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Buy a home to sell in 4 years?

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  • Buy a home to sell in 4 years?

    I am entertaining an idea of buying a 2 BR condo (500K-550K) in bay area. I expect to leave bay area after 4 years or so.

    I am OK even if I do not make any profit from this transaction but at least recover the rent that I would have to pay (80K+ for 4 years) if I don't own a home.

    I understand that there will be closing costs involved which would reduce my $$ when I sale the property. But still I would like to know how sound/unsound this idea is given current housing situation. I also appreciate if you can help me out with example numbers so that I know I am on a right track of thinking.

  • #2
    Personally, I wouldn't buy a home with a short timeline like that. What happens if when it comes time to sell, it takes you a while to find a buyer? When you say you will be leaving the area, how far will you be going? If you will be moving some distance away, do you really want to still be dealing with selling a home from afar?

    My mom sold her home a couple of years ago. It was on the market for 9 months. Plenty of other people have had it take a year or more to sell their homes. You need to consider the fact that you could end up supporting two homes for months or a year or more when you are living elsewhere and still paying for the house until it sells.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

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    • #3
      I'm with Steve on this one. I wouldn't buy a property with a timeline to sell. The market is so unpredictable. Also, with all the foreclosures, it's bringing the comps down (comparable properties used to determine price). So if you pay $550k now there's no promise that you'll break even. I know you say you're ok with a loss....but if the credit crunch continues, it's going to be hard to find a buyer who's gonna be able to get a loan for that....therefore leading to having the condo longer than you intended also leading to a loss of more $.

      Also, I'm assuming you will be getting a loan to buy this condo. In 4 years, you wouldn't have taken down a lot of the principal (unless you're planning on making a larger payments).

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      • #4
        Even if you buy it for $550K and sell it for $550 in 4 years you are still going to be out money. You need to pay the transfer stamps (tax) and real estate brokerage fee. A 5% Real Estate Commission would be over $30,000 plus the transfer stamps. The first 5+ years is mostly interest so you wouldn't make a dent in the principal.

        This happens to military families all the time right now. They buy a house to live in for their 3 year tour and then try to sell and they can't right now. Many families are being split up because one has to go to a new duty station and the other stays back with house.

        Not worth it.

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        • #5
          On the other hand, if you buy a condo that would be a desirable rental property, you could rent it out instead of selling it when you move, and just wait for the market to recover... It all depends how much risk you feel comfortable taking. Would you be willing to take in a roommate? Their rent would help offset your mortgage.

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          • #6
            Originally posted by zetta View Post
            On the other hand, if you buy a condo that would be a desirable rental property, you could rent it out instead of selling it when you move, and just wait for the market to recover... It all depends how much risk you feel comfortable taking.
            Not a terrible idea. If you are comfortable with being a landlord and you will remain in the general area, this is a possibility. I don't think folks should rent from a distance where they can't regularly check on the property.

            If you might consider this option, check into what condos like that are renting for and make sure you'd be able to have a positive cashflow with the rent covering ALL of your expenses. Don't do it if you would be losing money on a rental deal.
            Steve

            * Despite the high cost of living, it remains very popular.
            * Why should I pay for my daughter's education when she already knows everything?
            * There are no shortcuts to anywhere worth going.

            Comment


            • #7
              The problem with buying it and then renting it is that most investors will tell you, you should pay no more than 70% of FMV for it to be a viable investment. IMO, this is a nightmare waiting to happen.

              I myself would just rent something cheap and invest the rest. That way you walk away a winner without the hassles.

              Comment


              • #8
                Thanks for your replies. I see the concerns / suggestions here.

                - Property not getting sold quickly (may take a year or even more depending on market)
                - 5% agent cost (can go over 30K+)
                - Renting can offset some mortgage.

                What if I -

                - Put the property in the market after 3 years (I will have one year to sell. If it sells early, I can rent)
                - Not use an agent. Instead try to sell it myself. (how difficult is it to sell by oneself?)
                - Rent the second room to get some help with mortgage. Not sure how this will work out as I am married - but if two rooms have separate entrances then this can be done.

                I am only throwing this out as a possibility - I just think that there has to be some way to save after-tax 80K that I would simply lose out in rent.

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                • #9
                  Originally posted by gekkoplus View Post
                  What if I -

                  - Put the property in the market after 3 years (I will have one year to sell. If it sells early, I can rent)

                  I just think that there has to be some way to save after-tax 80K that I would simply lose out in rent.
                  Putting the place on the market with plenty of lead time would work, but it could mean moving twice with all the related expenses and hassles. I'd pass on that option. You'd also possibly have to find a short-term lease if you wouldn't be in the rental for a full year.

                  The concept that renting is throwing away money has always been kind of flawed. It isn't as if you get nothing in return for your money. You get a place to live and you get someone else to take care of all the maintenance and repairs. And that raises another issue with buying for a short period: if something breaks and you need to make a costly repair, you likely won't recoup that cost when you sell. If you are staying in a property long term, you don't mind that cost as much since you benefit for many years from the repair.
                  Steve

                  * Despite the high cost of living, it remains very popular.
                  * Why should I pay for my daughter's education when she already knows everything?
                  * There are no shortcuts to anywhere worth going.

                  Comment


                  • #10
                    I've sold two homes FSBO. It's very easy to do. Finding a buyer is your biggest job. If you live in an area with a short days on market average, you will probably be ok.

                    You will need a legal purchase contract for your state.
                    You should have a couple of mortgage company agents to offer potential buyers.
                    Sit with your buyers and write up a contract with any offers, demands or contingencies either may have.
                    Contact a title company to handle title insurance and closing.
                    They or their lender may have requirements for inspections.

                    Make sure the house is always clean, the lawn mowed etc. Bake cookies at open house for fragrance.

                    With al this said, I still don't recommend that you buy a house for that short of period. It will not be the investment you think it will be.

                    Comment


                    • #11
                      Originally posted by gekkoplus View Post
                      I am entertaining an idea of buying a 2 BR condo (500K-550K) in bay area. I expect to leave bay area after 4 years or so.

                      I am OK even if I do not make any profit from this transaction but at least recover the rent that I would have to pay (80K+ for 4 years) if I don't own a home.

                      I understand that there will be closing costs involved which would reduce my $$ when I sale the property. But still I would like to know how sound/unsound this idea is given current housing situation. I also appreciate if you can help me out with example numbers so that I know I am on a right track of thinking.
                      You should measure certain costs:

                      1) cost to purchase (value of oroperty)
                      2) monthly and yearly mortgage payments
                      3) monthly and yearly contributions to principal
                      4) monthly and yearly interest payments
                      5) monthly and yearly maintainance costs
                      6) monthly and yearly rental income

                      Then also create an alternative list of costs
                      1) rental cost
                      2) invest the difference (yearly amount compounded at around 7%).

                      In the "purchase" scenario, you need to look at your current tax return (without owning the condo). How much was your return? Did you itemize? Rerun the return adding the rental income to last year's income and the costs for mortgage interest and property taxes into the deductions portion. See what the difference was on the tax return.

                      550k is a large mortgage... the mortgage interest is upwards of 50-75k per year, and depending on your tax bracket you might get 15, 25 or 28% of this back. So the "purchase" route might improve current cash flow enough to still invest while owning, and could easily trump the rent and invest the difference scenario.

                      Comment


                      • #12
                        I am guessing you haven't reviewed a mortgage amatorization schedule. Are you gambling that the condo will significantly escalate in value in 4 yrs? The housing market generally operates in 7 yr. cycles and is currently in a downward trajectory.

                        When adding in closing costs, risk, the amount you actually pay on your principal in 4 years is minimal. Nearly every bit is just interest! You'd likely do better investing your downpayment.

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