Submitted by youAtExample t3_10pdaqm in personalfinance
The main problems I see are
Is there anything else I'm missing? Thanks in advance.
I did this a few years ago. I sold right as the pandemic swept through, March- April 2020. The pros for me were: rental was actually slightly less than my mortgage, as were utilities, so there was some immediate savings - probably on par or slightly more than I got in equity from the principal portion of my mortgage payment each month. I also didn’t need a sale contingency on my offers - no worrying about the daisy chain of selling and buying simultaneously. I almost had an issue with my previous sale where the buyer quit his job right before settlement and his mortgage company did an income verification and almost pulled mortgage until his father co-signed. That spooked me
I also did a 6 month lease, not a year, with the expectation that I would find something in that time period and then could go month to month without a penalty for breaking lease if I didn’t. It ended up working out for me because I found something and had a month left on my lease after settlement to paint, update, and move in slowly.
Really the only con was moving twice in a short period of time and needing a storage unit @ 100 a month for a few months.
I don’t see any financial reason why this doesn’t make sense personally if it’s worth your peace of mind.
[deleted]
I don't see how it really changes most of the inconveniences aside from moving twice rather than once. The same set of delays/problems surrounding a sale are just as likely to happen regardless, only now you're begging a landlord to extend your lease month to month when you can't find a property in time.
I think it only really makes sense if you're moving somewhere that isn't local so you can take your time shopping your new area.
I don’t think it would work for everyone, but it does eliminate some headaches. Biggest one is if you need to sell your house to buy. Sale contingencies can be a turn off if other things are equal. I moved into a 2 bedroom apartment in a complex, I didn’t need to ask - once my lease was up i automatically went month to month. I also ended up with flexibility, I didn’t need a particular settlement date since I didn’t need to leave my place. Also had already sold my house so there were no more surprises like something coming up in home inspection. I guess it’s just personal experience, I’ve bought and sold 3 homes, that was the least stressful process.
Moving twice in a year is brutal.
But having the time to find the right house for the right price is crucial
Love the user name! You are absolutely correct. We rented for a few months between the sale of my house and the purchase of our new house together. It was worth it because what I could afford and he could afford was significantly different. We had to find something he could afford on his own if something happened to me or my job as the lower earner but also not be too far of a commute for me every day. It was a beast to do but we managed somehow.
Why not wait until you find it to sell?
Someone will buy it before you have the money from your sold home.
Not as much risk of that these days as last year.
And when that risk is highest, it’s also the highest risk of having the market pass you by while you’re renting.
When I bought/sold at the same time, I was able to get a local bank to do a bridge loan. Rates were a little higher, but it was repaid with the sale of my other house 30-45 days later, so a couple points of interest didn’t make that much of a difference.
And we knew we might be putting our old house on the market, so it was ready to list and show as soon as we put the new one under contract.
By the time we closed on the new one, we already had a contract (but not closed) on the old one, so bank was able to see that it was pretty low risk.
But I guess local bankers who know their borrowers are less common these days
[removed]
Isn't there a thing where you don't have to pay taxes if you roll your house sale into the purchase of another house?
What you're thinking of is a 1031 "like-kind exchange" which only applies to investment properties. Investment properties are taxed different from your primary residence or even a second home.
For a qualifying primary residence - where you lived there for 2 of the last 5 years - you automatically get a $250,000 capital gains exclusion, or $500,000 if married.
If the home has been owned for more than 2 years, there is no capital gains tax on the first $250,000 for single house hold owners and $500,000 for married owners.
Without knowing any of the numbers, I would say: yes, this is a bad idea.
So many things can happen in a year. Is it worth the risk of something going sideways and now you have no home?
If you can get financed on another home while having your current loan and afford the down payment, I would buy the new house, move in and then sell the other place. This is how I have done it multiple times. However, each time I didn’t have a mortgage as I had already paid off the house. If you aren’t able to get new financing, then your 2 options would be what you mentioned, or having the contingency while your home sells. Good luck.
I had a lot of equity in my old home and borrowed it on a HELOC for a downpayment on this one. It made the transaction a little more complicated because I had to close on the HELOC loan before I could finance the new home.
The whole process took a little over 45 days from having an accepted offer on the new house to closing on the HELOC then the new mortgage. Once my old home sold, which was less than a month later, I closed the HELOC and paid off my first mortgage.
At first I thought your idea was odd then I realized that is how we’ve always moved houses because … well, we always moved states. We had to rent while looking for a new house to buy. It never took us a year, though. We hate renting. 7 months in a crappy apartment was stressful enough for us.
The only time we didn’t rent was buying the house we are in currently. We planned on a smooth transition but the buyers’ attorney for the house we were selling was awful. He delayed the closing for over 2 months. Luckily we didn’t have a mortgage so carrying two houses wasn’t an issue. When he threatened yet another delay in the closing we told him we were going to refuse the extension because our house had gone up in value (about $30k). They panicked and we closed within a few days. I have no idea what he was thinking. He then had the gall to chastise us for forcing him to do a remote close. We had already moved hundreds of miles away! Had he closed on time, we would have been there in person.
Anyway, that was the worst closing I’ve ever had. Usually it is nothing more complicated than loading up the truck and handing the keys over after signing some papers. I’ve even been driving away as the new owners were pulling up with their truck.
I wasted $900 and opened a HELOC on our old home larger enough for the down payment in the new one.
The idea was it would be easier to sell our place if we were out of it (have a lot of kids, toys, etc.).
In the end, open door actually offered a price well above what i thought the house was worth (doubt they are still doing that—they took a bunch of losses around this time a little less than two years ago). So we got to set the date of sale to line up perfectly and rent back for 7 days to make the move easier.
Knowing more of your situation would help. For me moving twice would be a nightmare.
Other options to look into if you don’t have enough equity in your house for HELOC is a bridge loan. Bridge loans can be used if the sale date and purchase date don’t line up perfectly (this is similar to the HELOC idea above). Basically you buy house 2/1, but have agreement to sell your house 2/20. You need a bridge loan for the new house down payment. Once your house sells 20 days later or whatever you pay off the bridge loan.
For me figuring out a way to make the financing work where we had ownership or access to both houses for a time and paying a bit of extra interest for a few months was way WAY better than moving twice. For you it may be different.
You think moving twice will be less stressful? Just make your offer on the new house contingent on the sale of your current one or get a bridge loan
I suggest selling, getting an Airbnb or staying with relatives, immediately buying. People I know who did that were all fine. People I know who got a regular yearlong rental were occasionally priced out and ended up buying back into something smaller than they had sold.
why sell in the first place?
To have enough cash to make a down payment on the new house.
You probably should look at these factors:
Is moving a hassle for you? For me it was me, my wife, and my adult son. I was only 42 so packing up our house and putting half in storage and furnishing the apt was not a big deal with 3 adults. We also ordered all new furniture to be delivered to new house. Moving was not an issue for me. It may be for you.
Look st the market near you. Check home list prices over the last 6 months. Homes around me have stabilized, rates probably won’t adjust dramatically down or up this year. You could have a different market. You probably won’t get an amazing deal, but the days of getting 60k bumps in home values every 12 months is pretty much over for now.
Can you get a tenant friendly lease? My complex was very nice - in quality and flexibility. I carried out the lease so I could spruce up the new place without all the clutter.
Bridge loans and carrying both mortgages are an option. If you buy before you sell, can you cover that cost? You may have to cover rent, too. I did this in a VERY competitive market, bids were all over asking, so I tried to make myself as attractive a buyer as I could while mitigating risk. It worked for me, may not for you. If you sell before you buy, you may be moving anyway unless you can rent back.
Thanks for taking the time to respond.
It will definitely be something of a hassle. It's me, my wife, and our baby. I'm planning to use a moving company.
Maybe I should look into a bridge loan. I could technically handle both mortgages for some time, but I don't have the cash for 20% down payment, which I want to do. I'm moving from a fairly high cost of living area to one that's a bit lower, about 2 hours away.
I think it's fine but give yourself a time limit on buying. If you have plenty of cash then give yourself more time.
[deleted]
Is it easier to rip off a bandaid, or slowly peal it off? Do not spread out your pain. Instead of spending the equity on a new home, it will go towards rent. Not the move IMO.
I have a job so none of the equity would go toward rent.
Job doesn't factor. A years worth of mortgage payments will be wasted on rent.
twilightbunny t1_j6k9l52 wrote
My aunt did this but wasn’t able to find a second place that she liked within 1-2 years. After that she started getting priced out since the prices kept going up. She has been renting for last 20 years now, owning another house is out of reach financially for her now