I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

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Vasili80
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I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by Vasili80 »

I would like to downsize in home for 2 main reasons:
1)The equity would be better served in an index fund
2)I’ve been in the home for 11 years and am due for a change.

The home is paid off and valued at approximately 230k. I can downsize some and get into a home for sub 200k in the area. I would also be saving 2k a year in CDD and HOA fees as I most likely would live in an older neighborhood without the fees.

I plan to reach out to several realtors and see which one I feel comfortable with. Considering I’ve only purchased 1 home and have been out of the market, what are some things I would look for in a realtor ?(from the Bogleheads / personal finance mindset).

Am I at an advantage for possibly finding a short sale or forfeiture considering I can pay cash?

I’ll leave out all my finance numbers as this is strictly for the 2 main reason I listed at the top.

Any advice would be appreciated!
Grt2bOutdoors
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by Grt2bOutdoors »

On the contrary, your personal finances play a very important part of this decision. IMO, offering “advice” based on incomplete information is a disservice to you and community at large. The total portfolio is to be considered before saying item 1 is a good strategy. The second aspect is on what basis can you determine that money placed in an Index is a better use of capital? After selling expenses, your 230k of equity could be worth about the price of entry for smaller place accounting for transaction costs.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Carefreeap
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by Carefreeap »

Your gross numbers may not make any sense at this point. If you input 10% for transaction costs for a $230k sale and $200k for "new" house I'm not sure you've gained enough to make the change.

Also keep in mind that older houses generally cost more than old. How old is your current home and what age are you looking at for your "new"?

And don't discount the PITA factor as well as the unknown if you buy a fixer/foreclosure. Long term deferred maintenance usually involves serious system upgrades due to code requirements. It will cost a lot more than you think.

If you're looking for a change/project go for it. Just don't fool yourself that it makes sense financially. Probably cheaper to do a cash out 30 year refi and invest the proceeds in a S&P 500 index fund for 30 years. Not something I would do at this point in my life but I don't need to take on that kind of risk.

Good luck!
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stan1
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by stan1 »

I would only do this from a personal finance perspective if you have a hobby of fixing up a home and do much of the work yourself.

The transaction costs of selling the current home and moving into the new home could easily exceed the difference in price between the two houses (e.g. $30K). By that I mean commissions but also fixing up the old house to sell and updates to the new house.

If you bought your home as new construction 11 years ago there can be a potential benefit to selling it now to avoid some major expenses such as HVAC, roofing, and appliance replacement (if you haven't already done those). Only thing is to realize that benefit you'd also have to buy a house that either is new or has had those items recently replaced while still being less expensive than your current house. Tough to time all that.

If you just want a change and move into a smaller house then its not really a financial decision.
Last edited by stan1 on Fri Jan 03, 2020 10:53 am, edited 2 times in total.
surfstar
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by surfstar »

Carefreeap wrote: Fri Jan 03, 2020 10:42 am Your gross numbers may not make any sense at this point. If you input 10% for transaction costs for a $230k sale and $200k for "new" house I'm not sure you've gained enough to make the change.

Also keep in mind that older houses generally cost more than old. How old is your current home and what age are you looking at for your "new"?

And don't discount the PITA factor as well as the unknown if you buy a fixer/foreclosure. Long term deferred maintenance usually involves serious system upgrades due to code requirements. It will cost a lot more than you think.

If you're looking for a change/project go for it. Just don't fool yourself that it makes sense financially. Probably cheaper to do a cash out 30 year refi and invest the proceeds in a S&P 500 index fund for 30 years. Not something I would do at this point in my life but I don't need to take on that kind of risk.

Good luck!
Agreed with these points. Transactions costs are quite significant. Then you'll want to add stuff and personalize. Plus if it is that much 'older' than it could be more expensive for heating/cooling and maintenance.

Is is really going to save you a significant amount? I think the "downsize" needs to be a much bigger step. $230k to sub $200k isn't much difference.
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dm200
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by dm200 »

Vasili80 wrote: Fri Jan 03, 2020 9:47 am I would like to downsize in home for 2 main reasons:
1)The equity would be better served in an index fund
2)I’ve been in the home for 11 years and am due for a change.
The home is paid off and valued at approximately 230k. I can downsize some and get into a home for sub 200k in the area. I would also be saving 2k a year in CDD and HOA fees as I most likely would live in an older neighborhood without the fees.
I plan to reach out to several realtors and see which one I feel comfortable with. Considering I’ve only purchased 1 home and have been out of the market, what are some things I would look for in a realtor ?(from the Bogleheads / personal finance mindset).
Am I at an advantage for possibly finding a short sale or forfeiture considering I can pay cash?
I’ll leave out all my finance numbers as this is strictly for the 2 main reason I listed at the top.
Any advice would be appreciated!
It seems to me that your proposed "downsizing" will not result in any significant amount (net) to invest. You might not get the 230k you expect, and even if you do - there are real estate commissions, cost of getting the house ready for sale, costs of moving, and costs of transition from one house to another. Neighborhoods and school districts can make a lot of difference in value and appreciation (or lack thereof).

Yes - you may save on the HOA fees - but they may also provide benefits. Older houses may have increased costs as well. Older homes, for example, may not have as efficient heating and cooling systems. If you want to tap into any large equity in the current house, you could do that by refinancing your mortgage. Or, perhaps, refinance the existing balance for a longer period and lower your monthly payment - then invest the difference.

Another factor is the expected or estimated long term different in appreciation of the current house and the slightly lower cost older home. The related factor is how easy or difficult will it be to sell the different houses. Just my guess - I suspect the current, newer home may be easier to sell down the road and may appreciate more.

After eleven years, I suspect your mortgage balance has gone down a significant amount.
Is is really going to save you a significant amount? I think the "downsize" needs to be a much bigger step. $230k to sub $200k isn't much difference.
When I think of "downsizing", I generally think of folks who have a big house (say 5 bedroom, etc.) and when their children are grown, they "downsize to, say, a 2-3 bedroom at about 1/2 to 2/3 of the price (such as $750,000 to $450,000 or so)
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by Jack FFR1846 »

Going from a $230k house to a $200k house won't likely save you a dime on the transaction. The elimination of an HOA, in my opinion would drive me to go through with the transaction. But how much older are we talking? Moving from a 1980's house to an 1880's house could easily bring huge costs.

I've personally looked into moves for a future (near) retirement and even moving to a much lower cost area and to a smaller home, when the numbers are crunched save me far less than I would have thought. Between transaction costs and moving, then potential repairs at the new place, you could find that you have less in the new-to-you old, small, cheap house than you have now.
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dm200
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by dm200 »

Going from a $230k house to a $200k house won't likely save you a dime on the transaction. The elimination of an HOA, in my opinion would drive me to go through with the transaction. But how much older are we talking? Moving from a 1980's house to an 1880's house could easily bring huge costs.
On the other hand, in some cases, being in a neighborhood that is part of an HOA can be very beneficial both long term financially as well as a nicer place to live. There are many kinds of HOAs (what is regulated and paid for)what , as well as how well (or poorly) the HOA is governed and operated. Some costs paid for by HOA fees/dues might be things an individual homeowner, without the HOA, might have to pay for individually.

While am, on balance, happy that there are no HOAs in our local jurisdiction, I can often see things neighbors do and do not do - which would be prohibited by almost all HOAs. The next street over, for example, in a small front yard, the owner built a mound with shrubbery, a small tree and some kind of statue that looked like it was from Ancient Greece or Rome. The front door was changed so it also looked somewhat like a Roman temple entrance. After a few years, I presume the next owner, thankfully, put back a simple, grass front yard and a regular front door.
3funder
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by 3funder »

surfstar wrote: Fri Jan 03, 2020 10:50 am
Carefreeap wrote: Fri Jan 03, 2020 10:42 am Your gross numbers may not make any sense at this point. If you input 10% for transaction costs for a $230k sale and $200k for "new" house I'm not sure you've gained enough to make the change.

Also keep in mind that older houses generally cost more than old. How old is your current home and what age are you looking at for your "new"?

And don't discount the PITA factor as well as the unknown if you buy a fixer/foreclosure. Long term deferred maintenance usually involves serious system upgrades due to code requirements. It will cost a lot more than you think.

If you're looking for a change/project go for it. Just don't fool yourself that it makes sense financially. Probably cheaper to do a cash out 30 year refi and invest the proceeds in a S&P 500 index fund for 30 years. Not something I would do at this point in my life but I don't need to take on that kind of risk.

Good luck!
Agreed with these points. Transactions costs are quite significant. Then you'll want to add stuff and personalize. Plus if it is that much 'older' than it could be more expensive for heating/cooling and maintenance.

Is is really going to save you a significant amount? I think the "downsize" needs to be a much bigger step. $230k to sub $200k isn't much difference.
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TheRightKost87
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by TheRightKost87 »

Not that I'm advocating for this, but you could take equity out of your home without selling it to purchase a new one.

That would cover your reason 1. Wouldn't do much for reason 2 though.
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ohai
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by ohai »

If you are looking to monetize your current, larger home, then why not just rent it out, while you buy or rent a smaller place?

Selling it in the market, as mentioned above, will have high explicit transaction cost, in addition to staging cost, your own time and stress, and so on...
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Watty
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by Watty »

Vasili80 wrote: Fri Jan 03, 2020 9:47 am The home is paid off and valued at approximately 230k. I can downsize some and get into a home for sub 200k in the area. I would also be saving 2k a year in CDD and HOA fees as I most likely would live in an older neighborhood without the fees.

I plan to reach out to several realtors and see which one I feel comfortable with. Considering I’ve only purchased 1 home and have been out of the market, what are some things I would look for in a realtor ?(from the Bogleheads / personal finance mindset).
I am not sure what CDD stands for but $2,000 a year is significant so I would think that it might also include some services like trash pickup. Be sure to factor in any services that you would need to pay for if you moved.

On picking a real estate agent the last time I hired one to sell a house I talked to at least 6 on the phone, then I selected three of them to come see the house then come back and present a comparative market analysis to me. I thing selected the one that I thought would be best. That was a great educational experience for me.
iamblessed
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by iamblessed »

Good idea but the I think you need bigger numbers like 230k to 100k. 30k is not enough.
chevca
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Re: I want to sell my home and move into a cheaper home to free up capital for investing. Advice and thoughts welcome.

Post by chevca »

Would you have felt the same 10 years ago?

Owning a house free and clear is safe. Putting money in equities is risky.

As others mentioned, I don't see where any amount of money to make this worth while is going to come from. Sell the old one, put most of that on the new one, transaction fees, fixings and furnishings... what's left to make this a life changing investment option?
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