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Should I sell the house and invest the equity?
Old 08-26-2014, 05:41 PM   #1
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Should I sell the house and invest the equity?

I've been thinking about this for sometime and since the housing market here in CA is doing well I might as well take advantage. Here're some pros/cons/facts that I could come up with:

- I'm at least 10 years from ER
- I've been at my house for 6years
- Current interest rate is 3.75%
- Equity (market value minus mortgage pay off) = $200k
- Biggest pro: my RE portfolio will get a nice boost if I were to invest the $200k. It really needs it too as I'm behind for my age (thank you Ms Divorce...not).
- The house, unlike most, has no HOA, Melo Roos and I actually like it
- It has needed minor repairs/upgrades but coming up for a major one: reroofing but probably around $8k and then it'll be good to go for another 10-15yrs

- The biggest con of selling it: I have a machine shop (hobby) in my garage and would hate to lose it and be without
- I get a decent tax write off so I'll lose that too
- I'd hate to exit the CA housing market as it's hard to get back in with avg prices in my area are above $500k for a 1200sqft house and upwards of $800k for a 1600sqft house.
- I hated apartment living, I like room between the houses so I don't hear neighbors, footsteps etc.
- It's a bit further away from the main highway

I really think I want to keep it but that $200k "easy money" keeps tempting me.

Thoughts? What would you do

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Old 08-26-2014, 05:47 PM   #2
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Move to Texas...

(Ugh... if you sell, where are you going to live?)

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Old 08-26-2014, 05:51 PM   #3
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I know, my options are limited to just renting. I can't leave the area at least until my kid is launched (10-12 years).
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Old 08-26-2014, 05:52 PM   #4
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Where would you live if you sold it? Move to another location? Stay in CA and find a cheaper house? Live in an apartment despite hating the idea?

If the house is a good place for you to live and you can afford the payment, I wouldn't sell it until you are ready to leave the CA housing market.
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Old 08-26-2014, 06:17 PM   #5
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If you didn't already have a house and just moved to California, which option would you pick?
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Old 08-27-2014, 01:00 PM   #6
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That depends on how I was doing financially...I'd probably rent for a while. However, over the last few years having this house set up in a way that suits me also counts for something. I guess I'll stay put and keep adding pennies to my ER funds for now.
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Old 08-27-2014, 01:18 PM   #7
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I bet if you do a real basic excel you'd find that...

[(12 years mortgage + maintenance)-(net equity in 12 years assuming appreciation = inflation)] < [12 years rent -(200,000 +12 years of reasonable returns).

If so, I think it would only make sense to sell if you prefer what you could rent over what you have or have immediate liquidity issues. But it all comes down to local conditions.
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Old 08-27-2014, 01:19 PM   #8
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You know, you don't have to monetize everything. It's OK to allocate a little of your wealth on living in a home you love!
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Old 08-27-2014, 01:23 PM   #9
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If I thought that housing in your area wasn't going to crash, I'd keep it.

Apparently, you don't "need the money", except to see a bigger number on the investible assets line of the balance sheet. But your balance sheet should include your home equity, so you'd just be moving the money from one place to another.

I think the question you need to ask yourself is "will my house or my portfolio increase at a faster rate?"

But it's not quite that simple because you're leveraged with your house. Thus you'd need to do better than twice as good in the stock market as you would in the housing market. In other words, if housing did 3% annually and your extra $200K did 6% annually, you'd be at a break-even between the two (using rough numbers here, obviously). Also, I presume you already have some eggs in the market basket. Your house equity represents eggs in another basket, and keeping your eggs separate is usually a wise move.
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Old 08-27-2014, 01:36 PM   #10
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You know what they say about real estate: location, location, location. If you are in a good area in either norcal or socal and own, you are in a good situation. Unlike most other states, prop taxes increases are capped by prop 13, and barring CA falling into the ocean, real estate will continue to rise (pricing out the middle class).

A friend did exactly what you're thinking of doing several years ago (for the "easy money"), and now having been priced out he can't afford get back in. Same thing happened to my sister in the Bay Area. After selling, she rented a house for a few years, landlord wanted to move back in so she had to move out. In looking for a new house rental she found rents had gone through the roof. A less than comparable rental is now costing her $1K more a month.

CA is/has been increasingly becoming a state where the good urban areas are the playgrounds of the those with money. Everyone else is relegated to...

Finally, not owning in the Bay Area or in socal provides you with no protection against rent increases, which you have now.
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Old 08-27-2014, 04:18 PM   #11
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Can you take 100k out for investment, and keep the house?
I did it .... my way.
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Old 08-27-2014, 04:33 PM   #12
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Another thing to consider is your asset allocation. The house isn't a stock or a bond and will perform differently than either of those.

If you keep the house you are more diversified than if you moved the value of the house into stocks (assuming most of your assets are in stocks and not rental properties).
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Old 08-28-2014, 09:36 AM   #13
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I would not sell your home to invest in equities. Your mortgage interest lowers your taxes. You will need to pay capital gains taxes unless you buy another home.

Also, uprooting your child for investment purposes probably isn't good for the kid.

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Old 08-28-2014, 10:19 AM   #14
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I have three kids that grew up in our home(not a house), even now that they are in their 20's I have to be careful of mentioning selling the house as I see it as $ that is really not working that hard for me but they see it as a significant part of their life.

For example,

The stone wall where barbie castles were made and invaded by the local chipmunk. The big hole my son dug in the back where his dog likes to lay. The grassy field where hours were spent catching balls, flying kites, laying in the grass and watching clouds.

All the trees that we planted to make desert into a relaxing sanctuary.

While my wife and I are ready to sell and rent for a while until we find that special little place it is so much more then a transaction when kids are involved.

Just my observation and experience
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Old 08-28-2014, 11:25 AM   #15
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I wouldn't sell a house that you love. It's not even clear it's a good financial move. You can't know that investing the money in stocks and bonds will do better than real estate. How are you going to feel if the stock market tanks while you miss the place you used to live in?
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Old 08-28-2014, 12:14 PM   #16
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Don't sell until you are ready to leave your community or find a less expensive home that would be equally satisfactory,
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Old 08-28-2014, 01:10 PM   #17
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If I were in your situation I would absolutely NOT sell. Having a home you love is so much better in so many ways than putting up with having to rent. You get the mortgage deduction, long term CA homes keep up with inflation very well. But most importantly having a house changes your AA. The risk of putting your house money into the stock market just doesn't make any sense to me. You might do well, but then again, you really want all your eggs in that basket? The 200K is not "easy money", it is your hard earned backup plan. And as you note, if you exit the CA housing market (and the stock market does not perform according to your wishes) then you will have a hard time getting back in. Now is not the time for you to sell, unless you really want to gamble. Enjoy your home and machine shop, the absence of neighbors on the other side of the wall, and the stability of knowing how much you will pay for your abode each month. And then LBYM and invest as much as you can in your desired AA. You can always sell later, and if history is any guide, you will sell for a lot more than you will get now.
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Old 08-28-2014, 02:24 PM   #18
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In your shoes I would definitely NOT sell. For all the reasons you outlined, plus I know the moment I put that $200k in the market, it would drop by 50% and home prices would keep going up.
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Old 08-28-2014, 03:24 PM   #19
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Sounds like we have a unanimous agreement on this one, I really appreciate your guys' time and insight. While $200k is a big chunk to me (at this stage) but in reality it's a small portion of where I need my portfolio to be, to be able to ER. I don't include home equity when I normally look at my networth but adding it in sure makes the numbers look healthier! Just funny accounting I guess
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Old 08-28-2014, 07:29 PM   #20
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Unless CA slides into the ocean, the $200k will probably still be there 10-12 years from now and will likely be more. You like your place and I'm guessing that the net overall cost of owning is less than renting.

If you're really keen on investing your equity and can accept the risk, you could do a cash out refi and invest the proceeds, but 3.75% is tough to beat, so perhaps a HELOC and invest the proceeds might work if you are really keen to access your equity.

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