keep or sell first home

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Topic Author
investorperson2021
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Joined: Sun Sep 26, 2021 10:20 am

keep or sell first home

Post by investorperson2021 »

I live in California. I bought the home about 12 years ago when price was much lower. Because of this, property tax is much lower. I want to move to an area with better schools and also have a bigger/nicer home. However, price of house will be at least 3 million. The property tax will be at least 4-5 times what we currently pay. Plan is to move to new home for 12 years or until kids are done with school and then move back to first house since I am not sure I can sustain the mortgage payments/property taxes of new home. In the meantime, I can rent out first home that would cover more than the mortgage/property taxes. However, I can also sell first home and make about 1.4 million before taxes/real estate fees. I also like having the first home in case "something happens" and I have to sell the second home and I still have a house to go back to. What would make more financial sense. Sell first home or keep it?
goaties
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Re: keep or sell first home

Post by goaties »

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Last edited by goaties on Thu Dec 08, 2022 5:15 am, edited 1 time in total.
invest4
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Re: keep or sell first home

Post by invest4 »

investorperson2021 wrote: Sun Sep 26, 2021 10:28 am ...I am not sure I can sustain the mortgage payments/property taxes of new home.
Welcome!

This does not sound like a winning strategy and makes me wonder if you are stretching yourself a bit. Unfortunately, too little information to get a better sense of it (income, savings rate, portfolio, etc.). Are you sure you want to be a landlord? Also, if the housing market declines, does it matter for you?
Topic Author
investorperson2021
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Re: keep or sell first home

Post by investorperson2021 »

I could most probably afford the 3 million dollar house given current income and current portfolios. Even if I lose my job I could afford the payments given based off of just amount saved and give me time to sell when ready for a period of time. However, most of my money is in stocks/bonds so that could go down as well. I don't want to have to pay this much in retirement though.

I guess the question is how much should I have saved in current portfolio to be able to afford this and how much income should I be making?
Carefreeap
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Re: keep or sell first home

Post by Carefreeap »

Is your first house a single level home in a walkable neighborhood with good healthcare nearby?

Do you want to be a landlord?

We kept our Bay Area home while we relocated twice. I was afraid that by moving to a lower cost area I would be unable to afford to move back. It worked out well for us but I wouldn't recommend it for everyone.
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Topic Author
investorperson2021
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Re: keep or sell first home

Post by investorperson2021 »

Yes, it is a single family home close to good healthcare, so a perfect home for an older person.

I would also be planning to put 40% down on the new home just so monthly payments aren’t as big.
Topic Author
investorperson2021
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Re: keep or sell first home

Post by investorperson2021 »

I am ready to be a landlord, but have never been one. Others I have talked to say having a good property manager helps.
Topic Author
investorperson2021
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How much should you have for 3 million dollar home

Post by investorperson2021 »

How much income should you be making and how much savings/ portfolio should you have for 3 million dollar home with about 1% property tax?
mikejuss
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Re: How much should you have for 3 million dollar home

Post by mikejuss »

You should have a household income of at least $1 million.
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mervinj7
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Re: How much should you have for 3 million dollar home

Post by mervinj7 »

investorperson2021 wrote: Thu Sep 30, 2021 11:10 pm How much income should you be making and how much savings/ portfolio should you have for 3 million dollar home with about 1% property tax?
Is this a hypothetical question? If it's your own situation, then it's better to start the other way around. Income+assets and then figure out mortgage.
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JoMoney
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Re: How much should you have for 3 million dollar home

Post by JoMoney »

There is a guideline that suggests your total housing expense shouldn't be more than 1/3rd your take home pay. I believe Dave Ramsey suggests it should more like 25% of take home pay.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Semantics
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Re: How much should you have for 3 million dollar home

Post by Semantics »

JoMoney wrote: Thu Sep 30, 2021 11:28 pm There is a guideline that suggests your total housing expense shouldn't be more than 1/3rd your take home pay. I believe Dave Ramsey suggests it should more like 25% of take home pay.
These kinds of rules of thumb don't make as much sense when you get into higher income levels and pricier homes, where housing starts to dwarf all other expenses.
Semantics
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Re: How much should you have for 3 million dollar home

Post by Semantics »

One way to think about it is, assume you're mortgaging the whole 3M interest only. Add the property tax plus another 0.5% for insurance and misc expenses to the interest rate and you get something like 3.5% in expenses. Would you be comfortable paying $8750/month in non-recoverable expenses for the property? Then go for it.

In reality you'll probably put some money down, which adds an additional opportunity cost, but if it's not too much say 20%, you'll recover that from appreciation minus selling fees if you stay there long enough, possibly some small benefit from mortgage interest deduction, and from inflation working in your favor.
sc9182
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Re: How much should you have for 3 million dollar home

Post by sc9182 »

If not for recent (beginning 2021 !?) home-price surge — many $2 million+ houses would have nearly 30-50% down payment (and/or equity) — thus their payment is not that high compared to usual home-purchase scenario of 20% down and rest is mortgaged .. many 2 million+ home buyers are also - for them it’s their 2nd or 3rd home — moving up each time — bringing more equity from previous house sale (or bring lots of equity/down-payment by some other means)

On a $3MM house — If you go the usual route of 20% down payment and get mortgage on remainder of the amount — you are talking very high amounts — for nearly 30-years !! Do you have that level of income, and job/income stability approaching 15-30 years !?

At these high levels of prices beyond $2 millions, it’s not only income, but also significant “down-payment” much beyond 20% — is also what usually occurs. Do you have “stash” of such high amount of liquid-monies also ..?
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snackdog
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Re: How much should you have for 3 million dollar home

Post by snackdog »

If paying cash, you should have $3 million. If financing, you would be looking at monthly payment around $10k, so income of $30k per month would work.
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dukeblue219
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Re: How much should you have for 3 million dollar home

Post by dukeblue219 »

Enough to comfortably make the payments. Nobody can really and truly answer that for you. Do you have savings to cover for a while if you lose your job?

Personally I don't think the usual rules of thumb apply up here IF you can keep your other expenses in check. You might not need $30k of take home per month to cover a $10k mortgage in the same way another person needs to make $4.5k to afford a $1.5k house payment.

Edited to add: when the topics were merged more information was added. This was in response to a generic question about a $3MM house.
Last edited by dukeblue219 on Fri Oct 01, 2021 7:02 am, edited 1 time in total.
Flyer24
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Re: keep or sell first home

Post by Flyer24 »

Topics were merged. It is best to keep your original thread going for subjects related to your home.
dukeblue219
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Re: keep or sell first home

Post by dukeblue219 »

Before you do this chasing "better schools" be sure there's really a difference. So many people get caught up in superficial rankings like Great Schools that have nothing to do with how their children will be educated and really only reflect the rest of the student body.
Go Cy
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Re: keep or sell first home

Post by Go Cy »

If your current home was on the market today, would you purchase it as an investment property? If the answer is no, you should sell it.

If you apply the profit from the sale to the new house, does this allow you to afford the new mortgage and taxes?
Golf maniac
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Re: keep or sell first home

Post by Golf maniac »

You say you want to go back to the current home in 12 years or so. How sure are your future plans? Many people get bigger and nicer home and do not want to go back to old home. In general I would recommend selling original home, taking profits and reducing the new mortgage amount. I will assume you will have at least 20% down on new home if you don’t sell current home to not have to pay PMI. Personally, I don’t want to be a landlord and getting a property manager cuts into any profitability. Another question is do you have the time to manage the property given kids, job, and spouse? Good luck with your decision.
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K72
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Re: keep or sell first home

Post by K72 »

We also live in the Bay Area and faced the same situation 20+ years ago, but our motivation was that we outgrew the house after the 2nd kid arrived. We elected to keep the original home with the idea of downsizing when the kids left the nest. Right now we've grown accustomed to the bigger house and likely won't move back, plus the original is now paid off and we enjoy sizeable net rent. We managed the rental ourselves for many years, then switched to a property manager to reduce the hassle. It has all worked out very well. The value of our real estate is about 2x what it would have been had we sold the original house.

There are no doubt arguments both ways. In the end you need to crunch the numbers and use your gut. Good luck.
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Topic Author
investorperson2021
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Re: keep or sell first home

Post by investorperson2021 »

Thanks for all the info.

Even though I want better schools, yes, we are outgrowing our house and want more room for growing kids/parents who will stay with us for long periods of time, etc.

Also, it is that now or never ( has no financial logic) mentality of getting the nicer house now or you won't do it later on in life because you will be too old to enjoy it or something will happen (health issues, etc) that won't let you enjoy much in life anymore (seen it too many people).

What bothers me is that the property tax of the new home is more than our current mortgage/property tax combined and there is no write off. If I put 40% down without selling original home, I think I should be ok when I get it out of my system that I don't need the bigger/nicer house anymore, I can move back with no mortgage and very low property taxes.
vas
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Re: keep or sell first home

Post by vas »

investorperson2021 wrote: Sun Sep 26, 2021 5:01 pm I am ready to be a landlord, but have never been one.
I think this sentence is self contradictory.

That meant partially in jest but also intended to point out that managing a rental property is a business that takes time and energy.
“For every complex problem, there is a solution that is clear, simple, and wrong.” - H. L. Mencken
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