Real estate investing has various benefits and challenges not associated with other investment vehicles. There are specific tax codes made just for those investing in real estate, whether they are commercial or residential.
I get reminded about it every 6 to 9 months, but one of my favorite things of running a blog for the past 10+ years is the ability to rummage through my archives and put myself back in that situation. Prior to writing this post it was kind of cool to take a look at some of my older posts about moving from my first home to our current home and all the things that went into it – selling my first home and the emotions thereof, and then subsequently buying our current home (along 5 or so updates during that time when I was blogging a lot more).
Our Current Home and Why We Are Selling
The Wife and I, love our current home, the area we found and the relationships built there. Tonight, I got home about 6pm since I am only about 40mins from the office in Long Island rush hour traffic. Sat with everyone for dinner, then had a 25 minute indoor lacrosse catch with my son as it was raining (future Evan may laugh but this weekend we made up a game called DaChrist with very specific rules which only seem to be getting more complicated and it has only been 4 days). Then got back to our kitchen table for a game of Uno with both kids. After a quick episode of “Billions” I am writing this post with a glass of scotch.
The home provides us ample space to host a large BBQ in the backyard or NYE parties inside with probably close to 50 or so people in either situation without being tight. All while being very affordable with regard to my income and ridiculous Long Island housing costs. Even if I lost my job tomorrow, I am pretty sure keeping the house wouldn’t even really be an issue. So why are we even thinking about leaving? Back in February of 2018 The Wife couldn’t ignore what was happening in the local real estate market, and it started to make us really think about what we don’t love. There are three reasons as to why we even have given any thought to leaving the home:
- Our street is busy – we moved from about 15 miles away which for Long Island might as well be 50 in some parts of the country. As such, we did not know our street was a cut through street connecting two semi-busy roads. This leads to some annoyance in having to worry about the kids in the front. I get there are a portion of people reading this shaking their head. No, I don’t live in the middle of Manhattan, my kids aren’t playing next to 2nd avenue, and yes, there are kids that survive that – The Wife and I just don’t want to worry about it as they get older.
- Property – Currently our home sits on a quarter-acre, and I get that the property may seem HUGE or TINY depending on your experiences. For us, it seemed massive when we moved here, but when we started to look into adding a pool things got tight.
- Upgrading our home didn’t seem worth it – Given one and two on this list, The Wife and I chose to upgrade some things while leaving others alone. We kept justifying, it wasn’t “worth” doing X because this wasn’t our forever home given number 1 and 2.
So weighing out our love for the home and the above negatives about it and given that early last year The Wife and I noticed a ridiculous upswing in the real estate market where we live it inspired us to take a hard look. I put my home up on “make me move” but nothing really came of it, however, The Wife and I kept looking. The problem where we live is there are just not a lot of home within the school district (which was a non-negotiable for either of us much to my father’s chagrin). Since February of 2018 I can’t even venture a guess as to how many homes we saw, but it had to be at least 60 to 70 seen in person (not just shared links with one another).
We put in offers, got counter offers, walked from some and were rejected on others. One story in particular I have to tell on here, if for no other reason to memorialize it so I can remember it at a future time (like the red ball game):
- The Wife and I see a house on Gina Drive (I will need this later when I google to see what happened to it lol).
- The asking is $700,000. There are a TON of trees on this particular property so I have a tree guy stop by and tell me it is going to be upwards of $40k to get the trees removed. So I offer $650,000. I then have this interaction with the broker:
- So we assume that this was dead – I wrote a post about being insulted about a real estate offer and kind of moved on.
- About 2 or 3 weeks later, we get an automatic notice that they dropped the asking from $700k to $630k! LESS THAN WE ORIGINALLY OFFERED.
- We contacted them again and offered them asking, $630k. They turned it down and then took an offer a month or two later at $575k! As I wrote this post, I have no clue whether the broker was just terrible at her job, or if the homeowners were bat shit crazy.
Nonetheless to say this has been a process would be an understatement.
The New Possible Purchase
First and foremost, I say possible because of the date of this post we just have a verbal commitment. I have my attorney talking with their attorney, and only have a voicemail into my engineer/home inspector. I haven’t even started the pain in the ass that is applying for a mortgage. There are probably 10 or 15 things that could go terribly wrong between now and me writing a post about “my new home.”
First the bad. The home is not an upgrade in terms of actual size and structure. Actually, I would say it is almost the exact same home, maybe even a little smaller! The good, I am fixing all three of my “cons” above without changing much in my life.
- The home is on a quieter street. It is not a dead end cul de sac, but nor is it something I have today. For you to want to use the road you have to live close by, as it isn’t convenient for anyone else.
- I am getting a much larger property. The lot is one-half acre, which means I am getting about 75% more backyard (assuming the structure and front yard takes up 25% of the total property). Most of the neighbors have a pool without losing all of their grass.
- With the other two things fixed, The Wife and I are more likely to fix things up (and have already started talking about doing things to the home).
My Boss, who is like a friend and mentor to me, said it best – I am getting all the steak but very little sizzle and that should be okay! I am fixing major problems but the home wont’ have that “wow” factor.
The Finances of the New Home
As we started and lived through the process the most important thing to The Wife and I was that our financial life didn’t change too drastically. We like our life. Last year we went out multiple ski trips, traveled with the kids to Mexico and even took a trip to Ireland ourselves for our 10 year anniversary. We just don’t want to feel like I had to take a different job or be house poor.
This house meets that main objective.
While I have never shared my net worth on this site, I have been very open as to my housing costs. Our current situation is as follows:
- $485,000 home with an original $385,000 mortgage at 3.375% for 30 years (fixed);
- Taxes of about $12,500
- HELOC has about $100 of interest owed monthly
All in I am looking at about $3,100 a month for housing. The way I figured it is if I found a home for about $700,000 and I sold my house for $600,000 (net of broker’s fees) my life wouldn’t change all that much!
- Current house, verbal accepted offer is at $685,000
- I currently have $240,000 of equity in my home ($600,000 minus $330,000 left on the mortgage and $30,000 for my HELOC).
- If I put $200,000 as a down payment and I get a 4% 30 yr fixed I am looking at a payment of $2,400/mo (assuming $40,000 went to waste, taxes, attorney’s fees, and some upgrades).
- My Taxes are about $15,000 (up from $12,500)
- So my monthly nut changes from $3,100 (P&I and Taxes + HELOC interest) a month to $3,650
$550 is completely doable and this doesn’t even take into account that my daughter enters kindergarten next year which clears up $475 a month!
Change is Scary
Any kind of big move like this is such a high risk, high reward type of decision. I do not like those types of decisions, but we are going to give this one a go! I’ll update accordingly.