better properties to do so with than your current home. You didnt buy your current home (assumption by me) on its basis of cash flow. You bought it on your desire to live there. If profitability were your criteria you might have chose differently, and you could still choose to buy an investment property in 2 years as an intentional investment.

All that said...I will not ever own a townhome or condo as a rental investment. You have no control over cost (special assesment or fee hikes can destroy cash flow) and have a cap on income. Again this is a generalization but in my area, like for like a TH brings in 20-30% less rent than a comparable SFH.

tl;dr version
If I wanted to move Id sell, take the gift and buy a new home. If I wanted to stay I'd stay. In no world would I keep the home and buy a new one.

[Flasch186]

How much cash flow can be garnered on the old TH after all costs? Does that yield make it worth it for you to hold it through all the future ups and downs of the market? If not sell it.

The 60K GIFT is a huge difference maker in this equation. Since that is in the cards it almost makes it foolhardy not to buy something else but you need to be looking for an area or product that isn't at a high (or near one or whatever) so avoid bubble communities.

[albionmoonlight]

I was happy to see CU Tiger back and then realized that this thread was bot bumped from 2017. Sigh

[Ksyrup]

Same!