I have considered selling my condo recently. It’s currently earning some money through AirBnb and I owe no money on it. I have ongoing carrying costs of around $300/month after taxes. This includes property taxes, property insurance and HOA dues. So I thought it would make for a good post and maybe you have contemplated whether you should sell your house.
The idea has crossed my mind because the value of this asset is up and we’re in a seller’s market. The economy is doing well, mortgage rates are low, jobs are plentiful and even wages have gone up.
Instead of selling the condo I have a few other obvious options:
- hold on to it and rent it out long-term
- continue renting it out short-term
- move back into it
- donate it for a massive tax write-off
I’m in a unique position where I could live anywhere in the world barring any visa issues. That means that I can drop my housing costs by quite a lot. I also have friends and family with whom I could live with and pay very little rent.
Not everyone has the ability to change their living location so easily. School districts, jobs, as well as family keep us locked down in our homes. And just because the option is there doesn’t mean we need to capitalize.
The way to make the decision is to figure out:
- how much we stand to profit if we sold
- how much we stand to lose if we stay the course
- what would we do with the profits from the sale
- what would be our alternate living options
- what’s the best case scenario and what’s the worst case scenario
Selling Your House
If we decide to sell then we have to consider taxes, selling costs, and moving costs. These are the most obvious costs that come to mind.
There has to be enough profit in the sale or enough savings from the eventual move that it makes selling a worthwhile proposition. For example, if you are in an excessively expensive house, then selling with even a slight loss might make sense if you can lower your housing costs with your move.
If the house is paid off then you have the option of using seller financing where you become the bank and the buyer pays you a mortgage for you a mortgage. This isn’t a bad option because if they stop paying then you always have the house you can get back.
What To Do With The Profits
What will you do with the money when you sell your home? If you sell your home that’s appreciated 30% and are left with the option of buying another overpriced home then it may not make much sense.
This is the biggest double-edged sword when it comes to a seller’s market. Once you sell, you are going to face an inflated market when it comes to buying your next home.
The way you can overcome this is by either renting or being willing to change your location to somewhere where you can get a much better deal.
If you are going to take the money from the sale and invest it in the securities market then it’s worth considering whether it’s the right time to go all-in in a bull market. Or could you park your money in CD’s for a while or invest it in a business?
The Right Time To Sell
Well, the right time to sell is when everyone is buying. And the right time to buy is when most can’t afford to buy. If I believe that the market is inflated and that it will soon slow down or drop off then this would be a perfect time to sell. I would park the money until I can make a better real estate move in a better market.
Factors which make for a good seller’s market are:
- cheap mortgage rates
- how readily banks are lending
- good job market
- low inflation rates
- a calm political climate
If I wait longer then I may have to deal with one of the above factors working against me. It doesn’t mean that I can’t sell but it would make selling harder.
Selling When You Don’t Need To Sell
Whenever I have been in position to bargain, I have made more lucrative decisions with less stress. I asked my realtor recently if I could list my unit for $200,000 and he said no, it would be too high. I bought it for $140,000 cash about 3 years ago.
Looking at the current comps and the rental market, I actually believe $200k is feasible. What do I have to lose by listing it? Nothing. I don’t need the income from the sale of the house. I don’t even need the place to live. I am in a solid bargaining position.
I also don’t need the $200k in cash which means that I could offer the place up for seller financing. The buyer gets the place and I become the bank. They make the monthly payments to me. That’s around $1,000/month of income for me for the next 30 years @ 4.5% from which I would still have to deduct income taxes.
If You Hold On Too Long
My parents bought a house many years ago which appreciated some absurd amount because it was in the ideal neighborhood. It went from a purchase price of $430,000 to $1.5 million. They had spent very little on the house. Naturally, the structure was depreciating in both value and quality.
At the height of the market they could have sold for the asking price of $1.5 million or even listed it for $1.6-1.7 million since they weren’t burning to get out of there. But instead they waited thinking that the value would keep going up. Well, the market crashed and the value dropped down to $750,000.
By the time the market recovered the structure was in terrible shape and it was no longer in a saleable condition. It needed major work done to it. Had they had the capital and skill to invest about $150,000 then they could have sold it for $1.8 million by the time the market recovered. Fast-forward to what actually happened and after doing 2 cash-out refinances, they ended up losing the house to the bank in a short-sale.
This is just an intimate example of what can happen. It’s worth considering whether holding on further is a good idea or not. After all, if you hold on longer then you are speculating that the value will go up. It’s doable but it requires skill.
- Are you in a position to speculate?
- Do you have the adequate skill to speculate on real estate?
- Are you able to set your biases aside?
- Will you be in a position to buy again in the future even if your investment appreciates?