Interested in opinions.....

[dvcgirl]

I value lots of the opinions on this board and so I thought I'd run an idea that DH and I are toying with these days.

We're most definitely fiscal conservatives, no doubt. However, my DH and I actually *like* to move. I know, there must be something wrong with us right? . We like the excitement of going to a new place and meeting new people...seeing new things. Our love of moving around has definitely paid off for us in the real estate game. Bought the first house in NJ (built it actually), and it doubled in four years. Sold it in 2004, moved to Florida and bought a house here for less than our profit there. And we've seen a 50%+ gain here. We like Central Florida, but we don't see ourselves here forever.

I don't think we see ourselves anywhere forever. We'd like to live in California again. We like the idea of living in NJ at a moment's notice if our parents need us down the road. Always dreamed of living in Key West for a short time. That sort of thing.

The gains we've seen in the real estate market are unsustainable and pretty much unprecedented. It's already slowing, and the outlook is that we're going to be flat...for some time. Fortune magazine says Orlando will see a 3.8% gain in 2006 and then a 0.5% decline in 2007. Translation....the party is over . And so, putting all of these thoughts together, my DH and I are toying with the idea of selling. We will hit our two year mark in August...so we'll walk away with the entire sales amount...tax free. We're actually thinking about selling, throwing the 550-600K on top of the retirement investment pile....and renting.

I know, I know...unconventional. However, we looked at our monthly budget and our outlay here for all things house-related is about $1800 a month. And we *own* our home outright. That money is for taxes (increases yearly), homeowners insurance (keeps going up), association fees(up every year), lawn/pest control,pool care, maintenance and utilities (electric and water). We could rent a very nice home here including utilities for $2200 a month. Yes, rent can adjust up...but so do my taxes, utilities and homeowners insurance/association fees. We've run "the numbers" and on paper it's a no-brainer financially. We could save less and retire sooner if we sell the house and invest this money.

Again, we're just beginning to toy with this idea, but we're big "gut feeling" people and we're usually right (not saying we're brilliant...but rather that we have common sense). It didn't sit right with us in January of 1999 when Yahoo hit 400 and had no earnings....analysts were saying outlandish things like "brick and mortar stores are a thing of the past...everything will be purchased on-line". And we began dumping stock options by the boatload. In NJ, our house doubled in four years...didn't make sense to us and we just felt like it wouldn't last. Sold it at an absolute peak time in three days. That was 18 months ago. One house has sold for about ten thousand more than ours did in that same neighborhood in that entire time. Some didn't sell because they were simply priced to high and so the people stayed. We got down here, bought this house, and again...the market goes on fire here...again...doesn't make sense. There is nobody on this planet who can tell me that the house I bougtht in 2004 here in the mid 300s is now actually *worth* 500K+. There's been a ton of speculation in this market and there are a ton of risky lending products buying these homes.

I don't think it's all going to come crashing down like the Nasdaq did in the spring of 2000. Real estate doesn't work that way. It may dip up to 5% in the next few years...and then stay flat for quite awhile. I guess we don't want to sit on over 500K when it could be working so hard for us. If we planned on staying here forever, we'd probably do nada. But we don't...I'd say we're out of here in 5-7 years.

Now...have at me....tell me I'm crazy, or poke holes in our theory .

 

[SRUAlmn]

While we are not profiting from it, we feel the same way. We moved to MD right out of college and now, 4 years later, just moved to SC. We have no children so it's not a big uproot for us to do so. We thoroughly enjoy the excitement of exploring a new place. We both lived in the same houses in the same towns for our entire lives until college (I actually even went to college in my hometown) so we need to see the world (or at least the east coast )

 

[PlutoPony]

The downside I can see is one my mother (who grew up in the depression) would come up with.... Since you own your home free and clear, nothing can really take that away from you. However almost any investment has the potential to lose money or worse. Is it likely that there will be financial collapse and bank failures - NO! But the security of having a home (especially one that's paid for) is something that's important to some...... YMMV!

 

[dvcgirl]

The downside I can see is one my mother (who grew up in the depression) would come up with.... Since you own your home free and clear, nothing can really take that away from you. However almost any investment has the potential to lose money or worse. Is it likely that there will be financial collapse and bank failures - NO! But the security of having a home (especially one that's paid for) is something that's important to some...... YMMV!

Yes, I hear you. And we'll hear this same point from my husband's parents...who are also Depression Babies. I guess our counter point would be...."yes, we own this home free and clear, and nobody can take it away, but we pay out $1,800 a month to lots of people for our "free and clear" home". And...we don't plan to stay here. There are those who think that this real estate market is going to continue to see wild gains. We don't. We don't even see modest gains for awhile. The very house I live in was built in 1990 and sold for $260,000. Two years later, the original owner sold it for $255,000. Six years later, the owner we purchased from got this place for $260,000. The home didn't appreciate one penny in eight years. Now, I'm not saying that this place won't appreciate for eight years, but when you see 50% over 18 months, chances are we're going to be flat here for some time.

As for the where the money would go....in thousands of companies....mid-cap,small-cap, large-cap...international companies, some bonds...you guessed it. Targeted retirement index funds. Very conservative stuff.

As for risk, I have to tell you owning a home outright in Florida these days ain't risk free . Not with the hurricanes that come through these parts. We feel like there's a whole lot that can go wrong here. Insurers are dropping people left and right. There are people here who still haven't had claims paid from the damage that Charley did. So, there is definitely some risk involved here on that end.

But I like to hear others thoughts...keep em coming!

 

[imsayin]

The plus to owning a house, wherever, is diversification. Investment 101 will tell you to diversify. You don't want all your $$ in the market. Maybe you should sell what you have and buy a cheaper house elsewhere.

 

[dvcgirl]

The plus to owning a house, wherever, is diversification. Investment 101 will tell you to diversify. You don't want all your $$ in the market. Maybe you should sell what you have and buy a cheaper house elsewhere.

Yes, diversification is one thing, but my money in the market is incredibly diversified and automatically adjusts to more conservative vehicles as I reach my targeted retirement date. We're not like some who were close to retirement in 1999 and were way too heavy weighted in technology. We're talking about putting this money away for 20+years and not touching it.....and expect no more than 7% return year over year (and we've already done much better than that in the 15 years since we started saving/investing...even with the big hit we all took in 2000-2001).

As for buying a cheaper house here. There aren't any homes in the area where we want to live (Southwest Orange County) that would go for less than 450-500 K. And there are big costs involved with buying again here. We're homesteaded here now...meaning our taxes are locked in at the price we paid and can only go up 3% a year. We sell and buy again and our taxes will go up significantly. Also, we don't plan on staying here forever.


Keep it coming though...it's good to hear the negatives...

 

[disneysteve]

Very interesting scenario.

Despite all the "experts," there are times when renting just makes more sense and I think you've made a good case for it in your situation.

I think most would agree that the market is due for a slowdown. Your odds are quite good that putting that 600K into a good mix of investments will yield a better return in the coming years than keeping the house. You can easily have that money generate enough income to pay your rent or just let it grow and pay rent out of current income.

Most importantly, you want to move, and probably more than once. Much easier to do that when you aren't tied to a property.

The one potential downside I would bring up is the tax issue. As you point out, any gain on the house is tax free if you live there at least 2 years. Investment gains will not be tax free. But you might only need a 4% tax-free gain on the house value to match a 7% taxable gain on your investments. Just something else to think about.

 

[sandy6879]

I also am one of the crazy people that enjoy moving. In your situation, I have to think you are right. The amount of $$ you are talking about offers substantial opportunity for growth for a retirement fund. The real estate market most likely will not "drop" but I do see it flattening and in some areas lowering substantially. If you can get it now, you might have a good point, esp with the increase in taxes, insurance, etc. Renting would afford you the chance to potentially have some utilities included, moving when you want, and ONLY paying rent. The disadvantages obviously would be a lesser tax advantage with no real estate tax being paid, but in FL you don't pay state income tax anyway correct?? Check with an accountant on that. The plus side to keeping a home would also be the ability to take out a home equity loan should you need to and to know that interest would be tax deductible vs having to take $$ from a retirement account and potentially paying the early withdrawal penalty. (I don't know how old you are, but the penalty would stay until you're 59 1/2). As well, any distributions taken would also be taxed as income from the federal government, in addition to the penalty. Of course that could be avoided by keeping some $$ in a savings/CD account, earning less but available if you need it. Good luck in your decision!!

 

[jeancbpugh]

I don't like renting...I want to paint and improve my living space as it strikes me. And some landlords are not willing to invest in their property. Upkeep varies.

Maybe you should sell then downsize. Buy a unit that can be future vacation condo for you...

 

[dvcgirl]

Very interesting scenario.

Despite all the "experts," there are times when renting just makes more sense and I think you've made a good case for it in your situation.

I think most would agree that the market is due for a slowdown. Your odds are quite good that putting that 600K into a good mix of investments will yield a better return in the coming years than keeping the house. You can easily have that money generate enough income to pay your rent or just let it grow and pay rent out of current income.

Most importantly, you want to move, and probably more than once. Much easier to do that when you aren't tied to a property.

The one potential downside I would bring up is the tax issue. As you point out, any gain on the house is tax free if you live there at least 2 years. Investment gains will not be tax free. But you might only need a 4% tax-free gain on the house value to match a 7% taxable gain on your investments. Just something else to think about.

I was hoping you'd weigh in Steve And yes, we've talked taxes. Obviously this isn't tax deferred investing. We're going to pay some taxes. We already do...we max out our 401Ks quickly and no longer qualify for the Roth. Using several investment calculators that factor in taxes, we still end up with more money at a younger age with paying tax than we do if we keep the house and invest monthly. I think that the main key is that we know we're not going to stay in one place. Buying and selling places isn't cheap either. There are closing costs up the wazoo. If we tried to buy and sell each time we want to move we'll pay a fortune in fees. Also, we lose freedom. What if we end up buying a little high somewhere....do we stay somewhere we don't want to be waiting to break even? Sometimes it takes a long time to sell a house. And in crazy sellers markets it can be tough to find the right place.

Also, we're already up 200K here....eventually, if the laws remain the same, we'll hit that 500K profit margin and end up paying taxes on anything over that. Not saying it's going to happen soon, but in the "we stay forever" scenario and sell it eventually....it probably would.

Also, we would be paying rent out of income...the difference is only $400 more than we pay to live in our paid for house now ;o). Granted, the houses we've seen in the $2200 range w/utilities, are a bit smaller than what we have now, but we keep downsizing because we keep realizing how little space we truly need. Started with a ridiculous 4,000+ sq ft house, now we're a little under 3,000 5/3...think a 3/2 1,800-2,000 sq ft house would suit us perfectly.

We're going to think on this awhile...obviously . But part of the reason that we ultimately decided to not have children is so that we can travel and see this big country and even bigger world. Again, we're probably going to stay in this area (where the rent is cheap...for a nice house) for another 5-7. My business is building nicely and I'm confident that I'll be able to sell it for a nice chunk of change in another 5 years.

I'm reading Jane Bryant Quinn's new book, "Smart and Simple Financial Strategies for Busy People", and in that book I read an interesting blurb about the real estate market....

Page 97....in the Buying a House section...

"People sometimes make good money on their homes, especially during a real-estate boom. But it's no sure thing. History shows only two big booms in the past hundred years. The first one ran for the decade after World War II. The second one started in 1998 and may be slowing as I write (you can't predict when booms will end---only that they will). During normal "unboom" years, home prices can go anywhere---up,flat, down---depending on the neighborhood and the local economy. Usually, they track the inflation rate, so they rise in dollar terms without adding much to your purchasing power. You might even lose a little when you track the constant upkeep and repair. Homes normally are an especially poor investment choice compared with the average stock. Between 1980 and mid-2005, the price of the median home rose 1.5 percent a year, adjusted for inflation, while stocks jumped 9.2 percent. But homes have a special value that stocks can't match: They're a place to live. There's nothing like the psychic pleasure of planting your petunias and unclogging your own drain."

And so I think, if we can live with that final sentence...we'll come out ahead . We need to think about how we'll *feel* being renters again. We don't get attached to things or places it seems....at least not yet. And obviously, our apartment renting days are over. There are nice homes to rent all over the place...plenty here. We have lots of time to think about all of this....wouldn't even list until late spring and can't close until mid August...so plenty of time.

Thanks for weighing in Steve....

 

[dvcgirl]

I also am one of the crazy people that enjoy moving. In your situation, I have to think you are right. The amount of $$ you are talking about offers substantial opportunity for growth for a retirement fund. The real estate market most likely will not "drop" but I do see it flattening and in some areas lowering substantially. If you can get it now, you might have a good point, esp with the increase in taxes, insurance, etc. Renting would afford you the chance to potentially have some utilities included, moving when you want, and ONLY paying rent. The disadvantages obviously would be a lesser tax advantage with no real estate tax being paid, but in FL you don't pay state income tax anyway correct?? Check with an accountant on that. The plus side to keeping a home would also be the ability to take out a home equity loan should you need to and to know that interest would be tax deductible vs having to take $$ from a retirement account and potentially paying the early withdrawal penalty. (I don't know how old you are, but the penalty would stay until you're 59 1/2). As well, any distributions taken would also be taxed as income from the federal government, in addition to the penalty. Of course that could be avoided by keeping some $$ in a savings/CD account, earning less but available if you need it. Good luck in your decision!!

Thanks for your thoughts...

Well, we're 38 and 36. But we already max out our 401Ks and have separate investment accounts besides that. This money would not be under a 401K or IRA structure. When I say targeted retirment funds....we're talking about index funds with a targeted "end date" where you think you'll retire. The fund automatically rebalances your investments as you go forward...moving more towards bonds and away from stocks going forward. These are the types of investment vehicles we are already in. We don't mess around with our money very often at all. We look for really low fees and long term performance...that's pretty much it. Emergency fund is all set. I don't forsee a time when we'd need a home equity loan. We already have enough in our portfolio outside of retirement accounts to cover a castrophe and have solid term on both of us and additional disability on my DH.

Thanks for your good points...and also for the good wishes

 

[chrissyk]

Yes, good idea. I PM'd you.

 

[disneysteve]

Thanks for weighing in Steve....

You're welcome. Despite me tossing out the tax issue, there is no way I'd keep the house for that reason. I'm certain even with taxes figured in, you'll come out ahead investing the money. We both agree with using 7% in our projections but understand that reality will almost definitely exceed that.

And, like I said, the most important reason is simple: You want to move.

Good luck selling while the market is still strong.

 

[Chereya]

We're actually thinking about selling, throwing the 550-600K on top of the retirement investment pile....and renting.

Now...have at me....tell me I'm crazy, or poke holes in our theory .

I think that's a wonderful idea. You have obviously put a lot of thought and number crunching into this. If it works for you, and it seems like it would, Go For It! So what if it's unconventional - you might just be the start of a new trend. Naysayers are probably bent because they didn't think of it first.

If I was in the financially stable position you're in, I'd do it. Seems like this scenario really allows you to live your dream life: freedom to retire comfortably; do a lot of travelling; live in different cities and still have the financial means to live the quality of life that you want.

I think I found my hero. I have actually been mulling over a relocation/life change question that I want to post later for comments. I really love the advice given on this board.

Good luck!

Chereya

 

[4theloveofdisney]

We have made some sound real estate decisions, and some lucky ones as well. Now that we have children it's not so easy to uproot. In your situation, I would sell, invest but instead of renting, buy a condo! Something cheaper, smaller but still in Florida will still reap benefits in the long run. I'd rather own something than throw my money away on renting if at all possible!

Just my .02!

Side note: you may have to travel to another area to buy a condo at a more reasonable price but you like adventure so...why not???

 

[barkley]

interesting i happened upon this thread. we live in california and want to relocate out of state but are not quite ready to comit to which state (and since we have kids we want to make stable decisions). i think we will be out of california in no more than another year and a half.

but people out here are starting to wonder what is going to happen with the housing market (i think houses will not increase as much as in recent years, but i anticipate that the demand new orleans rebuilding will put on lumber nationwide is going to result in higher lumber prices which will result in either higher cost new construction or less new construction which will to some extent maintain or at least not drasticly reduce current home values) and we may begin next year to see some panic house sales by buyers who bought at top dollar and want only to get their initial investment recouped). so we are seriously considering putting our house on the market and selling this spring, banking the equity and moving into a rental (we don't own our home but we would save roughly 50% in housing costs by doing this). we could take the money saved each month and put it into dh's deferred tax retirement account by adjusting his pretax contribution on his payroll check (resulting in lowering our yearly tax liability).

i know we will be looked upon as loons by my mother and other family members ("you'll never be able to buy into a california home again")-but even if we were wanting to stay here and move to another more desirable location, delaying a sale could result in competing in a low cost market or against the bank repos that usualy occur (traditionaly in california) with housing slumps (resulting in a much lower profit for us). by selling soon we would have the buying power to take advantage of lowered home prices in that depressed market state.

i'm interested to see what more folks have to say on this issue.

 

[geetey]

dvcgirl,

I think you should go for it! I was just reading an article about the real estate market and the predicted slump. Sell now while your market is still good. Renting is a good option for you, and you can always buy again in a different location, especially if the market has really slumped.

 

[solgent]

What you say makes sense. Home ownership is touted as the American dream but it is not the best choice for everyone. If you do not expect further appreciation and you plan to move anyway, then you should sell and rent.

 

[geetey]

dvcgirl,

Saw this article and thought you might be interested in it.... http://money.cnn.com/2005/12/29/real_estate/buying_selling/handicapping_housing_markets/index.htm

Looks like your instincts are correctly and Orlando is currently overvalued. I think it would be a very good time to get out of the market there.

 

[Chicago526]

I'm no expert, but your logic sounds good to me. Renting is under-rated, I think, especially when you've got the kind of money banked that you and your DH do. And I agree, while the bubble won't "burst", we just won't see the kind of gains in RE we did the past 5 years. And renting will give you the freedom to move as much as you want for a lot less hassle and risk. The only money you'll be out is the cost of the moving van!

I sold my condo this summer for that reason. I bought in 2001 for $108,000 and sold for $156,000 in 2005. It went up $48,000 in 4 years! I figure the condo's just couldn't go up any further, you could buy single family homes that just need TLC for about the same amount, so I bailed and bought a single family home in the same town (that, you guessed it, just needed some TLC in the form of re-decoration and a bathroom remodel). While I hope my new home will go up in value the way my old condo did, I'm not counting on it. I'm not sure I'll even get the improvements we are making back out of it, at least not short term. Fortunatly we'll be here at least 2 years, and we may be here for 10 or more, we just aren't sure yet.

At any rate, I think your plan sounds fine. I think the most you are risking is not making the kind of return back on your investments that you could have seen if you stick with real estate. In otherwords, the worst that could happen is that you will still make money, just maybe not as much!