Real Estate 101

[Ivy]

We're currently in the process of selling our home and buying another. So I thought it might be good and not at all self-serving to have a real estate thread on the forum.

Here's our current issue: we still have a bit of work to do on our current home before we can put it on the market, but today we went to an open house and REALLY, I mean REALLY loved the house. What do you do when you find a home you want to buy before you sell your old one? If I thought we could cover two mortgages I'd go ahead and buy it and move out of this one (it would make it a lot easier to fix it up, anyway) but I'm not certain we can do that.

 

[Atomic Fiend]

This is relevant for me as well.

 

[Ivy]

Are you buying or selling? or both?

 

[Geoff]

I have friends who've done just that and rent out the other property.

Issues :

1. confirm your mortgage on the old property is still "valid" if its a rented property
2. find out how you are taxed on the rental income, and in particular whether you get tax relief for the mortgage interest
3. ensure you can cope, at least for a while, with both mortgages in case you have trouble with the tenants.
4. look for recommendations of rental agents
5. eep! Geoff made a list. Help.

 

[Atomic Fiend]

Are you buying or selling? or both?

I'm not buying I have no money, I'm considering selling, but can't yet cause
1. I'm waiting for the title
2. Going to school
3. Been told I shouldn't sell.

 

[Ivy]

You've been told you shouldn't sell? How come? 'cause of the market? It's scary to think about selling right now which is why I thought we might try to rent our old house, like Geoff said. But I'm also a little nervous about the liability of being a landlord.

 

[Atomic Fiend]

You've been told you shouldn't sell? How come? 'cause of the market? It's scary to think about selling right now which is why I thought we might try to rent our old house, like Geoff said. But I'm also a little nervous about the liability of being a landlord.

Yes, this is exactly why. I'm worried that I'll try something I have no idea about and I'll end up getting less then I deserve, and I'll be a homeless.

 

[Geoff]

You've been told you shouldn't sell? How come? 'cause of the market? It's scary to think about selling right now which is why I thought we might try to rent our old house, like Geoff said. But I'm also a little nervous about the liability of being a landlord.

I believe the approach is to have a decent agent who handles all that stuff.

 

[prplchknz]

my mom's renting a condo in new orleans and I think she's hiring someone to be the property manager of course she lives 6 hours from their, and my brother convinced them to buy the place when he was going to school so yeah....I know nothing. except on the train their's all these adds like first time home buyer? get $10,000 towards your new home, all these incentives for people to buy. which means they need people to buy some homes. Or it's a scam.

 

[ptgatsby]

I have friends who've done just that and rent out the other property.

I did too, and our downturn just went through. They are now out-of pocket and down a great deal of money, and are suffering greatly from it. It's not just money - there is always the headache of managing the property and they have a (now) one year old.


I can't advocate doing or not doing, but when I was advising them, I suggested they sell before buying, no matter what their preference for their home was... but that's because I knew what their 'risk profile' was, so to speak. If you have any doubts about being able to manage it, I highly caution against doing it.

There are other ways of trying to make it work for you - one alternative would be to offer the owner of the other home an 'option' to buy, if they are amenable to it. You essentially hand them money over now to lock in the price for a set period of time. It may seem wastefull, but the advantage is that you can also walk away from the deal if anything goes through. Or buy the other home but push the possession out as far as possible, even if it involves paying a little extra (they would have to pay the mortgage for longer, but then you don't have to... splitting the difference, or whatever, can help both). But all of that is conditional on the deal you make with the other owner.

 

[Geoff]

I did too, and our downturn just went through. They are now out-of pocket and down a great deal of money, and are suffering greatly from it. It's not just money - there is always the headache of managing the property and they have a (now) one year old.

Surely one is only out of pocket if one sells the other property. If it is kept until prices recover, there is no "out of pocket".

 

[ptgatsby]

Surely one is only out of pocket if one sells the other property. If it is kept until prices recover, there is no "out of pocket".

Unfortunately, rents and mortgages are somewhat comparable goods. When housing prices fall... so do rents. It's not too bad because this bubble divorced some of those fundamentals, but it's happening here.

I should of put it that "now with the markets down, they cannot stop bleeding money, as condo fees and taxes have risen why rents fall".

 

[Lateralus]

1. confirm your mortgage on the old property is still "valid" if its a rented property

It will be really difficult to get a mortgage on a second home given the current credit situation. So this whole issue may be moot. I know a lot of people who got into this during the boom. They'd buy a home, claim it was their primary residence on the mortgage app (you get a lower interest rate on your primary residence than on rental properties), then rent out the old home. But that was when it was really easy to get a loan.

2. find out how you are taxed on the rental income, and in particular whether you get tax relief for the mortgage interest

This won't happen in the US. You can only deduct mortgage interest from your primary residence. Unless you had a LTV of ~60% or less, I doubt you'll have a positive cash flow from residential home right now.

3. ensure you can cope, at least for a while, with both mortgages in case you have trouble with the tenants.

This is very important. You have to be strong enough, financially, to withstand the worst case scenario, otherwise you could end up with two foreclosures on your credit report.

4. look for recommendations of rental agents

This is also very important. Don't just go with the cheapest. A better property manager will cost you more, but it could save you thousands or more on the other end. I have lots of rental horror stories I could tell about people who went cheap, or managed properties themselves. If you're not in a strong financial position, you may find yourself pressured into accepting a tenant you would normally reject. And that can lead to all kinds of problems.

My recommendation would be to not make an emotional decision. Don't buy the new home before you sell your first. That's taking a really big risk. I'm not sure what the local real estate market is like where you live, but prices are still falling, nationwide. There's no need to rush.

 

[Ivy]

Thanks to everyone who has answered! I hope others will ask questions as well.

Lateralus, I'm leaning your way. My mother, ever the believer in fate and providence, says that if this house is "meant to be" it will still be there when we have sold our current home. I think we will do the rest of the work we need to do (it's not a huge amount, but it will make a big difference to the price we can get for it I think) as quickly as possible and maybe make a contingency offer if the house is still there when we are ready to put ours on the market.

 

[Samvega]

We're currently in the process of selling our home and buying another. So I thought it might be good and not at all self-serving to have a real estate thread on the forum.

Here's our current issue: we still have a bit of work to do on our current home before we can put it on the market, but today we went to an open house and REALLY, I mean REALLY loved the house. What do you do when you find a home you want to buy before you sell your old one? If I thought we could cover two mortgages I'd go ahead and buy it and move out of this one (it would make it a lot easier to fix it up, anyway) but I'm not certain we can do that.

Just so you're aware you can buy on a contingency so put in the offer contingent on your home selling and price your home to sell. That takes some balls for sure but there is nothing you can't do, no offer that's too crazy and these days people are getting more and more open to unconventional stuff.

I would need more details to give you solid advice, things such as the amount of equity you have in your house, location, value, rental market and so on. Renting your house isn't always a wise option and if you purchased it between say 2005 and 2007 I would say selling it isn't even wise unless there's a good reason to do so.

I have literally purchased hundreds of properties and have proposed some pretty insane stuff. Many times people will bit. You can PM me with some specifics if you want.

 

[Tigerlily]

I'm so excited for you!

We are in the process as well of getting our house "ready" to sell and moving back to Fl. Lots for us to think about as well.

A couple of questions.

How are houses selling in your neighborhood? What do you think people are looking for? In our area it's a buyers market so we are gonna have to work for it. We tried to sell in 04 and no luck due to tons of new home communities being thrown up all around us. An example in our neighborhood is when "SJ" recently had her house for sale, most of the negative feedback was that they had an outdated kitchen. White appliances and laminate counter tops so for us to stand a chance, we're gonna have to switch out our appliances and upgrade the counter tops and cross our fingers.

Good news is that NC wasn't hit hard with overpriced homes like FL so you shouldn't have any trouble selling your home with a little staging. I found your home to be charming warm and welcoming so you shouldn't have too much trouble finding a happy buyer.

You can rent your house out now and purchase the other home. Loads of people do this and it's not as scary as it may sound. There are many upgrade options you can do to your current home that won't cost much and can add value to your home.

You might also want to consider asking the seller if they're willing to rent the house to you for a year (while renting your house out) and purchasing it at the end of your lease with the hope that you can do the same with yours or have a buyer lined up at the end of your tentants lease.

 

[Atomic Fiend]

So you're coming back here eh?

 

[Ivy]

Thanks. There really isn't much new construction around here so I don't think that will be a problem. Actually, from what I have heard, small houses like ours are selling well because people are taking advantage of the market and the first-time homebuyer incentives. Nothing is flying off the market but they're going faster here than in higher-end neighborhoods or even the mid-range one we want to move into. Still, "faster" may not be fast enough. But I think we decided that we really don't want to rent, and we'd rather wait to buy than rent this house out. Just too much liability and we don't have a large enough buffer to do it safely.

We're making upgrades where they'll add value and make the home easier to sell, but probably won't buy any new appliances or anything like that. Since ours is pretty much a starter home we probably wouldn't be able to recoup the cost, and folks don't seem to care about that as much as they do in the nicer houses.

Florida, huh? That's pretty exciting!

 

[Halla74]

We're making upgrades where they'll add value and make the home easier to sell, but probably won't buy any new appliances or anything like that. Since ours is pretty much a starter home we probably wouldn't be able to recoup the cost, and folks don't seem to care about that as much as they do in the nicer houses.

An analogy from selling cars, don't fix it up too much if you want to sell it, just go by the fair bluebook/blackbook value and figure it out from there. It is just a commodity, either car or home.

I hear you though, in that some things, small fixes here and there can make it have more curb appeal. Outside, fresh mulch or pine straw in your beds, around your trees, lawn neatly mowed/edged, weeds pulled/poisoned.

Inside, be careful. Like you said, appliances are a big item to buy as an improvement, you might like stainless steel, the potential buyer might want ruby red, you never know...same goes for paint or carpet. I'd say patch up any glaring errors (holes in sheet rock, tears in carpet, etc.) and let the rest be negotiated at the table.

Just my .02.



Good luck!!!

Florida, huh? That's pretty exciting!