Invest proceeds from home sale

[Retireby45ish]

Hi all,

DW and I had planned to move to another state in about a year or so. We live in a more rural area where homes usually take 2-3 years to sell. However the market got hot here last year and we listed the house for a bit more than we normally thought we might get. Figured if someone comes along and made us a great offer we would take it and move our timeline up. This would also combat the possibility of us wanting to move in a year and no buyers coming along for 3+ years and we’d be “stuck” for a while.

So we did get an offer and are seriously considering it... Lots of thoughts/questions swirling now. The big ones are.

1. We can live rent free for about 9 months at a family cottage. This is in the location we wanted to move to so works perfectly for scouting the area. This gives us somewhere to land and we can rent after that if we haven’t found anything. But I worry housing pricing will continue their insane climb and we could end up with a market that is 10% higher than now. Like everyone else who can now work remotely, we are looking at a highly desirable medium sized town.

2. Where can I possibly invest the $ from the sale to protect against rising home prices? Some kind of builder REIT? I’m afraid of selling and getting priced out.

Thanks in advance for your thoughts.

 

[The Cosmic Avenger]

As to your first point, I would not try to time the RE market any more than the Dow or S&P. I would say look diligently for your new dream home and pounce when you find it. And if interest rates are still low, I'd take out a mortgage rather than pay cash, as even in 15 years you're going to be able to outperform the interest rate you'll get now. But if you really want to pay cash, I'd put it in CDs or a money market, because the only thing worse than losing potential profit is losing principal.

 

[pb4uski]

You probably can't find an investment that will keep up with home prices without taking a lot of risk... that you get unlucky and that particular builder REIT runs into financial troubles... it is also hard to diversify away that risk.

I would just try to find your replacement abode with all deliberate speed.

Why is the family cottage limited to 9 months?

 

[OldShooter]

A year or two is not an investment time frame. "Investment" typically trades better total return for increased volatility, which is usually a good trade long term. Not for a year or two, though.

With ready cash, too, you are no-contingency buyer and can watch for and benefit from sellers who are in a hurry.

 

[Retireby45ish]

You probably can't find an investment that will keep up with home prices without taking a lot of risk... that you get unlucky and that particular builder REIT runs into financial troubles... it is also hard to diversify away that risk.

I would just try to find your replacement abode with all deliberate speed.

Why is the family cottage limited to 9 months?

Thanks for the thoughts (all who responded). The family members are away for the 9 months before returning to the cottage. Then it would get pretty cramped so at that point we would look for a rental.

I agree 2 years isn’t an investment timeframe. I guess I was just pondering where to park the cash. I have some on the sidelines now and it’s earning <0.5%. And I agree that taking out a mortgage at these rates (over 15-30 years) is probably better than paying cash for the next house. I paid off the house this year cuz I knew we would sell in a year or so and I figured was equal to getting ~3% on that money elsewhere (better than my bond funds).

We also have the potential to build but I believe building costs are up about 40%+ in the area we are looking at over the last year because of everyone else building and forest fires out west driving up lumber costs (or so I’m told). So hopefully costs come back down...or we find something that’s already built and suits us.

With all indicators and pundits saying the property markets are going up again in 2021 its just a precarious place to be...or certainly feels that way. But again, no one really knows what will happen...

 

[OldShooter]

... With all indicators and pundits saying the property markets are going up again in 2021 its just a precarious place to be...or certainly feels that way. But again, no one really knows what will happen...

The market for single-family homes is inefficient. In an inefficient market, the person with the most information wins. I would suggest that you see yourself as a patient vulture in a tree, watching, watching, gathering information, waiting for something good to happen, and acting instantly when it does.

(If you don't like "vulture," substitute "eagle." But vultures are better at this sort of thing.)

 

[38Chevy454]

Hi all,

So we did get an offer and are seriously considering it... Lots of thoughts/questions swirling now. The big ones are.

1. We can live rent free for about 9 months at a family cottage. This is in the location we wanted to move to so works perfectly for scouting the area. This gives us somewhere to land and we can rent after that if we haven’t found anything. But I worry housing pricing will continue their insane climb and we could end up with a market that is 10% higher than now. Like everyone else who can now work remotely, we are looking at a highly desirable medium sized town.

2. Where can I possibly invest the $ from the sale to protect against rising home prices? Some kind of builder REIT? I’m afraid of selling and getting priced out.

Thanks in advance for your thoughts.

My answers to your questions:
1. Real estate markets are local. What is happening in your desired location is what matters. Not overall for the state or country. The opportunity to live in the area for a while to learn the specific areas is great before you make a purchase decision. You need to learn the local market prices and how houses sell. It may or may not have the 10% price increase in the next year.
2. Money less than 1 year timeframe is best to keep safer. Yes the current rates suck and you will feel like everyone else is on a thoroughbred while you are on an old mule. The part you don't know is what could happen trying to time the market, remember Feb/Mar of 2020 and the short butr drastic slide down?


If you are in a local real estate market that takes time to sell, I think it's best to jump on that offer you have.