High Value House with No Appreciation Prospects

[e86s54]

So we (DW & I) own our home outright and its worth about $750k (about 25% of our NW). My perceived problem is that historically, houses in the area do not appreciate much, if at all. We live in this house and area for other reasons and won't likely move anytime soon. But we do plan on wintering south for 3 to 6 months a year starting as early as next year...we are 50 and 52 years old, have two kids, one finishing college and the other just entering.

So my options are;
1-Do nothing and think of it as an emergency nest egg.
2-Sell and downsize to something less than half the price
3-Borrow and invest to try and beat the home equity line of credit rate.

So I'm interested in what others have done, why with successes and failures.

 

[Meadbh]

4. Never bought the McMansion in the first place.

But if your family currently needs a bigger home, in this particular area, perhaps a high cost area, and if you enjoy your home, I would just stay put for now. There is a cost to moving. I would include the house in Net Worth calculations, but not in Investable assets. At some point, e.g. when your youngest child is in the workforce, I would downsize or rent, invest the proceeds, and enjoy the lower maintenance costs.

 

[rodi]

We also have an expensive home and have been thinking about it also. Our home is expensive because of geography, not fanciness (2000sf 50 year old tract home... but in a good neighborhood in San Diego.)

For us, we lean towards keeping the house - you have to live somewhere and over the years we've customized it to our needs. We've made it more efficient (lower cost to maintain), and customized the kitchen to our taste, rather than generic taste. (Skipped the granite, went for stainless counters... Built some of the shelving custom to fit our vintage cookware.)

But - the home equity is our plan C if long term care or in home care depletes our nest egg.

Retirement planning does not include the home value, but does include the expenses of running the house.

We could move to a lower COL area and have a fancier house - but we like where we live, our garden, our neighborhood, being 10 minutes to the beach, walkable to the local shopping area for groceries and mexican food. Why move - the house works for us.

 

[W2R]

Like Meadbh, I never bought the McMansion in the first place. (I am assuming it is very elaborate and large and a McMansion, though as Rodi pointed out that isn't always the case!)

From your description of the situation, I'd probably sell and downsize. Your kids will be off at college most of the time, and the two of you will be away from the house for months at a time. Sounds like you would not get as much value from the home as you did in the past.

 

[HillCountry]

Do you want to keep 3/4 million in a checking account, earning 0% interest? Even worse, you have to pay property tax on it. After kids are gone, do you really use all the sqft of the house?

But if you don't need the money, and like to live where it is, then be it.

 

[LakeTravis]

Homes that are expensive to buy are expensive to keep and expensive to sell.

Last summer I was lucky enough to sell a similar high $$$ property. I don't miss the utilities, the insurance, the extremely expensive property taxes, the ongoing maintenance required on a large lakefront home on more than an acre, etc...etc...etc....

I say sell it. Rent something else if you have to until you decide your next move, but get that puppy on the market now and in time for peak selling season.

 

[mpeirce]

We're in somewhat similar circumstances - a little less house, but with some appreciation. Youngest kid in college.

It's paid for. It has high-ish taxes (great schools, but we're done with that). But we're keeping the house for a while. It's in an area we like. It's very much to our taste. We're doing some remodeling with an eye toward eventual resale, but also so we can enjoy it even more. I especially like the land around it with gardens that are to our liking.

Eventually, we'll downsize, but what's the rush?

 

[e86s54]

Thanks for the replies...

It's not a McMansion, but a well built house in a good area. I don't think we want to sell and although its a bit more sq/ft than we need, not that much. If we do winter for 3 to 6 months a year, we will certainly question why we have such a place empty for a good part of the year. But in the shorter term, I was thinking of investing and trying to beat the 3.5% home equity line of credit. I was actually thinking of putting it into a condo in a nearby city that has had only one down real-estate year in the last 50 and properties seem to double every 7 to 10 years (I grew up there and know it well). Its a government & university town with some technology firms. As stable as it gets...and the rent would cover the mortgage and expenses with a little left over...but the appreciation is where its at. That or a second residence down south. Just a few ideas that needs flushing out more...or just flushing.

 

[45th Birthday]

Thanks for the replies...

It's not a McMansion, but a well built house in a good area. I don't think we want to sell and although its a bit more sq/ft than we need, not that much. If we do winter for 3 to 6 months a year, we will certainly question why we have such a place empty for a good part of the year. But in the shorter term, I was thinking of investing and trying to beat the 3.5% home equity line of credit. I was actually thinking of putting it into a condo in a nearby city that has had only one down real-estate year in the last 50 and properties seem to double every 7 to 10 years (I grew up there and know it well). Its a government & university town with some technology firms. As stable as it gets...and the rent would cover the mortgage and expenses with a little left over...but the appreciation is where its at. That or a second residence down south. Just a few ideas that needs flushing out more...or just flushing.

I think you should be careful with a HELOC that is adjustable. The expectation is that rates will rise from their current historically low level. That could really put a crimp in your plan. A fixed rate loan would be better. Also, I would think twice about buying more real estate, even for investment. You already have a pretty high RE allocation. If you get something later for 3-6 months of the year, that will drive things even more out of whack. And RE transaction costs are pretty significant.

 

[phil1ben]

We are of a similar age and with kids the same age. Also have a substantial amount of equity in our home with no mortgage. The dollars and sense decision is: "sell the home and invest the money". That is not the decision we made.

We have decided to wait to make a decision until the kids have to some extent "settled". We live in the northeast. It did not make sense to us to sell this house and buy a smaller house when the kids could ultimately settle in Chicago or California which could require us to move again. So we are not selling our home until we get some idea where the kids will be. We realize we may not have an answer to this question for 7-10 years. This decision is made because we do not need the equity to fund any retirement, I do no expect to retire for another 18 months and have been FI for a number of years. Your individual circumstances may be entirely different.

 

[Animorph]

I keep a large mortgage and invest. If your interest rate is low enough the cost hurdle is not too high.

If you have reached the $500k max exclusion on primary residence sale gains for a couple you might consider selling before you start exceeding the exclusion amount.

 

[HornedToad10]

If you aren't going to use it for 3-6 months each year, then you could evaluate the pros/cons of doing a short term rentals for it (few days/week at a time) if you are ok with someone coming in and using it.