Would you sell your homes?

[Gregmal]

Basically wondering how folks think about this. For myself, I am not sure I’d consider it worth it, to avoid a temporary housing correction of 10-20% considering:

 

-transaction costs

-primary/secondary homes have utilization value to a person

-I really, really like having that 30 year fixed debt at 3-4%.
-what do I do with the proceeds after it’s sold?

-there’s no assurances prices are going to even decline that much, or at all.

 

Maybe with a portion of my investment properties I would consider selling, but even there it’s still not clear to me that it’s worth it.

 

Curious how others think about this. 

 

 

Edited April 24, 2022 by Gregmal

[SharperDingaan]

Selling the family hovel, is a 'joint' decision - she decides, you're just informed. Most aren't going to sell unless there is a very clear need; divorce, downsize, infirm spouse, etc. Investment pro/con has very little to do with it, though a great many prefer to think otherwise.

 

We've never owned a vacation home; we want a place we rent it, and almost always in a different place.

We own a few equity interests in small 'pensions', but always on the European model, and on a hobby basis. The 4% ownership thing, and 2-weeks/yr on site in an oversight capacity. We can travel to different places, but we're working while we're there.

 

Were it me only, I would have no hesitation ruthlessly flipping investment property on a dime, and exploiting financing.

But I would also have a realtors license, at least 1-2 trade certs, and would treat the whole thing as a side hustle in its own corporate shell. Always the agent on one side of every trade, always rolling 3-4 properties, and one sell/buy roughly every 9 months. Stop when the day job pays more, &/or the future spouse shows up. Let the corporate shell go dormant, earning a passive income. 

 

Home/investment have different risk profiles...... the reality is that some can successfully mix the two, but most cannot.

I know my limitations!

 

SD

 

Edited April 24, 2022 by SharperDingaan

[crs223]

2006 housing bubble took 6 years peak to trough.  $1M home will drop $200k.  Rent while you wait will be $4,000/mo * 72 months = $288k

Edited April 24, 2022 by crs223

[gfp]

Yeah, the only thing that would convince me to sell rental properties would be a belief that the costs to insure them (flood + hazard) would be likely to become uneconomic in the future.  If the insurance has already become uneconomic, it's too late, and the market price that you could sell for is probably already impaired.  If you think you see the writing on the wall for future insurance / property tax expenses, it may make sense to sell a few of the worst offenders.  Especially the ones where the interest rate resets every 5 years (5+ units).

[Viking]

I do play this game with some stocks i own (sell a portion on a nice run up; lock in a nice gain; anticipating i will likely be able to re-buy on the next 10-20% decline). And usually in my tax free accounts. 
 

Real estate? No. 
 

Now i have only ever owned a primary home - no vacation or investment property. So for me real estate has been primarily for living; the investing component has been secondary. 
 

Why not own real estate as an investment? A big reason is liquidity. Another is complexity. Another is fit. - Real estate is hard to sell. Transactions costs are significant. There are tax considerations. There are the maintenance costs. And the tenant issues. 
- the leverage provided from a mortgage can make gains from real estate a life changer
—————

Now a year ago i did cash out of the Vancouver real estate market - we sold our primary residence. The decision was driven by quality of life decisions - not financial. However, financially, selling the house was an absolute home run. We sold our house for more than twice what we paid for it 11 years before. Because we had a mortgage (avg interest rate over 11 years was about 3.25%!), by selling we locked in a 3x tax free gain on our initial investment (gains on sale of primary residence are not taxed in Canada). Middle of last year proceeds from our house sale (closed in of June) were then flipped into stocks. Today, proceeds from our house have grown by a little over 30% in 10 months (1/3 of initial proceeds from house sale were flipped into tax free accounts and 2/3 are in taxable accounts). And these proceeds will now keep compounding… irrespective of what happens to the real estate market in Vancouver. Love it. 
 

Today we rent a 4 bedroom 2,300 square foot house in one of the nicest parts of Vancouver (walking distance to multiple beaches and some of the best restaurants in town). Rent is $5,075/month… was $5,000 and just increased 1.5% (rent increases are controlled in Vancouver :-). House is likely worth close to $3 million. 2 of our 3 kids will be moving back home for the summer. I am already starting to think about where i want to live next… Would be pretty cool to live in Europe for 3 or 6 months… We will see.

—————

Some of the proceeds from our house sale that are in taxable accounts will be used this summer to provide the seed money to kick start savings plans (tax free plans) for each of our three kids. My guess is by the time they graduate from university each of them will have about $50,000 in a Tax Free Savings Account. So they will graduate from university with no debt and have a nice head start in terms of savings (and a vehicle - and skin in the game - for me to teach them more about investing). Another unanticipated financial benefit of selling our principal residence (we did not have the cash - in taxable accounts - to do this before selling our house) that could really pay off in the coming years as compound interest works its magic. 

—————

Will i own real estate in the future? Probably. If we saw a correction in real estate prices in Vancouver in the next couple of years i would likely seriously consider buying a 2 bedroom unit. We have 3 kids - at least one or two who will likely be long term residents of Vancouver. A one bedroom rents for about $1,500; 2 bedroom close to $2,800. One of my kids staying there solves the renter problem. They can rent the second bedroom out to a buddy and that will help cover some of the cost problem. Most importantly it would provide a stepping  stone for one of my kids to be able to live/own long term in one of the most expensive cities in the world. So a blend of quality of life/financial decision criteria. Something i am just starting to think about (my wife thinks i am a little nuts)…

Edited April 24, 2022 by Viking

[Blugolds]

I think it totally depends on a personal timeline. 

 

Primary home, 10% is nothing, that’s a rounding error higher than agent commissions  to facilitate the transaction, combine that with family history, memories, kids etc and if you;’re happy with where you are at…I doubt many would pull the trigger, especially if they think they will remain in the home otherwise for the next decade or more. 

 

The same with investment and vacation homes…if they are performing well, and/or I enjoy using them, and I don’t need the money, why bother..10-20% isn’t going to affect anything IMO if you’re looking out a decade or more. 

 

I am currently getting ready to o sell a vacation home that is about 4x more than I paid for it 10 years ago, but that is mainly due to life changes, I initially purchased it for my mother to live in but she has since passed and so planes change, I entertained the idea of coni tuning to rent it out but I would rather lock in the gains now an move on, a lot of that has to do with the fact that I have a different vacation property that we enjoy spending time at more…I don’t need two and I’m sick of dealing with renters etc. 

 

Previously when I was younger I viewed homes as purely investment plays…buy as soon as I was able, ALWAYS had roommates in college that covered my payments and gave me bar money, I even rented a close to a buddy once lol, the houses were that packed…it was a win win really, cheap rent for them, but we had so many guys in there that I was bringing in double what the mortgage, taxes,insurance, utilities were each month…plus as a bonus…it was fun, always had someone to do something with because it was a house full of guys, somebody’s as dating someone and they would bring their girlfriends over etc…it was a blast. Nowadays they would call that a “house hack” but it just made sense to me and more importantly it was a necessity. I couldn’t afford to cover everything myself without have it roommates while going to school. 

 

The ability to leverage with a mortgage…then have roommates before your start a family, that cover all expenses for 4-5 years (Actually 6 because it included grad school) and then sell that property as your primary residence and take those gains tax free is a powerful tool. The next property I purchased as a primary residence and fixed it up, I had moved for work and rented a bedroom from a friend in his basement but would go back to the property on days off and weekends while I did the reno…if you’re willing to live a little out of the ordinary and use those benefits to the max…basically buying and selling every couple years for the tax free gains, it really starts to add up. 

 

Now, as most of you are probably aware, when you have other opinions to take into consideration (wife/kids) it isn’t as easy to get them to sleep on plywood floors among a pile of tools and building materials while you take a couple months gutting a house lol…but for a motivated single guy you can really hustle. I wouldn’t sell RE to avoid 10-20% unless I was probably gonna do it anyway…just like I wouldn’t sell my BRK to avoid a 10-20% loss if I plan on holding it for the next 20+ years. My opinion has slightly changed though…before I was with the significant other, I never viewed a house as a “home”…it was nothing more than a pile of building materials to me and that’s the honest truth, there just wasn’t any emotional attachment. I even remodeled some of the properties while I had roommates, they sometimes complained as one of the bathrooms was gutted and everyone had to share the other…at the time (ruthless) I said, hey man you don’t have a lease, if you don’t like it, move out…but they’re rent was half of what it would be any where else..so that usually squashed any complaints. 

 

LIke stocks, if the market drops 20-30-40% I wouldn’t be looking to sell to avoid the lose beforehand, I would just be salivating at deals that I could find as available…to buy more…

 

 

[Value_Added]

Long post but I wanted to explain it well to put a better light on our decision making. We sold 3 of our investment properties (vacation rentals) in November of 2020 after owning them for 7 yrs, 4 yrs, and 2 yrs. Probably a mistake in the long run but the market offered us an amazing opportunity and after weighing the then-current environment, we decided to sell.  They we’re amazingly profitable and overall, I mostly enjoyed managing them even with a full time job. 
 

It was kind of a perfect storm of factors hitting all at once that pushed us into selling.  It was a VERY tough decision because they performed so well…better than anything I’ll ever invest in again honestly.  We in hindsight timed the market perfectly when we entered, though, not so much when we exited.  We got our first property by putting down $40k including down payment, closing costs, and minor repairs and it was immediately earning about a 25% annual cash on cash return.  We used the FCF to purchase our second and then the third property.  We entered the market when it was relatively depressed and values were still reasonable compared to the rents vacation rentals brought in around the area.  Vacation rentals weren’t hugely popular but we still managed to maintain about 70% occupancy on our first property because the market wasn’t overly saturated versus the demand at the time.  By the time we got our second, the vacation rental market was heating up as far as travelers accepting them and renting them, but the housing prices weren’t really on the rise to reflect it yet.  Hell, our second one didn’t even appraise out at an already cheap asking price and the realtors cut their commission to make the deal work.  By the time we got our third, prices began to reflect to popularity of vacation rentals and we were rolling with about 85% - 90% occupancy.  Probably an easy 40% yearly cash on cash return averaged between the 3 of them at this point.  We relied heavily on ABNB and Vrbo, but had a huge focus on obtaining more direct bookings through our website because I knew relying on listing sites would create more risk because we lacked overall control. The market was very competitive and nearly impossible to rank on google for our personal booking site without some serious cash for SEO.  So, we kept relying on the listing sites.

 

Enter Covid and holy hell did it change things in short order.  Massive cancellations (to be expected) and mass confusion as restrictions rolled out state by state.  We got through the initial phase thinking the worst was over but no way.  Vrbo wasn’t too bad but ABNB took the ownership and decision making completely away from the owners and began overwriting our policies and contracts that the guests signed giving full refunds at anytime a guest asked for it.  Day of check-in, a day after check-in…didn’t matter.  Guests took huge advantage of it and we couldn’t do anything about it.  
 

Needless to say, we and our business felt very vulnerable to something completely out of our hands.  What was once our biggest asset, became our biggest liability.  Even with an amazing rental business and high returns, I couldn’t see going forward with both Vrbo and ABNB getting bigger and gaining more authority in the market.  It was a huge headache and I could no longer sleep well at night because I couldn’t rely on our reservations going through.  
 

Demand skyrocketed and reservations were easy to get even after raising rates nearly double during certain times…but you only got paid if they actually stayed and many people took advantage of the rules that Vrbo and especially ABNB put in place to protect the guests from Covid.  Ultimately the quality of guest quickly deteriorated and while we were making tons of money from the boom Covid caused, I felt more nervous about the future than when we first entered the market as rookies.

 

Property prices eventually soared because of the huge rental demand and increased rental prices and after weighing our options, we sold.  Again, probably a mistake but I don’t regret it one bit because of the huge uncertainty I felt knowing I had to rely on Vrbo and ABNB who basically owned my ass.

 

The investments worked out great

as I was able generate an approximate 52% CAGR after taxes over the 7 years.  We weren’t timing the market by any means…  We simply felt the market presented us a gift after the factors mentioned above took place.  Turns out we sold too early and if we sold now we would’ve had a CAGR of 64%. But I don’t regret selling when we did and wouldn’t change a thing.  
 

I think the vacation rental market has a lot of change yet to occur but it will likely work out very well over the long term.  Sometimes if I really think about it I feel as though it was a short sighted and emotional decision to sell, but I very quickly remember the feeling of having the rug pulled out from under us and return to the frame of mind which is happy we sold.  The story changed and I couldn’t see a certain future any longer…

 

[formthirteen]

6 hours ago, Value_Added said:

as I was able generate an approximate 52% CAGR after taxes over the 7 years.  We weren’t timing the market by any means…  We simply felt the market presented us a gift after the factors mentioned above took place.  Turns out we sold too early and if we sold now we would’ve had a CAGR of 64%. But I don’t regret selling when we did and wouldn’t change a thing.  

 

Very interesting. Congratulations and thanks for sharing. I'm guessing the leverage was ~5-10x.

[Value_Added]

2 hours ago, formthirteen said:

 

Very interesting. Congratulations and thanks for sharing. I'm guessing the leverage was ~5-10x.

 

About 4.25x.  Had about $100k in equity and $425k in mortgages. 

[rkbabang]

I'd imagine each category is slightly more responsive to market forces than the previous.  I wouldn't sell my main home unless I was buying another one because I wanted to relocate regardless of what the market is doing.  If you sell your home for market reasons where do you live?  Rent?   I can't see selling a vacation home purely for market reasons either.  Selling a vacation home if you are sick of vacationing there and you want to buy a vacation home somewhere else, or for personal financial reasons such as you can no longer afford it or want to put the money into something else.  Investment property is probably the most responsive to market ups and downs.  I don't own any pure investment real estate as my vacation home doubles as a short term rental.  I wouldn't sell it, because I want it as a vacation home and could afford to keep it even if I stopped renting it.

 

Edited April 25, 2022 by rkbabang

[fareastwarriors]

For primary, I wouldn't even bat an eye if the prices around my neighborhood were down 20%. Down 20% from all time high still seems crazy expensive for my little old neighborhood. I wouldn't sell unless I need to move for other reasons like work or family. 

 

For investments, again I wouldn't sell. Especially in California, the property tax situation favors long term holding.

 

Ex: I pay about $5,000 for property tax for a house that's worth about $1.2M.

If I buy another $1.2M house, I would pay $18,000 instead per year.

 

To battle against landlord unfriendly laws, I'm trying to scale up. If 1 out of 2 tenants not paying, that's a major issue but if 1 out of 20, it's still manageable. We'll see how this works out. 

 

No vacation home yet. I'm slacking!

 

 

 

[Gregmal]

Some interesting and obvious takeaways from all this I’d say.

[Jaygo]

I would not consider it at all, too much transactional costs. I own a decent brick home on 5 acres of hardwood forest 30 minutes from Toronto. This is my inflation hedge, my firewood supply, a roof over our heads and I run my business out of it. I hold a largish mortgage with 3 years until renewal. Wish it was longer term now that inflation is driving the Canadian 5 year up.

 

Even if I knew of a 40 % drawdown on the horizon I dont think i would sell. Fuck it and ride the wave, plus I hate moving.

[Xerxes]

I have three tranches on my house. 

tranches 1 and 2 were locked in at about 1.7% for 5 year in the depth of the Covid. Late 2020 and early 2021. 
 

tranche 3 was coming due in a few months. I got nailed with the fix rates, as oil prices spiked in March. Finally opted to lock in only for 2 years for 3.1% up from 2.68% which was at its end. 

the 5 year fixed was too crazy for my taste 

[thepupil]

NFW. t-costs are 9% of asset value and large chunk of equity and i have a 2.875% 29 yr mortgage. 

 

my home is "expensive". It's probably at about a 2.8-3.3% cap rate (normalized maintenance/capex is hard to guess)  and 3x+ the median US home despite being ~1900sf/80 yrs old....but because I have fixed low cost leverage and t-costs are a very large % of the equity, there's no way I could reinvest the equity at a better return and that's before all the psychic benefits of ownership.

 

also imputed rent on primary doesn't show up on your 1040. this is important consideration. 

 

only reason I'd sell is if moving geographies and didn't want to deal w/ being a subscale landlord in a landlord unfriendly jurisdiction. 

[thepupil]

 

Because I wish to turn this into a thread bragging about my backyard. The prospect of a lousy 20% correction isn’t going to pry my little plot of well located land from me. 

[Jaygo]

Wow Pupil That tree is worth a brag alone. If its a Japanese maple its may be worth 10k alone, knowing the house we bought in 2020 is our forever home I spent close to 1k for an Autumn Moon and Crimson queen Japonicus to grow into natural masterpieces we can appreciate for decades. 

.Love the white Muskoka chairs too. 

 

 

[thepupil]

1 hour ago, Jaygo said:

Wow Pupil That tree is worth a brag alone. If its a Japanese maple its may be worth 10k alone, knowing the house we bought in 2020 is our forever home I spent close to 1k for an Autumn Moon and Crimson queen Japonicus to grow into natural masterpieces we can appreciate for decades. 

.Love the white Muskoka chairs too. 

 

 

Japanese Maple indeed! Thanks!

 

All landscaping done by prior owners, play set a bit “vintage” as well. 

 

[Morgan]

A beautiful tree is really a blessing. This tree was on a property I recently sold. I should have taken the tree, but I’m not sure where I’d have put it. Or how to move it. Next time I suppose. 

 

 

Edit: I’m not selling any properties to avoid a 20% price drop. No way. I sell if I absolutely must, or have too good of an offer to pass up. 

Edited April 26, 2022 by Morgan

[ValueArb]

I sold my home February of last year. If I could time the market I would have waited 12 months but still very happy with what I got. I only sold because of divorce. I would never have sold otherwise.

 

But even if interest rates continue to rise, supply is so constrained I don't see prices dropping, just leveling off.  I don't see any opportunity to buy a new house at current prices unless I move out of my expensive community to a more rural one. But I have to live where I live until my kids finish high school, so after that I probably move somewhere cheap and buy something cheap.

[Gregmal]

I would encourage folks who think housing is slowing down to go check out a few open houses in their area. Had one top local realtor tell me she stopped doing them because 1) they started resembling house parties because so many folks showed up, and 2) they weren't necessary because often the houses end up going under contract before the showing. This is in run of the mill north NJ. Slowing down is the phrase folks are throwing around. And yes, mortgages origination is down, and then is no inventory. But this has zero to do with what existing homes for sale are seeing in terms of pricing and demand. 

 

Good post here from Kuppy

 

https://adventuresincapitalism.com/2022/05/02/in-defense-of-housing/

[valuehawk91]

Good perspective from above link. I had been thinking perhaps the rising interest rates may cause 10-20% price cut. However, it's probably unlikely given the low inventory. I have been in the market as a first time buyer since late last year. I have very little knowledge about real-estate markets, but trying to learn when possible. What I have noticed in the past 3-4 weeks is there have been far more price cuts than I had ever seen in the 7-8 months. The price cuts I have noticed are for fixer-upper type of homes. 

Edited May 3, 2022 by valuehawk91

[Gregmal]

18 minutes ago, dealraker said:

Greg I live on an inland lake in North Carolina USA on the waterfront in a house that in 2006 I'm pretty sure I could have sold for $1 mil.  By 2009-2010 I'm pretty sure I'd have had a pretty hard time giving the house away.  By 2013 I may could have gotten $500,000 for it but I'm skeptical.  By 2017 or so?  I guess maybe $650,000 to $750,000 is my guess.  Last year I could have sold it (my next door neighbor sold) for $1.2 mil and earlier this year I'm guessing $1.3 mil at max but likely close.  

 

The above doesn't much affect me except to think, given I've lived here in this house I built in 1978 when I was 23 (I'm a retired licensed general contractor), that there will be yet one more  time -----there have been 4 that I know of around here- remember real estate used to be more regional in pricing cycles due to local economic issues- ------ when either my sell price will be either down by a huge percentage OR I may have trouble giving the damn place away. 

 

Life is great if you can stand it.  

Yea I never lament not being older, but sometimes wish I had an extra ten years in front of me career wise so I could have had the fallout of GFC to build upon with direct real estate. 

 

I hope we see those sort of prices again, but there’s plenty of places in the world where folks have been waiting decades for that.

[FCharlie]

When I was a kid I remember my grandmother telling me they paid $8,500 for their house back in the 1940s. I'm not sure why she told me that but I was blown away by how low the price was. So of course I asked my dad what he paid for the house we lived in in the 1980s, and the answer was $50,000. Those properties are $250,000-$300,000 today. There's nothing special about either one. They are average houses in average cities in North Carolina. But there's nothing average about the ability for real estate to act as an inflation hedge and to build wealth. There's nothing like it in the world actually. You get to borrow 75%-95% of the purchase price at interest rates that are probably going to be below inflation. The icing on the cake for rentals/vacation rentals is that you can borrow as many millions of dollars as you want and other people will happily repay it for you. 

 

I have 19 single-family properties today. Not only is there no chance in hell I'd sell any of them, I'm still looking for more. Especially vacation rentals. Those things are cash machines and you get to use them for free. I guess that's the long way of saying I voted no to all three categories in the above poll.

[thepupil]

Better start prepping…housing is collapsing in Suburban DC 

 

mortgage rates were 4.7% at the time of listing. 

 

 

 

Edited May 3, 2022 by thepupil