Dilemma buying a new house

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CJH
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Dilemma buying a new house

Post by CJH » Wed Oct 09, 2019 8:24 am

Hi boglehead community, my husband and I are building a new house and need to decide whether to sell first then buy or the other way around. We know the general advice on this forum is to sell first to minimize risk. But in our situation, there are a few important factors to consider and we would like to hear your thoughts.

First, a few basic stats about us:
Two-income family
Both in mid-30s
Have two young kids
Have 10% downpayment available
Have been maxing out 401k, Roth, and HSA

The new house will be ready in 2-3 months, right around the holiday season and winter. As with any new build, the actual move-in day is hard to predict and things may get delayed for unexpected reasons. We originally were planning to put our current house on the market this November and coordinate the closing to be on the same day for sell and buy. We are in a good school district close to downtown so the house should sell fast at a competitive price. However, we started to worry 1) the new house may not be ready in our expected timeframe, we’d need to pay extra for short-term rental 2) winter is a slow season for real estate, housing price is lower 3) lots of hassle preparing for showing and moving with two little ones, adding a lot of disruption and stress to our lives.

We have already set up home equity line of credit in case we need to use it as part of the downpayment. Debt to income ratio with two mortgages is right at 36%. This is calculated by adding the mortgages, HELOC interest, credit card minimum payment and divide by gross annual income.

If we wait till next spring to sell, there will be overlaps between the two houses, making the transition easier. Of course this route has risk and we will be paying $6000 extra (mortgage on the old house + HELOC interest - principal) for an overlapping period of 5 months. This seems to be a worthwhile investment, since we have more flexibility with the move, less stress and potentially better return from selling the house in spring.

What are your thoughts on this? Is there anything else we should consider? Thanks!

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Re: Dilemma buying a new house

Post by Jack FFR1846 » Wed Oct 09, 2019 8:56 am

Of course the sell/buy being done on the same day is the ultimate best case. But who can do that? 8-) (hint...I did) In my opinion, second best is to sell, rent short term, then buy and move. Why? Because of personal experience with friends who overpriced their house to sell, bought the new, more expensive, upgraded house and then got caught with either market downturns or season (which you're getting to right now). Several of my friends were paying 2 mortgages they couldn't afford for 3 years.
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sjt
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Re: Dilemma buying a new house

Post by sjt » Wed Oct 09, 2019 9:09 am

Jack FFR1846 wrote:
Wed Oct 09, 2019 8:56 am
In my opinion, second best is to sell, rent short term, then buy and move.
I did this two years ago and would do it again. We lived in an apartment for 6 months and moved twice, but everything turned out OK.
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

deikel
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Re: Dilemma buying a new house

Post by deikel » Wed Oct 09, 2019 9:15 am

If you sell first, one advantage is that you actually have to clear out your current home and have the chance to throw away and de-clutter heavily - this will make your move much more pleasant

Buying a newly build house, I would not for a second believe the move in date they give you , especially when they promise 'before Christmas' - that's an age old trick of the trade to lure you into the cozy new home on the cozy nice family holidays

Bottom line, if you think the sales process will be three months or so, start getting your house ready now, list it when you have had the last walk through in the new home (the one where you make note of all the little things that are still not right despite ten promises to be so) and then start moving and showing the old house in parallel - yes some overlap, but hopefully at a good time for the spring market to wake up.

I have seen people being delayed in their move in date by a year....just to give you an idea of what could happen.
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hand
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Re: Dilemma buying a new house

Post by hand » Wed Oct 09, 2019 9:32 am

Note that ther's an element of risk reduction by setting sale price as close to when you set the buy price as possible.

Risk can result in positive or negative returns, but seems likely you care more about the downside risk than the upside possibility even if you seem to be focusing more on the short term costs of your different options.

Sure would be a bummer if housing prices dropped dramatically between when you comitted to a purchase price (or worse when you actually bought) and when you sold.

wilked
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Re: Dilemma buying a new house

Post by wilked » Wed Oct 09, 2019 11:36 am

Agree, sell first, even with a short term rental

This has lots of 'hidden' advantages:

-Forces you to pack / organize / throw away
-Reduces risk should you encounter issues selling
-Keeps you motivated to ensure your builder stays on schedule / meets promises
-Gets you moved on with your life quicker vs a drawn out transition

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sk2101
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Re: Dilemma buying a new house

Post by sk2101 » Wed Oct 09, 2019 11:41 am

Jack FFR1846 wrote:
Wed Oct 09, 2019 8:56 am
second best is to sell, rent short term, then buy and move.
Very sensible advice here. Moreover, construction is often delayed and the rental will give you lots of flexibility.

GT99
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Re: Dilemma buying a new house

Post by GT99 » Wed Oct 09, 2019 11:57 am

We did the "buy first" approach last year. I certainly wouldn't recommend it if it's easily avoidable. In our case, we weren't planning on moving for another year but DW found the "perfect" house and had to have it. We also expected our house to sell quickly - we did do a bridge loan, and the conservative bank appraisal was at the high end of the range we expected to be able to sell in. We listed $25k below the amount I would have listed for if we didn't want to sell fairly quickly.
5 months after listing, we sold for 12% below what we (including the realtor) thought was a competitive starting pricen(and 10% below the appraisal). We actually ended up selling for $20k less than a house down the street that was fairly significantly smaller and less updated had sold for 3 months before we listed.

Point being, it's easier to think a house is going to sell quickly than it is to make it reality.

Hockey10
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Re: Dilemma buying a new house

Post by Hockey10 » Wed Oct 09, 2019 12:03 pm

Have you signed the contract to build the new house yet? Your original post was not clear on this.

In my non-professional opinion, November may be the worst month of the year to list a house for sale. The real estate market is very slow between Thanksgiving and Super Bowl Sunday. Very few buyers are looking for a house during the holidays. Plus, it is the middle of the school year, so many potential buyers will want to move in the summer so their kid's won't have to change schools mid-year.

I once sold a house on Monday and bought the new one on Tuesday. A lot of things had to go right for this to work. I would be very skeptical of buying and selling on the same day.

barnaclebob
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Re: Dilemma buying a new house

Post by barnaclebob » Wed Oct 09, 2019 12:04 pm

If you can afford it go with the buy first, sell second approach. So much less stress. I'd guess it cost us $5k for a 2 month overlap for extra mortgage interest and second mortgage interest on the new house. Ask me how much sleep i've lost over that. Offer was accepted on our new house Mid November and old house closed mid Feb. Hot Seattle suburb 2017 market (but not crazy hot close to city neighborhood) so Your Mileage May Vary.

Its kind of weird once you move out of the first house and into the second but still own the first. You realize, oh yeah we have that other house still. Should probably go check on it.
Last edited by barnaclebob on Wed Oct 09, 2019 12:18 pm, edited 1 time in total.

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FlyAF
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Re: Dilemma buying a new house

Post by FlyAF » Wed Oct 09, 2019 12:14 pm

I recently bought a new construction and sold the old house after moving. That is the ideal situation IMO if you can afford it as it gives you huge flexibility with when to actually move. Our closing date got pushed 3 times on the new place. That said, there were some givens that made us comfortable with doing this. We were selling in a hot market and during peak time (summer). Our house was only 2 years old and immaculate (no kids or animals) and we priced it right. We knew that it would sell over ask in a matter of days (multiple offers over ask in 1st 24 hours it turned out). Lastly, we could afford both houses indefinitely very easily.

Without all of the above and with the time of year that you're facing, I'd probably go ahead and list it to see what the interest is. Short term rental and 2 moves is a pain, but it's smart.

averagelonghorn
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Re: Dilemma buying a new house

Post by averagelonghorn » Wed Oct 09, 2019 12:24 pm

I'm a Realtor, and I'll just say up front that there's not one general answer to this, those pesky individual circumstances always come into play. I'm not giving advice as your agent; trying to put myself in the shoes of the one who had decided to move and is already building a house.

All in all; if it were me moving, AND if (it's a big if!) Buying first; moving, then putting current home on market is affordable to you, that's what I'd do. Here are my reasons for that.

1) The biggest reason: It's annoying to live in your house and have it ready to show all the time, especially with kids.

2) You really don't know when the new house will be ready; so it can be hard to impossible to time things perfectly.

3) Your best pricing power is usually spring into very early summer.... but there can be a ton of exceptions to that.... Off season might be slower, but people looking tend to be more serious.

But of course a LOT of individual circumstances can change that around... If you keep an exceedingly clean, pet free (and de-personalized) house and are gone most of the day such that you can say "go ahead" whenever anyone wants to look AND you have a plan B like moving in with family at a moment's notice if you get an offer for a quick close before your new house is ready; then go ahead and put it on the market a reasonable price. It can take longer than you expect to sell.... I'd just count on that happening and count your blessings if you sell quickly.

So again, really only if you can afford to pay 2 mortgages for a while; there's a lot of stress reduction to buy -- move -- then sell, even if it isn't the financially optimal move; but if carrying 2 mortgages will be highly stressful; do your best to sell as soon as you can; if you have a plan for where you'll live if you have to wait for construction to complete.

(I See FlyAF had similar points and was posting at the same time; but I'm submitting this reply anyway ;-) )

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Re: Dilemma buying a new house

Post by Dottie57 » Wed Oct 09, 2019 12:28 pm

Jack FFR1846 wrote:
Wed Oct 09, 2019 8:56 am
Of course the sell/buy being done on the same day is the ultimate best case. But who can do that? 8-) (hint...I did) In my opinion, second best is to sell, rent short term, then buy and move. Why? Because of personal experience with friends who overpriced their house to sell, bought the new, more expensive, upgraded house and then got caught with either market downturns or season (which you're getting to right now). Several of my friends were paying 2 mortgages they couldn't afford for 3 years.
This. It was awful to watch a co-worker have to sell his stock to pay for two houses.

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Re: Dilemma buying a new house

Post by RickBoglehead » Wed Oct 09, 2019 12:33 pm

You will also be paying two property tax bills for that overlapping period.
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Re: Dilemma buying a new house

Post by goodenyou » Wed Oct 09, 2019 1:02 pm

I am preparing for a similar situation. I have resigned to the fact that I cannot tolerate the uncertainty of selling my current house in a timely fashion concurrently to adding additional costs of new house building. We bought land in a development that we really liked 2 years ago and paid cash for the lot. Thankfully. there is no time requirement to build. I just have to pay property taxes ( a lot in Texas) and (small) HOA fees. I would rather rent until I can figure out how much and when the capital will be released out of my current home. Time has a way of changing plans on size, cost and layout as well. I am already think about designing the house for "aging in place" :oops:
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alfaspider
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Re: Dilemma buying a new house

Post by alfaspider » Wed Oct 09, 2019 1:06 pm

Dottie57 wrote:
Wed Oct 09, 2019 12:28 pm
Jack FFR1846 wrote:
Wed Oct 09, 2019 8:56 am
Of course the sell/buy being done on the same day is the ultimate best case. But who can do that? 8-) (hint...I did) In my opinion, second best is to sell, rent short term, then buy and move. Why? Because of personal experience with friends who overpriced their house to sell, bought the new, more expensive, upgraded house and then got caught with either market downturns or season (which you're getting to right now). Several of my friends were paying 2 mortgages they couldn't afford for 3 years.
This. It was awful to watch a co-worker have to sell his stock to pay for two houses.
I'm in the position of owning two houses at the moment. Yes, if you can swing it, the way to do it is to sell house #1 first. But the problem was that we were looking for something very specific with the new house and needed to pounce when it came up. I had been watching the market for at least 3 years waiting. We are also doing work on the new house with an indeterminate end-date, and really don't want to be left stuck with two small kids and the new house still under construction. If you have a more generalized goal for the new house, it's easier to sell the old first.

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Re: Dilemma buying a new house

Post by Dottie57 » Wed Oct 09, 2019 1:24 pm

alfaspider wrote:
Wed Oct 09, 2019 1:06 pm
Dottie57 wrote:
Wed Oct 09, 2019 12:28 pm
Jack FFR1846 wrote:
Wed Oct 09, 2019 8:56 am
Of course the sell/buy being done on the same day is the ultimate best case. But who can do that? 8-) (hint...I did) In my opinion, second best is to sell, rent short term, then buy and move. Why? Because of personal experience with friends who overpriced their house to sell, bought the new, more expensive, upgraded house and then got caught with either market downturns or season (which you're getting to right now). Several of my friends were paying 2 mortgages they couldn't afford for 3 years.
This. It was awful to watch a co-worker have to sell his stock to pay for two houses.
I'm in the position of owning two houses at the moment. Yes, if you can swing it, the way to do it is to sell house #1 first. But the problem was that we were looking for something very specific with the new house and needed to pounce when it came up. I had been watching the market for at least 3 years waiting. We are also doing work on the new house with an indeterminate end-date, and really don't want to be left stuck with two small kids and the new house still under construction. If you have a more generalized goal for the new house, it's easier to sell the old first.
My co-worker lost over 100k carrying 2 houses. There is risk in not selling first. He took a big hit.

alfaspider
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Re: Dilemma buying a new house

Post by alfaspider » Wed Oct 09, 2019 1:39 pm

Dottie57 wrote:
Wed Oct 09, 2019 1:24 pm
alfaspider wrote:
Wed Oct 09, 2019 1:06 pm
Dottie57 wrote:
Wed Oct 09, 2019 12:28 pm
Jack FFR1846 wrote:
Wed Oct 09, 2019 8:56 am
Of course the sell/buy being done on the same day is the ultimate best case. But who can do that? 8-) (hint...I did) In my opinion, second best is to sell, rent short term, then buy and move. Why? Because of personal experience with friends who overpriced their house to sell, bought the new, more expensive, upgraded house and then got caught with either market downturns or season (which you're getting to right now). Several of my friends were paying 2 mortgages they couldn't afford for 3 years.
This. It was awful to watch a co-worker have to sell his stock to pay for two houses.
I'm in the position of owning two houses at the moment. Yes, if you can swing it, the way to do it is to sell house #1 first. But the problem was that we were looking for something very specific with the new house and needed to pounce when it came up. I had been watching the market for at least 3 years waiting. We are also doing work on the new house with an indeterminate end-date, and really don't want to be left stuck with two small kids and the new house still under construction. If you have a more generalized goal for the new house, it's easier to sell the old first.
My co-worker lost over 100k carrying 2 houses. There is risk in not selling first. He took a big hit.
It's hard to say what you "lost" because there's no telling what would have happened if you sold the old house first in terms of price, etc. The only thing you can really look at is interest/tax/utilities, but it seems hard to get that to $100k unless you are talking years. If you are holding a house for years, it's because you aren't willing to price the house at market.

Dottie57
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Re: Dilemma buying a new house

Post by Dottie57 » Wed Oct 09, 2019 1:52 pm

alfaspider wrote:
Wed Oct 09, 2019 1:39 pm
Dottie57 wrote:
Wed Oct 09, 2019 1:24 pm
alfaspider wrote:
Wed Oct 09, 2019 1:06 pm
Dottie57 wrote:
Wed Oct 09, 2019 12:28 pm
Jack FFR1846 wrote:
Wed Oct 09, 2019 8:56 am
Of course the sell/buy being done on the same day is the ultimate best case. But who can do that? 8-) (hint...I did) In my opinion, second best is to sell, rent short term, then buy and move. Why? Because of personal experience with friends who overpriced their house to sell, bought the new, more expensive, upgraded house and then got caught with either market downturns or season (which you're getting to right now). Several of my friends were paying 2 mortgages they couldn't afford for 3 years.
This. It was awful to watch a co-worker have to sell his stock to pay for two houses.
I'm in the position of owning two houses at the moment. Yes, if you can swing it, the way to do it is to sell house #1 first. But the problem was that we were looking for something very specific with the new house and needed to pounce when it came up. I had been watching the market for at least 3 years waiting. We are also doing work on the new house with an indeterminate end-date, and really don't want to be left stuck with two small kids and the new house still under construction. If you have a more generalized goal for the new house, it's easier to sell the old first.
My co-worker lost over 100k carrying 2 houses. There is risk in not selling first. He took a big hit.
It's hard to say what you "lost" because there's no telling what would have happened if you sold the old house first in terms of price, etc. The only thing you can really look at is interest/tax/utilities, but it seems hard to get that to $100k unless you are talking years. If you are holding a house for years, it's because you aren't willing to price the house at market.
Co-worker was not able to sell for at least 24 months and carried two mortgages and when he did sell it was for 50k less than it was worth when first listed. This was in he 2007-2009 time frame.

FeesR-BullNotBullish
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Re: Dilemma buying a new house

Post by FeesR-BullNotBullish » Wed Oct 09, 2019 1:53 pm

It sounds like you're getting great advice on both sides, and the path you choose likely depends on your personal appetite for risk.

I'm in the move first camp for reasons already stated. When it comes to selling your house quickly, the best Dave Ramsey advice I followed was how to choose a realtor. He emphasized hiring an agent who sells a lot of homes. When I heard the advice on the show, I think it was 24 homes per year. But the link below says 35 homes per year which sounds unrealistically high to me. I think a high volume realtor mitigates the risk of your house sitting on the market because (s)he will price your home realistically and advise you on staging and cost efficient improvements to sell.

https://www.daveramsey.com/blog/selling-agent-for-home

I wish you the best in your new house.
Last edited by FeesR-BullNotBullish on Wed Oct 09, 2019 1:55 pm, edited 1 time in total.

alfaspider
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Re: Dilemma buying a new house

Post by alfaspider » Wed Oct 09, 2019 1:55 pm

Dottie57 wrote:
Wed Oct 09, 2019 1:52 pm
alfaspider wrote:
Wed Oct 09, 2019 1:39 pm
Dottie57 wrote:
Wed Oct 09, 2019 1:24 pm
alfaspider wrote:
Wed Oct 09, 2019 1:06 pm
Dottie57 wrote:
Wed Oct 09, 2019 12:28 pm


This. It was awful to watch a co-worker have to sell his stock to pay for two houses.
I'm in the position of owning two houses at the moment. Yes, if you can swing it, the way to do it is to sell house #1 first. But the problem was that we were looking for something very specific with the new house and needed to pounce when it came up. I had been watching the market for at least 3 years waiting. We are also doing work on the new house with an indeterminate end-date, and really don't want to be left stuck with two small kids and the new house still under construction. If you have a more generalized goal for the new house, it's easier to sell the old first.
My co-worker lost over 100k carrying 2 houses. There is risk in not selling first. He took a big hit.
It's hard to say what you "lost" because there's no telling what would have happened if you sold the old house first in terms of price, etc. The only thing you can really look at is interest/tax/utilities, but it seems hard to get that to $100k unless you are talking years. If you are holding a house for years, it's because you aren't willing to price the house at market.
Co-worker was not able to sell for at least 24 months and carried two mortgages and when he did sell it was for 50k less than it was worth when first listed. This was in he 2007-2009 time frame.
Sounds like it was listed too high when he listed it in 2007. Doubtful it was really worth as much as he thought it was.

alfaspider
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Re: Dilemma buying a new house

Post by alfaspider » Wed Oct 09, 2019 1:56 pm

FeesR-BullNotBullish wrote:
Wed Oct 09, 2019 1:53 pm
It sounds like you're getting great advice on both sides, and the path you choose likely depends on your personal appetite for risk.

I'm in the move first camp for reasons already stated. When it comes to selling your house quickly, the best Dave Ramsey advice I followed was how to choose a realtor. He emphasized hiring an agent who sells a lot of homes. When I heard the advice on the show, I think it was 24 homes per year. But the link below says 35 homes per year which sounds unrealistically high to me. I think a high volume realtor mitigates the risk of your house sitting on the market because (s)he will price your home realistically and advise you on staging and cost efficient improvements to sell.

https://www.daveramsey.com/blog/selling-agent-for-home

I wish you the best in your new house.
Personally, I tend to believe the realtor doesn't matter much in the internet age. You need good photos and a competitive price. Anyone who is serious about buying will be looking on Zillow, Redfin, etc.

barnaclebob
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Re: Dilemma buying a new house

Post by barnaclebob » Wed Oct 09, 2019 2:09 pm

Dottie57 wrote:
Wed Oct 09, 2019 1:52 pm
alfaspider wrote:
Wed Oct 09, 2019 1:39 pm
Dottie57 wrote:
Wed Oct 09, 2019 1:24 pm
alfaspider wrote:
Wed Oct 09, 2019 1:06 pm
Dottie57 wrote:
Wed Oct 09, 2019 12:28 pm


This. It was awful to watch a co-worker have to sell his stock to pay for two houses.
I'm in the position of owning two houses at the moment. Yes, if you can swing it, the way to do it is to sell house #1 first. But the problem was that we were looking for something very specific with the new house and needed to pounce when it came up. I had been watching the market for at least 3 years waiting. We are also doing work on the new house with an indeterminate end-date, and really don't want to be left stuck with two small kids and the new house still under construction. If you have a more generalized goal for the new house, it's easier to sell the old first.
My co-worker lost over 100k carrying 2 houses. There is risk in not selling first. He took a big hit.
It's hard to say what you "lost" because there's no telling what would have happened if you sold the old house first in terms of price, etc. The only thing you can really look at is interest/tax/utilities, but it seems hard to get that to $100k unless you are talking years. If you are holding a house for years, it's because you aren't willing to price the house at market.
Co-worker was not able to sell for at least 24 months and carried two mortgages and when he did sell it was for 50k less than it was worth when first listed. This was in he 2007-2009 time frame.
Only a 50k loss during the crash means the house wasn't worth much or he was being stubborn on price. If you are in that kind of situation you need to stop the bleeding ASAP not drag it out for 2 years.

Olemiss540
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Re: Dilemma buying a new house

Post by Olemiss540 » Wed Oct 09, 2019 2:39 pm

I would be MUCH more stressed carrying two mortgage payments than I would be moving in a hurry or moving temporarily into short term rental housing. MUCH. MUCH. LESS.

Did you mention something about "minimum" credit card payments when calculating DTI? Can you explain? Do you carry credit card debt? What's your income and networth?

Only way I would personally consider owning two houses is if the convenience would not impact my financial situation negatively under worst case scenarios. It would take $2 million dollars or so in NW for that to be the case.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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Re: Dilemma buying a new house

Post by jharkin » Wed Oct 09, 2019 2:41 pm

Both options have some risk. We moved this year and bought our new house first, then put existing house on the market once new house was firmly under contract. We got LUCKY in that existing house sold in 3 days for asking price and we had about 3 weeks overlap between closings and no double payments. (On paper we where about 35% DTI for a short time). We went into it eyes open having run the numbers and confident that we could have cash flowed both houses indefinitely if need be. Not much wiggle room but doable.

But as mentioned above many people dont get lucky and some have been financially devastated. I see that other houses in my town have lingered for months with no offers. Our house was maintained immaculately, is right in the first time buyer sweet spot, plus we priced it to sell and did professional staging. You have to put in the effort to make the so called "easy" sale easy.


Flip side is I know multiple people doing new builds this year who sold first and then moved, and they are also going though nightmares of multiple moves, short term rentals running out, builders not being ready on on time, financing issues.

DonIce
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Re: Dilemma buying a new house

Post by DonIce » Wed Oct 09, 2019 2:42 pm

Sell first, put your stuff in storage, go on vacation somewhere til the new house is ready to move into.

chevca
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Re: Dilemma buying a new house

Post by chevca » Wed Oct 09, 2019 4:46 pm

Seems like the time to figure this out should have been before buying the new house?? :happy

But, that's already happened. Obviously you qualified for the new mortgage owning both houses and no contingencies were needed with the new one. Or, at least no mention of complications those ways.

Personally, I'd just go the easy route. Live in the current house until the new one is done, move to the new one, and then sell the old one. Yes, you may pay two mortgages for a little bit. Remember, you usually don't make the first mortgage payment for a month or two after closing on the new one. And, unless you can time it perfectly selling the old and closing on the new, you're paying rent, storage, maybe both, or possibly two mortgages in some fashion of the prior anyway. Make it easy on yourselves. The move is going to have costs no matter which way you go... unless timing could work out perfectly. Just my take on it.

One other way to think about is listing your current house with a rent back clause or contingency. Saying you are selling, but will need to rent back the current house for 30 or 60 days until the new one is done. Couldn't hurt to list it that way. If you get a buyer willing to accept that, great. If no one bites, oh well. Although, that still involves the keeping it clean, kids, showings, holidays, and hassles that way. Just an option to consider.

Topic Author
CJH
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Re: Dilemma buying a new house

Post by CJH » Wed Oct 09, 2019 5:29 pm

Lots of good points here. Thank you all for sharing your thoughts.

Answers to a few clarifying questions:
1. We signed the construction contract earlier this year. The base price was determined at that time and we always planed to use the proceeds from selling current house to lower the new loan.
2. We don’t have any credit card debt, student loan or car loan. DTI ratio is calculated using the minimum payment of credit card balance, not the full balance.

If we look at this purely from an investment standpoint, best case scenario would be to sell the old house in peak season and buy a new one in low season. But because we need housing in between and we won’t even consider moving if a good upgraded house is not available, we are caught in this dilemma of sell first buy second or move first sell second (technically speaking we’ve already made the purchase when we signed the contract to build). We are fortunate that we can qualify and afford two mortgages at the same time, but we definitely don’t want hurt our financial by paying lots of extra tax/interest/insurance/rent/moving cost. Therefore we’ve been running the numbers for all kinds of scenarios and comparing options.

Topic Author
CJH
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Re: Dilemma buying a new house

Post by CJH » Wed Oct 09, 2019 5:51 pm

chevca wrote:
Wed Oct 09, 2019 4:46 pm
Seems like the time to figure this out should have been before buying the new house?? :happy

But, that's already happened. Obviously you qualified for the new mortgage owning both houses and no contingencies were needed with the new one. Or, at least no mention of complications those ways.

Personally, I'd just go the easy route. Live in the current house until the new one is done, move to the new one, and then sell the old one. Yes, you may pay two mortgages for a little bit. Remember, you usually don't make the first mortgage payment for a month or two after closing on the new one. And, unless you can time it perfectly selling the old and closing on the new, you're paying rent, storage, maybe both, or possibly two mortgages in some fashion of the prior anyway. Make it easy on yourselves. The move is going to have costs no matter which way you go... unless timing could work out perfectly. Just my take on it.

One other way to think about is listing your current house with a rent back clause or contingency. Saying you are selling, but will need to rent back the current house for 30 or 60 days until the new one is done. Couldn't hurt to list it that way. If you get a buyer willing to accept that, great. If no one bites, oh well. Although, that still involves the keeping it clean, kids, showings, holidays, and hassles that way. Just an option to consider.
We have heard of the rent back contingency. If we are in a good season now, will definitely consider putting our house on the market with this clause. Does it deter buyers or reduce the competitiveness of the sell?

Another option I have considered is if for whatever reason we can’t sell the house, we could do a cash out refinance on the current house, pay off the HELOC, and rent the house out. We have lots of equity in this house, the rent should fully cover all expenses.

HornedToad
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Re: Dilemma buying a new house

Post by HornedToad » Wed Oct 09, 2019 6:02 pm

CJH wrote:
Wed Oct 09, 2019 8:24 am

We have already set up home equity line of credit in case we need to use it as part of the downpayment. Debt to income ratio with two mortgages is right at 36%. This is calculated by adding the mortgages, HELOC interest, credit card minimum payment and divide by gross annual income.
The above seems like a risk. Credit card minimum payment for Debt to Income is counter-intuitive. How big is the credit card debt holding you back, as it might drastically effect affordability?

sls239
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Re: Dilemma buying a new house

Post by sls239 » Wed Oct 09, 2019 6:19 pm

I've done all the combinations. Sell rent buy; same day close; buy then sell.

My favorite was buy then sell.

And you know who buys homes winter? People who really don't have much choice as to when they move and don't want to rent or people who have been waiting for a house like yours to come on the market. That can get you a good price and a shorter closing even with fewer buyers.

Ironically, one time we attempted to sell rent buy, but the house we were renting sold before the house we were trying to sell (different states), so it was try and find another rental or buy a house and carry two mortgages anyway. Moving twice is a PITA, moving 3 times is well...

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Watty
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Re: Dilemma buying a new house

Post by Watty » Wed Oct 09, 2019 6:59 pm

A couple of things that may not have been mentioned yet;

1) If you own two houses and move out it will be obvious that no one is living in the old house. To me that screams "motivated seller!" and at least if I was a potential buyer I would likely make a lower offer and tend to play hardball when it comes to negotiating things like issues that are found in the home inspection.

2) We can't talk politics here but there is a lot that is going on in the world right now. If you wait until next spring to try to sell the house then the housing market could be much worse then especially if interest rates go up sharply.

3) All real estate is local so what is best to do really depends on your local market. It would be good to talk to several real estate agents about your house to see what they think. The last time I hired a real estate agent I talked to at least six of them on the phone and then let three of them see the house and then present their Comparative Market Analysis in person. That was a great learning experience for me and it helped me pick an agent that would be good with dealing some issues that the house had.(It was in a flood plain and had prior flood damage.)

4) Some home insurance companies limit coverage of houses that are vacant for more than 30 days. Winters can be hard on houses and something like a power outage or a leaking frozen pipe can become a major problem if there is no one in the house that would notice it right away. Leaving the house vacant for a long time gives Murphy's Law a big opportunity to cause problems. Moving twice is a hassle but it does greatly reduce the chance of unexpected problems.

5) Think outside the box on where you might live for a few months. I once heard of someone that had parents that lived in the area but the parents house would have been small for them to live with the parents for an extended time. What they ended up doing was renting a condo in Florida for the parents to live in for a few months while they lived in their parents house. The Florida one bedroom condo was less expensive than a large local house or apartment and the parents enjoyed having a free vacation on the beach. (I am not sure but they may have had a series of condos at different places.)

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