Almost there (I hope) Need advice on housing

[Debinnov a]

Hello all,

I posted some time ago regarding my hope that the sale of my business would happen and we are just about there. All papers signed on Friday and the funding from the bank is wired tomorrow and once that happens, I'm officially retired. (Trying not to think about the things that could go wrong!)

So, in a perfect world, we wanted to sell both homes (permanent home in VA) and vacation/weekend place (in MD) and take proceeds from permanent residence sale and buy outright our retirement home (undecided but strongly looking at Florida) The 2nd home has been under water for over five years, because we bought right at the wrong time. The area has stayed depressed so we would take a hit to sell (bought for 395K, now listed for $275K and not seeing much action). We do NOT want to retire to this area, thus are selling the home.

So, as long as all goes as planned tomorrow, we will have no more paychecks and living off our savings. We are decluttering and packing up so that we can paint, carpet and get this home sold. (This one will sell within two weeks of listing most likely - very sought after street and market is hot). While this is going on, we can live/stay at the 2nd home - 2 hours away.

My question is: Do we take the $275K net profit/equity from the sale of primary to pay off the $290K on the 2nd home? (Have to come up with extra cash to pay off, which we have) We will then have HIGH county taxes - almost $5,000 yearly, utilities and Homeowners $2000 yearly. Or should we just continue to pay mortgage which was just HARP refinanced for 30 years at 3.875% - monthly payment $1830/mo. Would be lucky to get $1200 to rent it out, which we are not entertaining - fyi.

I'm conservative investor but with business sale proceeds will be putting at least 30% in equities. But otherwise, 1 - 3% (penfed 5 yr cds)....

We were dreaming of a mortgage free retirement....Thoughts?

[Ready]

Congratulations on the sale of your business and the beginning of your retirement! You are in for some very exciting times.

Regarding the house...if you don't believe it will appreciate in value, and it won't cash flow positive (or at least break even), then I don't see the point in keeping it. Take the proceeds of the sale of your primary home, sell the second home, and move on. You don't say what the mortgage on your second home is, but you did say it was under water. Have you considered a short sale? It will impact your credit, but if you are not planning on taking our any further mortgages then it may not matter to you.

[Walt34]

While being debt-free does have a warm fuzzy feeling to it (at least for me it does) given that you're planning to sell the MD house within the next year or two or three, and there's no guaranteed safe investment for the money that pays higher than the mortgage interest rate for that short a horizon I'd just keep making the payments on the house. Unless I was absolutely, positively certain that I wouldn't need the cash before the house was sold.

But that's just me.

[Another Reader]

What's going on in the market where your second home is located? Is the area appreciating? In your shoes, if I thought I could see significant appreciation in a couple of years, I would probably hold onto that house. I would NOT pay it off. My first thought would be to move in for a couple of years. If I wanted to go to Florida immediately, I would either choose to bleed slowly by renting it out while the market improves, or I would look at short term, seasonal rentals if the house is in a popular vacation spot if that were more profitable.

If there is no evidence of a recovery in house prices, I would sell and be done with it, even if you have to bring money to the table. No point in paying it off, just lower the price to the current market value.

[Debinnov a]

Thanks for the responses!

Ready, I did mention the mortgage on the 2nd home is $290K - we have it on market for $275K and not moving. It is lovely two level townhome condo on water with a deeded deep water boat slip off the back deck, but there was just too much building on the water where we live and there were literally hundreds of homes available in a bad market, so the values have not rebounded.

The 2nd home has been on the market for a couple months and not even an offer. It might be a tad over priced, but as it is we are losing $125K (if it even sold at listing price) not counting the $60K we put in it.. ouch!

So, we will have the funds to just pay it off, it still might not sell so we are stuck waiting to buy our dream home because I WILL NOT own two houses in retirement. Too much in taxes, insurance, utilities, homeowners fees, etc. My dream is to have one lovely $300K house all on one level and paid for. So my dream is just being postponed.

I will look into the short sale but I heard that they can make you pay the difference if the house sells for less than the mortgage? (I know you at least have to pay taxes on the difference). I hate to mess with my credit but I don't think we will be buying anything large on credit.

Thanks!

[Another Reader]

I don't think you would qualify for a short sale, because you have the financial capacity to carry the mortgage or pay it off.

It's not clear to me what your plan is. Are you going to move into the Maryland home and wait? The value is not likely to return to your purchase price plus improvements anytime soon. At what point will the appreciation be "enough" and you will sell the Maryland house and go to Florida?

How much would it impact your finances to take the loss and move on? If it would be unpleasant but without much impact, then in your shoes I would figure how much that one story paid for Florida house meant to me. If the Florida house is critical to you being happy, sell the Maryland house and move on.

[Ready]

Look up the short sale laws in your state. In California, as long as the mortgage is original (and not a refinance), the lenders can not go after the homeowner for the shortfall. Only the property itself is used to secure the loan. I believe it differs in each state, but do not assume that just because you have the funds that a short sale is not an option.

Now some people may feel that a short sale should not be exercised if one has the funds to cover the difference, mainly as a matter of principle or ethics. But that is a personal decision, and unless you have so much money that covering the difference will in no way affect your ability to cover retirement expenses, I would give it some thought.

[Another Reader]

The laws vary from state to state. California is largely a non-recourse state. Maryland will have its own rules. The tax issue remains, because the mortgage debt forgiveness exclusion expired last December.

However, that is not the point. Lenders are not required to accept short sales. To be approved for a short sale, you have to submit a detailed financial package and prove hardship. If you have the financial means to carry or pay off the mortgage, you will likely be denied.

[Debinnov a]

Sorry if it is unclear....We would LOVE to sell 2nd home, but no offers even at greatly reduced price. We have the ability to take the loss and every month we cant sell just costs more money so taking the loss and moving on would be great.

So my question is do I just keep making payments until it sells or just pay it off while waiting for it to sell.

[Ready]

I don't see any benefit to paying off a rental home that you don't intend to keep. Certainly see if a short sale is an option first. Once you pay it off you lose that option completely. And at 3.875%, you are not really paying that much interest. Hopefully the interest expenses are all deductible for you.

I suspect the home is salable at the right price, but in the current market the price you have it listed for is just not where the market really is.

[Another Reader]

In your shoes, I would do neither. I would have a serious conversation with the listing agent, accompanied by all of the recent sales, to determine what price will attract an offer in 60 days. Then I would lower the asking price to that number. Meanwhile, I would get the Virginia house ready to show.

Once the Virginia house was ready to put on the market, I would revisit the price of the Maryland house with the agent if there was no deal pending. Are there showings but no offers? Then you are just a little above market. Is there no activity? Look at the most recent comps to see if a bigger reduction is necessary.

If you are going to sell the Virginia house anyway, you will need to have a plan. Are you going to move into the Maryland house? At some point you have to pull it off the market. Are you going to move into a rental somewhere? Your situation is more flexible. If selling the Virginia house is contingent on selling the Maryland house, plan on having them both until the following spring if you haven't sold them by September 1st.

My choice would be to continue making payments for now. Putting that much cash into an illiquid asset that could go down in value again is not something I would consider. At 3.875 percent, I would consider the mortgage the cost of liquidity. However, I would also do everything I could to sell the Maryland house so I could be done and move on.

Having an approved buyer with the inspection contingency removed would be the best position to be in when the Virginia house goes on the market. I would have that conversation with the Maryland agent before I opened the celebratory bottle of champagne for the sale of the business.

[RetireAge50]

I would sell all the houses for whatever they will bring and start your retirement fresh. Maybe rent a little place in Florida for awhile until you know for sure where to settle down.

Good luck tomorrow and enjoy your new life!

[Another Reader]

The other benefit of figuring out the realistic selling price of the Maryland property is that it makes your choices easier. If you would have to bring too much money to the table to sell it, then you can walk away if you really don't want to live there for several years. The bank can choose to foreclose or work with you on a short sale. If the amount you have to bring to the table is doable, then you can decide to lower the price and be done with it, if that's what it will take to get you to Florida.

In the world of businesses and investments, occasionally you lose a lot of money. For some folks it's Enron, for others, it's real estate. In your universe, this loss is likely not a fatal event. You may make some of it up by buying a depressed property in Florida or in a top dollar sale of your Virginia property. From what you have said, moving on is your top priority. Do it.

[SoClose]

I'm not a fan of paying any fees. So I'd payoff the mortgage and gain 3.8% on my money right away. But if you are going to need those funds to purchase a FL home before the MD one sells then you can't.

If it were me I'd sell the VA one and then move into MD one until it sells. Reducing the MD price to the lowest I could to get outta dodge. Then go to FL.

[pb4uski]

Have you considered snowbirding between a home in FL and MD for a while until the MD home value rebounds? Unless you have lived in FL in the summer before and know you can tolerate it, I would suggest you consider this before jumping into FL with both feet. I know FL summers would be way too hot and muggy for me.

I would not pay off the 3.875% mortgage on the MD home. It is likely that your investments will yield close to that given your conservative AA and having those taxable account funds available will give you much more financial flexibility until you get all this stuff sorted out.

[heeyy_joe]

Quote:

Originally Posted by pb4uski Have you considered snowbirding between a home in FL and MD for a while until the MD home value rebounds? Unless you have lived in FL in the summer before and know you can tolerate it, I would suggest you consider this before jumping into FL with both feet. I know FL summers would be way too hot and muggy for me. I would not pay off the 3.875% mortgage on the MD home. It is likely that your investments will yield close to that given your conservative AA and having those taxable account funds available will give you much more financial flexibility until you get all this stuff sorted out.

+1

[Debinnov a]

Well, the deal is done!! Business sold and unemployed first time in almost 48 years. Whoo Hooo! The plan is to get the Va home sold (and can live in Md home for awhile while spending four months in Fl each year) selling it eventually. We will see what happens.

Thanks for all of the feedback!



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