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I own a house in a tech hub. Because of the smaller inventory in the market it's propping up home prices in my neighborhood which otherwise should be decreasing

by ideals 6y ago

I own a house in a tech hub. Because of the smaller inventory in the market it's propping up home prices in my neighborhood which otherwise should be decreasing slightly (trying not to doxx myself here) My job will be wfh for the rest of the year. I am considering selling my house to rent a smaller apartment further out of the city center, though still within commuting distance (albeit long commute). Rent prices are falling, apparently, so my idea would be to rent and save money for a year or two before buying a house again once life comes back to normal. Am I way off base with this thinking? Closing costs on selling then buying again later may outweigh benefits of renting although I'm sceptical of that. I estimate I can lower my housing payment buy $1200mo by renting instead of my mortgage.

lallysingh 6y ago
I think that the income tax on your home's realized equity can screw this plan up. Normally when you sell one house and buy another, the equity gets rolled through untaxed through an exemption. I forget the specifics, maybe it's a 1031 exchange?
- steffan 6y ago
  A 1031 exchange is only relevant to depreciated investment property subject to capital gains at sale. By engaging in a 'like-kind exchange', the basis of the new property is adjusted and it avoids being taxed on the sale price vs. the depreciated value. There is a standard exclusion of $250K (filing single) for a property used as a personal residence. https://www.irs.gov/taxtopics/tc701 https://www.irs.gov/taxtopics/tc701
hedora 6y ago
How much can you save by refinancing? It sounds like you don’t want this house for much longer. 5/1 ARMs are 2.7%, and the rate is fixed for 5 years. Think of it as renting for 5 years, and it seems less scary. Of course if the house goes way down in value, and interest rates go up, you end up losing a bunch of equity. However, the house you buy next will probably be discounted too, so the real risk is that you’ll get stuck with a higher rate on the next loan. Your rental plan is also risky: if prices skyrocket while you rent, you lose out on a lot of appreciated equity, and you still have the interest rate risk when you buy again. Edit: With the rental plan, you can throw all the equity into a roboadvisor or something. Those have 5-7% real returns in “normal” years, but this isn’t a normal year. (Though your equity in the house is effectively leveraged because of your mortgage. If you own 50% of the house, it only has to appreciate 2.5-3.5% (after inflation) to beat the stocks.
- ideals 6y ago
  I need to run the numbers on refi. I'm on 3.25% fixed rate now and owe ~500k still, definitely not close to 50% paid off either. Arm loans scare me only because of seeing what happened during the last housing collapse. Looks like I have a lot of research to do on this but you all have given me some good starting poits to think about thanks!
sgt101 6y ago
I'm sorry, but if you take financial advice from HN you will end up poor. Actually, I'm not sorry because you are soliciting financial advice from HN which I would treat as a red flag in my life akin to waking up naked in a field covered in blood but without any personal injuries.
- ideals 6y ago
  Cool cool, why are you here then?
ghaff 6y ago
Transaction costs--both financial and effort. For most people, moving is a lot of work as well as a direct cost. You're also trading a known entity for an uncertain future. Of course, if you want to move out of your current house anyway, that's a different story.

by ideals 6y ago

lallysingh 6y ago

I think that the income tax on your home's realized equity can screw this plan up. Normally when you sell one house and buy another, the equity gets rolled through untaxed through an exemption. I forget the specifics, maybe it's a 1031 exchange?

steffan 6y ago
A 1031 exchange is only relevant to depreciated investment property subject to capital gains at sale. By engaging in a 'like-kind exchange', the basis of the new property is adjusted and it avoids being taxed on the sale price vs. the depreciated value. There is a standard exclusion of $250K (filing single) for a property used as a personal residence. https://www.irs.gov/taxtopics/tc701 https://www.irs.gov/taxtopics/tc701

hedora 6y ago

How much can you save by refinancing? It sounds like you don’t want this house for much longer. 5/1 ARMs are 2.7%, and the rate is fixed for 5 years. Think of it as renting for 5 years, and it seems less scary. Of course if the house goes way down in value, and interest rates go up, you end up losing a bunch of equity. However, the house you buy next will probably be discounted too, so the real risk is that you’ll get stuck with a higher rate on the next loan. Your rental plan is also risky: if prices skyrocket while you rent, you lose out on a lot of appreciated equity, and you still have the interest rate risk when you buy again. Edit: With the rental plan, you can throw all the equity into a roboadvisor or something. Those have 5-7% real returns in “normal” years, but this isn’t a normal year. (Though your equity in the house is effectively leveraged because of your mortgage. If you own 50% of the house, it only has to appreciate 2.5-3.5% (after inflation) to beat the stocks.

ideals 6y ago
I need to run the numbers on refi. I'm on 3.25% fixed rate now and owe ~500k still, definitely not close to 50% paid off either. Arm loans scare me only because of seeing what happened during the last housing collapse. Looks like I have a lot of research to do on this but you all have given me some good starting poits to think about thanks!

sgt101 6y ago

I'm sorry, but if you take financial advice from HN you will end up poor. Actually, I'm not sorry because you are soliciting financial advice from HN which I would treat as a red flag in my life akin to waking up naked in a field covered in blood but without any personal injuries.

ideals 6y ago
Cool cool, why are you here then?

ghaff 6y ago

Transaction costs--both financial and effort. For most people, moving is a lot of work as well as a direct cost. You're also trading a known entity for an uncertain future. Of course, if you want to move out of your current house anyway, that's a different story.