Southern California Housing Market
The Southern California housing market is going crazy right now. Houses are selling for well over asking price. My husband would like to take advantage of this market right now and sell our house and live in an apartment until the market slows down. We could probably approximately make $500k from the sale.
Our original goal was to pay off the house (less than 10 years left on mortgage), retire, rent it out and travel the world. I am concerned, that even if the market goes down, we will never be able to get back into the Southern California housing market. Some of our retirement depends on the equity in the house.
Is my husband being too risky or am I being too conservative? We are both in our mid 50s and don’t want to make a bad decision.
Thanks.
Well, if you do sell the house, you'll be able to take up to $500,000 net proceeds tax free which is a HUGE advantage if you do sell right now. You've got some great options depending on what you want to do with the house. Would love to speak with you further on this.
@Michelle German I think you're both thinking about the right things. Markets oscillate, and being willing to take some risks is how people are able to capitalize on opportunities like this. But on the brink of retirement, "excessive" risk is not the right move either. With that said, I think there are a couple of things you might want to add into your discussion to help you make the decision:
First, how long until you want to retire? If it's 10 years from now, you'll have plenty of time to get back into the Southern California market if that's what you decide. The chances of prices continuing on this trend for the next 10 years are pretty slim (in my opinion) and you will be able to watch the market and pick your time to get back in. Additionally, you won't be trying to "break into" the SoCal market as many other people trying to move here, you'll have $500k in your hands to get you in the door.
Secondly, if you are wanting to collect rents passively while you travel the world (Good for you!), ask yourselves if you need those rents to come from California. Given an extra $500k to put in rental property somewhere, I'm not sure Southern California would be my first choice personally. If I was going to be jetting around the globe anyway and not local, I'd probably look at more "landlord friendly" states with better ROI. That could turn into 10-20 units in other markets with a much better rent return, depending on the timing.
Just some additional things you might want to consider. With all that said, if you do decide to look at selling, @Tyler Hungerford is a great resource to talk to. I'm happy to help any way I can as well.
Good luck to you!
Originally posted by @Michelle German:The Southern California housing market is going crazy right now. Houses are selling for well over asking price. My husband would like to take advantage of this market right now and sell our house and live in an apartment until the market slows down. We could probably approximately make $500k from the sale.
Our original goal was to pay off the house (less than 10 years left on mortgage), retire, rent it out and travel the world. I am concerned, that even if the market goes down, we will never be able to get back into the Southern California housing market. Some of our retirement depends on the equity in the house.
Is my husband being too risky or am I being too conservative? We are both in our mid 50s and don’t want to make a bad decision.
Thanks.
My flooring contractor had the same idea and sold his house and moved his family into an apartment....back in 2016! Poor guy... I knew it was a dumb move the moment he told me.
So is your husband's plan to cash-out on the current housing craze, lay low in an apartment for a while, and then re-enter the Los Angeles market at a later date? Since you say that you are worried about the future entry-costs of the So Cal market, I'm assuming the plan is to repurchase at a later date? If that's his plan, I think he's chasing fool's gold.
While it's true that RE goes in cycles, and we've been talking about the next cycle for 5 years now, it's usually a gradual slow-down and not the kind that happened 15 years ago. Since you're in LA, I'm going to assume your house will sell for at least a million. Your transaction and moving costs alone will creep into 6-figures. Also, when you purchase a home later on, you will lose the benefit of Prop 13. Depending on how long you've held your current home, you are probably aren't paying anywhere near $1,041 per month in property taxes. However, if you buy a house later on for around a million, that's around how much you will be paying.
We held on to one of our condos in a prime LA location because we bought it at a very low price at the height of the GFC and the property taxes we pay are unbelievably low. When we retire, we plan to make this our primary because we will be out of the country 6 months out of the year.
@Tony Kim that is what i was going to say. I have several co-workers who sold a few years ago, thinking that the market was going to crash and that they would buy something at a lot lower price. Obviously, that never happened and they have been renting ever since. I wonder how much money they have been paying in rent since the time they sold.
@Michelle German My wife and I were also having a hard time with the Sell/Keep predicament with our property in Murrieta. We ended up deciding to ReFi into a specialized 1st position Heloc, known as an "Offset Mortgage" overseas. It's a line of credit to 80%LTV, tied to a zero balance sweep checking account. So every deposit we make is swept directly towards our remaining balance, lowering our interest cost. So we're able to put idle funds to work, and don't pay to access the equity until we need it. We saw it as a great opportunity to maximize this high-value market, while increasing cashflow and holding for appreciation. We're very glad we did. Our property is cash flowing well, and has appreciated 20% since we set it up in 2020. When the market turns, we'll simply purchase our next investment in cash by writing a check out of our line.
Time-in the market often works out better than time-ing the market.
Do not sell. Price will continue up at least till the end of 2021. If interest rate remains low and fed continues its money printing, prices will likely continue up for longer time.
If you are planning retirement, buy your retirement home first and then sell. It’s easier to sell than buy right now.