Selling the House to Travel - What to Do with Proceeds?

[clifp]

I’ve heard from one of my masssage therapists from the Big Island, her kid has to travel to Honolulu for some serious medical treatment. Are you sure you want to do that when you get older?

I was on the Big Island a few weeks ago, and was explaining to my friend that I seriously considered moving there instead of Honolulu, but I was concerned about the lack of stuff to do there. Now as I'm closing in on 60 I'd worry about the medical care. The whole traumatic experience of getting my elder mom to a hospital on Maui several years ago was eye-opening on the problem of medical care on the neighbor islands

 

[flintnational]

If it is 3 years or less, I would park the money in safe funds, CD's or short term bonds. Yes, the housing market can go up but it can also stall or go down. For that short of a term, I would avoid stock market risk. I also would not want to be a long distance landlord. Sounds like fun. Enjoy your travels.

 

[clifp]

The diving is so much better on Hawaii Island than Oahu, I do want to live there until diving is less important (maybe from 55 to 70), then I'll consider moving to an upscale Waikiki apartment close to shopping and dining.

Can't argue with that. I scuba dived and snorkeled a lot my first almost 10 year in Oahu, but every time, I went to the Big Island, I had pangs of regret.
It's so much nicer. If you are in 40s or early 50s and good health, go for it.

 

[Scuba]

If you rented and had a property manager find/screen tenants and look after the property while you travel, could you be cash flow positive? If so, I’d rent it and reassess when you return. We sold our So CA rental when we lived in the Northeast and really regretted that later.

 

[HI Bill]

If you rented and had a property manager find/screen tenants and look after the property while you travel, could you be cash flow positive? If so, I’d rent it and reassess when you return. We sold our So CA rental when we lived in the Northeast and really regretted that later.

Yes, we'd be cash flow positive, by a bit. I like the idea of keeping it, only because we'd have a place to come back to when the overseas travel stint is done; however, it's not in the best neighborhood, or where I really want to be in retirement. It's convenient to the freeway, malls, shopping, and downtown Honolulu, but it's a noisy neighborhood.

 

[audreyh1]

Yes, we'd be cash flow positive, by a bit. I like the idea of keeping it, only because we'd have a place to come back to when the overseas travel stint is done; however, it's not in the best neighborhood, or where I really want to be in retirement. It's convenient to the freeway, malls, shopping, and downtown Honolulu, but it's a noisy neighborhood.

If you don’t like the location I’d let it go. This is obviously a very personal taste type decision and not purely financial.

 

[Scuba]

If you don’t like the location I’d let it go. This is obviously a very personal taste type decision and not purely financial.

The problem is that if you get out of the HI real estate market, travel for 2 years, and buy another property, you may have to pay a lot more than you think. At least if you keep your property while traveling, you can sell after you return and buy something at current value (whether up or down).

When we sold our So CA property, one year later we paid $245K more than the selling price of our former property for a place a few blocks from our previous place, 500 sq ft smaller. Values had really appreciated and had we already retired, we may not have been able to buy an acceptable place in So CA. I’m guessing that could happen in Hawaii too, but don’t know.

 

[HI Bill]

The problem is that if you get out of the HI real estate market, travel for 2 years, and buy another property, you may have to pay a lot more than you think.

...bingo! That is the crux of the dilemma!

 

[Fedup]

The problem is that if you get out of the HI real estate market, travel for 2 years, and buy another property, you may have to pay a lot more than you think. At least if you keep your property while traveling, you can sell after you return and buy something at current value (whether up or down).

When we sold our So CA property, one year later we paid $245K more than the selling price of our former property for a place a few blocks from our previous place, 500 sq ft smaller. Values had really appreciated and had we already retired, we may not have been able to buy an acceptable place in So CA. I’m guessing that could happen in Hawaii too, but don’t know.

When was this? Honolulu has a lot of high rise condos, not the same in SoCal. Again real estate is very local. 20 minutes from me, house prices don’t go up in lockstep with my area. Know your area is key.

 

[audreyh1]

The problem is that if you get out of the HI real estate market, travel for 2 years, and buy another property, you may have to pay a lot more than you think. At least if you keep your property while traveling, you can sell after you return and buy something at current value (whether up or down).

When we sold our So CA property, one year later we paid $245K more than the selling price of our former property for a place a few blocks from our previous place, 500 sq ft smaller. Values had really appreciated and had we already retired, we may not have been able to buy an acceptable place in So CA. I’m guessing that could happen in Hawaii too, but don’t know.

You just don't know what the real estate markets will do in the next two years, nor how much money you'll spend holding onto an unused place or dealing with renting a condo and losing the capital gains exemption for several years.

If you were definitely planning to return to the same area that's one thing. But if you are not, as the OP states......

We sold a house in 2005. Traveled for 5 years. Meanwhile big real estate market crash. Even got a tax credit for buying another house 5 years later - in a different city.

Obviously we lucked out on the timing.

Interest rates are rising. Prices might come down due to that pressure. It's just impossible to know.

 

[Scuba]

You just don't know what the real estate markets will do in the next two years, nor how much money you'll spend holding onto an unused place or dealing with renting a condo and losing the capital gains exemption for several years.

If you were definitely planning to return to the same area that's one thing. But if you are not, as the OP states......

We sold a house in 2005. Traveled for 5 years. Meanwhile big real estate market crash. Even got a tax credit for buying another house 5 years later - in a different city.

Obviously we lucked out on the timing.

Interest rates are rising. Prices might come down due to that pressure. It's just impossible to know.

I agree - totally unpredictable. I thought the OP said he wanted to return to Hawaii after traveling. I could be wrong, but was thinking that even if he wants to relocate within Hawaii, keeping a Hawaii property would make that much easier. If the market crashes, he won’t get as much for his place but a new place would have also gone down in value. If the market continues to accelerate, he may need that appreciation to afford a comparable place in another Hawaii vacation.

I would feel differently if the OP would have significant negative cash flow by renting, but he says it would likely make money net of costs.

Either way it’s a risk, OP. For me, I would think about the worst case - if you sell your property now and invest the cash in something relatively safe and property appreciates 40%, will you be ok with that? If you keep the property and the market crashes, will the market likely be down also for the new Hawaii location you want to relocate to?

No crystal ball here but DH and I decided we will never sell our So CA property unless we are committed to never living in the So CA again. Been there, done that and it cost us over $250K.

 

[kgtest]

Thanks! I've been following the Hawaii markets...days on market are increasing a little, and I've noticed an uptick in price reductions recently on Hawaii Island. However, the addition of luxury condos has moved the median and average prices up. In some luxury markets, interest rates don't matter, as buyers tend to buy with cash. Kona real estate has been through many cycles. I think what may be different this time is the number of baby boomer retirees moving into the area. Thanks!

I would hold onto it. Kona is a world-travel destination. Rent it out and bank the write-offs to offset any tax concerns. Do that until you no longer find it appealing to make those mainland-island flights anymore.



That's what I would do. I know when I moved to Maui, my only regret was not holding onto the home I sold to move there. Hindsight is 20/20.

 

[YoungSaver]

I'm thinking about traveling around the world also, but my wife is reluctant to sell our house. If we sell, we will not come back to the same place.
Insurance and taxes will be about $11,000 a year. House is about $620,000, probably will get us $550,000 after the cost of selling.
If I do sell, I will put in a 50/50 portfolio.

50/50 of what and what?

 

[Fedup]

I would hold onto it. Kona is a world-travel destination. Rent it out and bank the write-offs to offset any tax concerns. Do that until you no longer find it appealing to make those mainland-island flights anymore.



That's what I would do. I know when I moved to Maui, my only regret was not holding onto the home I sold to move there. Hindsight is 20/20.

I believe his condo is in Honolulu hence the screen name HNL Bill, he wants to buy in Kona eventually.

 

[kgtest]

I believe his condo is in Honolulu hence the screen name HNL Bill, he wants to buy in Kona eventually.

Whoopsie! Even better! Honolulu is an international hub. No problems keeping that rented!

 

[Huston55]

I'd sell and take advantage of your home owners capital gains exclusion. The rent to price is so low here (less than 3% for my house), that by the time you pay your condo fees, a property manager (required by law for absentee owners), taxes and insurance, I bet you could do just as well taking the money and sticking in a CD. In addition, there are rules about converting, your primary residence to a rental and they are complicated by taking the homeowners capital gain exclusion.

+1

Don’t know where you are in HNL but, a quick Zillow search shows condos similar to yours in size/price renting mostly in the $2,000-$2,500/mo range. After taxes, HOA dues, Mgt Fees & insurance, you’ll likely clear $1,500/mo ($18,000/yr) max. $350k invested relatively safely @ 5% will produce the same income...with a LOT less hassle and anxiety; and that’s before accounting for any additional taxes/CG exclusion losses from renting for several years. The other factor is what future HI appreciation will be. While nobody knows for sure, and all RE is local, all signs seem to point to a flattening in most markets. (Note: we live in the SF Bay Area, also HCOL like HNL, & things are flattening a bit even here.)

In your situation, I’d sell & set sail to enjoy myself.

 

[HI Bill]

+1

Don’t know where you are in HNL but, a quick Zillow search shows condos similar to yours in size/price renting mostly in the $2,000-$2,500/mo range. After taxes, HOA dues, Mgt Fees & insurance, you’ll likely clear $1,500/mo ($18,000/yr) max. $350k invested relatively safely @ 5% will produce the same income...with a LOT less hassle and anxiety; and that’s before accounting for any additional taxes/CG exclusion losses from renting for several years. The other factor is what future HI appreciation will be. While nobody knows for sure, and all RE is local, all signs seem to point to a flattening in most markets. (Note: we live in the SF Bay Area, also HCOL like HNL, & things are flattening a bit even here.)

In your situation, I’d sell & set sail to enjoy myself.

Well, in my neighborhood, we'd likely only get $1500/mo. Still, clearing about $6K/yr. Yes, assuming the market doesn't tank, and real estate continues to drop (outer islands), it makes sense to sell. I think I'll need to rent a very small storage unit!

 

[HI Bill]

I believe his condo is in Honolulu hence the screen name HNL Bill, he wants to buy in Kona eventually.

Correct!

 

[woodguy00]

We plan to move to a different area after traveling for 1-3 years. We sold house near Boston in a good market and put the proceeds in a 24 month CD through Vanguard. Living the dream now and then money will be there for the next house when we are ready.

 

[isisdave]

Rent it, but with a trusted management company. We attempted to sell and travel. Couldn't get the price we wanted (this was three years ago) so put the adult kids in there for a while. After 3 years of long summers traveling, realized we wanted a place to come home to when we wanted to come home.

Real estate appreciates 3-8% a year, depending on where you live, so your $400k home in going up in value $12k to $32k per year. Hard to get that reliably in the market. Plus tax advantages, even if you rent it out.

 

[Scuba]

Rent it, but with a trusted management company. We attempted to sell and travel. Couldn't get the price we wanted (this was three years ago) so put the adult kids in there for a while. After 3 years of long summers traveling, realized we wanted a place to come home to when we wanted to come home.

Real estate appreciates 3-8% a year, depending on where you live, so your $400k home in going up in value $12k to $32k per year. Hard to get that reliably in the market. Plus tax advantages, even if you rent it out.

Real estate also can depreciate, especially in volatile markets. If Honolulu and the outer islands tend to appreciate a lot, I would rent it out to avoid the risk of being priced out of the market upon return from travel. Putting sales proceeds in a safe investment that earns 2-3% would not allow someone to buy a comparable property upon returning if the market has appreciated like it often does in So CA - could easily increase 30%+ in a couple of years.

If the market crashes, at least the market for nearby properties should be similarly down. So while sales proceeds will be lower, so will the cost of getting another property nearby.

Of course if the market crashes, it would be a really smart move to sell high before travel and buy low later. Depends on whether OP is willing to risk that the RE market will appreciate faster than a safe investment and if that were to happen, will he be in a position to pay a lot more for the property he wants? In our case we paid $250K more for a smaller property after only a year out of the So CA market. Investing the proceeds definitely did not come anywhere close to covering the appreciation in RE. We were still working so we bit the bullet and did it, but had we been retired we may not have been able to stay in the area.

 

[Huston55]

Rent it, but with a trusted management company. We attempted to sell and travel. Couldn't get the price we wanted (this was three years ago) so put the adult kids in there for a while. After 3 years of long summers traveling, realized we wanted a place to come home to when we wanted to come home.

Real estate appreciates 3-8% a year, depending on where you live, so your $400k home in going up in value $12k to $32k per year. Hard to get that reliably in the market. Plus tax advantages, even if you rent it out.

Real estate also can depreciate, especially in volatile markets. If Honolulu and the outer islands tend to appreciate a lot, I would rent it out to avoid the risk of being priced out of the market upon return from travel. Putting sales proceeds in a safe investment that earns 2-3% would not allow someone to buy a comparable property upon returning if the market has appreciated like it often does in So CA - could easily increase 30%+ in a couple of years.

If the market crashes, at least the market for nearby properties should be similarly down. So while sales proceeds will be lower, so will the cost of getting another property nearby.

Of course if the market crashes, it would be a really smart move to sell high before travel and buy low later. Depends on whether OP is willing to risk that the RE market will appreciate faster than a safe investment and if that were to happen, will he be in a position to pay a lot more for the property he wants? In our case we paid $250K more for a smaller property after only a year out of the So CA market. Investing the proceeds definitely did not come anywhere close to covering the appreciation in RE. We were still working so we bit the bullet and did it, but had we been retired we may not have been able to stay in the area.

Nope. I’d still sell. OP says he’d clear $6k/yr (=1.7% return) & Zillow forecasts 1.4% appreciation, for a total of 3.1%, and that’s not even risk (or hassle)adjusted. And, it’s still less than a safe FI investment.

 

[HI Bill]

Nope. I’d still sell. OP says he’d clear $6k/yr (=1.7% return) & Zillow forecasts 1.4% appreciation, for a total of 3.1%, and that’s not even risk (or hassle)adjusted. And, it’s still less than a safe FI investment.

Thanks! Unfortunately, my condo is a low-rise, among higher-priced high-rises that mostly have elevators (my condo has four flights of stairs). Zillow always forecasts a price that's about 10% high for my complex, because it's part of a HOA that has a high-rise, pool, sauna, etc. My building has 16 units and 10 of them are currently rentals, which doesn't help the valuation.

 

[aja8888]

I have a friend who is a mortgage broker. He says he is starting to see 6% loans and a lot of buyers are getting scared off. With rates rising, you could see HCL real estate prices softening and not selling for long periods of time.

Selling may be a timely strategy in the coming year.

 

[HI Bill]

I have a friend who is a mortgage broker. He says he is starting to see 6% loans and a lot of buyers are getting scared off. With rates rising, you could see HCL real estate prices softening and not selling for long periods of time.

Selling may be a timely strategy in the coming year.

Thanks! I'm seeing a lot more properties for sale on Hawaii Island (longer days on market), and a lot of price reductions. I hope you're right!