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08-28-2014, 06:50 PM
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#21
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Moderator
Join Date: Apr 2012
Location: San Diego
Posts: 14,212
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What is the rent vs own calculation. You don't have HOA or Mello Roos so it's just mortgage, insurance, and taxes.. some of that is dedutible (and interest.) Assuming you're in a fixed rate mortgage, you've locked in your housing costs (except insurance). That's not true if you rent.
CA is a big state - where you are will definitely impact the likely appreciation. From a SoCal perspective - there's more appreciation in a beach house in Del Mar than in a house in El Centro. But unless there's another major collapse because we get caught up in mortgage backed securities... I don't see either case collapsing away your current equity.
But - if your mortgage is significantly higher than comparable rent - I'd sell and rent.
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08-28-2014, 09:26 PM
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#22
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Recycles dryer sheets
Join Date: Apr 2010
Location: Silicon Valley
Posts: 226
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For what it is worth (about what you paid) I am in the don't sell camp unless you are sure you are 100% sure that you never want to return to the Bay Area.
I would also add, don't sell if there is a downturn in Bay Area real estate prices. I have heard plenty of talk to expect one of the "regular" dips in 18-24 months. I would also recommend anchor bolts and not to sell if there is an earthquake... wait for the rebound.
You have done the hardest thing... buying at the right price, I guess you must have timed it just right (6 years ago is pretty close to the peak ). A bit of fixed interest leverage and up to $500k of tax free capital gain is like magic!
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08-29-2014, 12:11 PM
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#23
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Thinks s/he gets paid by the post
Join Date: Jul 2013
Posts: 1,046
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All good points! @rodi, I did the calculation and it basically said I'm making out like a bandit by NOT renting. My mortgage+taxes+insurance is about $100 more than what I'd pay in rent for 2bd apartment in this county. House rentals are significantly more.
Market timing wasn't perfect when I bought the house, it was on the decline but hadn't hit the rock bottom but hind sight is usually 20/20 so I'm not complaining. I know some people who bought their houses in the late 90s for $400k in this area and they're now worth $1MM+ - pretty crazy.
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08-29-2014, 06:25 PM
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#24
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
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All excellent points.
The one thing that I'd add on why not to sell is the transactions cost.
You didn't mention the selling price so I am going to estimate that is between 600-800k based appreciation in the Bay Area, but it could easily exceed $1 million.
You have to figure 6-7% commission, closing, and fixing up costs on your existing property. So that is between $36000-$56,000, which is a huge cost associated with unlock $200K
Then you have to add the expenses of moving, paying a cleaning deposit, and security deposit which in all likelyhood you will lose most of. Now if you put the money into the next Tesla than you'd come out ahead, but other wise it it is huge hurdle for stock returns to compensate for all the lost money in transaction costs.
I would say that once you have $500K in equity gains it is worth considering selling to unlock the equity, and take advantage of the $500K capital gains exclusion for home ownership.
But in general, while there a many valid reason to sell a house, financially it seldom makes sense.
Transaction cost matter for buying also. It is entirely possible that somebody who is currently renting but has plenty of money to make a large down payment or even buy a house for cash maybe better off renting, because rents/prices are relatively low in the Bay Area.
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08-31-2014, 03:17 PM
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#25
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Dryer sheet wannabe
Join Date: Nov 2013
Location: seattle
Posts: 17
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I see no reason to not include home equity in your net worth calculations. Your home is an asset, why not count it? Half of my net worth (home equity for my paid off home, and some farmland) is outside of my investment accounts, so I certainly prefer to include these assets when I calculate my net worth.
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08-31-2014, 03:29 PM
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#26
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
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Quote:
Originally Posted by gowgow
I see no reason to not include home equity in your net worth calculations. Your home is an asset, why not count it?
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Sure. The problem is when people use their net worth number, multiply by 4%, and decide they have enough for retirement. That won't work if a big chunk of the net worth is the house,
I guess some people like to track their net worth purely as a scorekeeping exercise, and that's fine. But knowing net worth doesn't tell a person much about their ability to retire.
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08-31-2014, 05:37 PM
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#27
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,373
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Quote:
Originally Posted by gowgow
I see no reason to not include home equity in your net worth calculations. Your home is an asset, why not count it? Half of my net worth (home equity for my paid off home, and some farmland) is outside of my investment accounts, so I certainly prefer to include these assets when I calculate my net worth.
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Including your home in your net worth is totally proper, but unless you plan to sell your home and use the proceeds for your retirement it would not make sense to consider it part of your retirement assets. Lots of threads on that.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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