Buying / Selling a Home at Same Time - Bridge Loan, etc

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wilked
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Joined: Thu Mar 24, 2011 1:50 pm

Buying / Selling a Home at Same Time - Bridge Loan, etc

Post by wilked »

Parents-in-law have retired and are selling/buying right now.

Currently have received an accepted offer on a fully-paid house, $550K (P&S to be signed within next week). Seller has agreed to be flexible through early Aug on closing

They put an offer in today for $375K on a house, slightly under asking but probably close enough that they will agree on a price. The house will need a little work, ideally before they move in. Estimated 4 weeks of construction and $25K or so.

It is ideal for them to close on the new house first, move, then close on existing house (as you would imagine). They want to pay cash - no mortgage.

They have $250K or so on hand in cash, $300K or so in IRA (nothing in Roth). They are > 62.

My father in law indicates he can take a 'loan' from his IRA I think (I didn't press him for details on this) up to $50K, and just have to pay interest back to himself on it. We could help them with $25-40K potentially (short-term loan).

Anyway, what would people do in this situation? Googling seems to indicate bridge loans are a bad idea.

Should they pull money from the IRA? Their income will be low this year (no SS coming in yet). Should they bite the bullet and close the existing first?

Basically, I am looking for some advice I can pass on.

Thanks
Goal33
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Re: Buying / Selling a Home at Same Time - Bridge Loan, etc

Post by Goal33 »

The best way would to sell their house and get a rent-back. That way they have the money in hand to close the deal on the other house, and still have a place to live.
CWhea1775
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Re: Buying / Selling a Home at Same Time - Bridge Loan, etc

Post by CWhea1775 »

You can remove money from an IRA (technically a rollover) and if it is returned within 60 days it is not a taxable event.
Jack FFR1846
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Re: Buying / Selling a Home at Same Time - Bridge Loan, etc

Post by Jack FFR1846 »

Sell the old house. Close in the morning.
Buy new house. Close in the same afternoon.
Call in the contractor to do the work. Go on vacation for a month.
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Topic Author
wilked
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Re: Buying / Selling a Home at Same Time - Bridge Loan, etc

Post by wilked »

Great ideas - thanks! I welcome any others as well
Gufomel
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Re: Buying / Selling a Home at Same Time - Bridge Loan, etc

Post by Gufomel »

wilked wrote:
My father in law indicates he can take a 'loan' from his IRA I think (I didn't press him for details on this) up to $50K, and just have to pay interest back to himself on it.
I expect he is probably referring to a 401k loan rather than his IRA. This is true that you can take a loan from your 401k up to $50k at a certain interest rate, and you essentially pay that interest back to yourself by paying it back into your 401k. Note that the interest is paid back with post-tax dollars, and ultimately is taxable upon withdrawal, so it's essentially double taxed. However, for a very short-term loan, it's a reasonable option. He would of course have to look into the finer details such as any admin fees, restrictions on pay-back period, what happens if he loses his job while the loan is outstanding, etc. In this situation, if my only two options were a 401k loan or withdrawing from my IRA with the intention to pay it back within 60 days, I'd probably go with the 401k loan. But I would prefer to avoid either of those options if possible.
JGoneRiding
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Re: Buying / Selling a Home at Same Time - Bridge Loan, etc

Post by JGoneRiding »

Goal33 wrote:The best way would to sell their house and get a rent-back. That way they have the money in hand to close the deal on the other house, and still have a place to live.
This is what I would do. With a flexible buyer it's a w in win. A friend just bought sold at same time. All papers were signed the same day. Rent backs are common in some places
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FrugalInvestor
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Re: Buying / Selling a Home at Same Time - Bridge Loan, etc

Post by FrugalInvestor »

We were in a similar situation recently. We put our home up for sale and it sold much more quickly than we expected. The buyers wanted it in 2 weeks. We settled on one month. We immediately traveled to the new location we had chosen and spent about three days looking at available homes. We made an offer on one and settled on a price a few days later. We paid a deposit from available cash and spent the next couple of weeks selling stuff we didn't want to move, choosing a moving company, etc. We closed on the existing home and loaded our stuff into the moving van the next day with a one-day grace from the new owners. We drove to our new location and closed on the new house while the furniture was in transit. The funds from the sale had been electronically transferred into our bank account and were used for the purchase.

Our backup plan was to put our belongings into storage and find temporary housing until we could locate a house we liked. If the house had needed work we would have likely done this as well. Fortunately it turned out that we didn't need to waste money on storage or temporary housing.
Have a plan, stay the course and simplify, but most importantly....Ignore the Noise!
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