Real Life Scenario help

2 Replies

I need to play out current sell, refinance, hold scenarios for my current portfolio.

I own 2 homes. I bought them 6 and 3 years ago. I’m 31 years old, single. My first and primary residence is a 2/1 worth $230,000 and I owe $105,000 with interest rate of 3.5%. I have lived here more than 2 years qualifying for the no capital gains tax? The second and cash flowing +$400 a month rental is worth $160,000 and I owe $67,000 with an interest rate of 4.0%.

I’m debating selling one or both houses because of how high the housing market is and the fact both are worth double what I bought them for. The problem is I need to reinvest it back into a home and I feel like I’d just be buying at the top of the market and then what’s the point? I’ve also considered trying to refinance and sit on the money until the housing market dips again and purchase another rental. I would like to upgrade my primary residence to a 3/2 with more land. I prefer to live in a rural area, both houses are in towns but smaller, rural towns. Last thing I have considered is selling both and having $218,000 minus capital gains tax? and having the most money I’ve ever had in my bank account and saying hell ya sweet double. But then what?

On a serious note I would appreciate the advice/ what would you do if you were me. Thanks in advance

Get a HELOC on your primary so you can pull the trigger to buy a home when you feel the market drops. I personally do not see this ending anytime soon. Alot of people much like yourself are predicting a drop in real estate, what if it never happens? What if inflation happens and your double money sitting in the bank is worth half of what it originally was? There are alot of forces outside of our control and noone has a crystal ball. Just make a well informed decision on purchasing your next primary residence. The HELOC will help you buy it and is virtually no or very low cost until you use the money. If you rent out where you currently live after purchasing your new primary, you will make more money and continue to pay the house down allowing you for more equity to use.

But again this always comes down to "what are you goals". If you want 200k in the bank because your at a point in your life you want to brag to friends and buy a boat then do you. Its your life you can do whatever makes you happy and you should. If you want to create a real estate empire and leave it to your children then work on that. 

Personally at my age, if I were you, I would keep the asset that is generating you money as opposed to selling. Unless you have grand plans for that money what difference does it matter if its in the bank or not? Calculate your ROI vs what you would make on it plus / minus for inflation if you really want to hone in on risk and opportunity cost and do what makes you the most.

@Peter McLeod , I think part of your issue is mindset with regard to your primary residence. We are all told to think of our homes as an "investment", but if you look at the numbers they are not great "investments" in the average case scenario. That is a mindset better meant for a lower middle class renter trying to buy a home and build a small amount of wealth and security for their retirement.

You were fortunate and your primary residence appreciated and you built a nice chunk of equity. It also sounds like your primary residence isn't where you want to be long term. To me, those are factors all pointing in one direction. Sell and move.

You're concern about purchasing at the top of the market is certainly valid. However, unless you think what you want to buy is an extreme bubble like double the value it will be 5 years from now, then it really isn't an issue. If you spend 10-20% more on a property you will want to live in 20-40 years the fact that you paid more up front won't really be all that material to the years of enjoyment. Your primary residence's value is mostly isn't use and value TO YOU not as an investment.

If we bought homes as investments, we would end up living somewhere we don't want to all the time and doesn't that defeat the purpose of investing. We invest to have MORE of what we want, not LESS.

As for your rental property. If you can do a cash-out refi and have it still perform well as a rental. Do that and then buy another rental. If it wouldn't, then do a 1031 exchange and use those tax deferred proceeds to buy a couple rentals.