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Just looking for things I need to consider as this process is new to me.
I purchased my first home in 2004, a 2/2 condo in the SF Bay Area with the plan to keep it for a few years (+-5), sell it, and then use the equity to buy something better. I could have never foreseen the recession of '09. It was April '10 and I found myself without a job and 200k underwater on that condo. I still haven't fully recovered financially from that.
So here we are today, wife and I are just in the beginning stages of considering to move out of state. The plan, for now, would be to rent a home in the area that we are planning to move to and rent the condo out just to gve us some time to make sure that we do want to move permanently there. Realistically, if we sell the condo, we couldn't afford to move back to the area.
But unsure what to do after that. Currently I've got about $350k in equity based on recent comps. That would be enough to either pay off a home in the area we are considering or put a nice down of 80% or more. The thought of having no mortgage or a small mortgage sounds very appealing. But, historically, home values continue to increase, it could be a good investment property to keep. At today's rates, my monthly costs for mortgage, HOA and insurance are just short of $2k and I'd need to factor in a bit more for a property manager since I'd be out of the area. I could easily rent it out for almost $3k today.
Of course additional income is always nice and it would be a good investment. But if we keep it, we wouldn't have much for a down on the new place. I know I'm not considering everything, what other things should I consider about this decision?
You said you couldn't afford the area later if you sold it, but can you afford it now as is? Is the CoL part of why you are moving away? Because if it is, you won't be able to afford it later either even with the condo since you aren't doing better now.
Is it your first rental and you want to be far away from it? Rentals are good money but learning curve is high too.
If '09 repeats, would you be able to keep condo plus the new home?
From money stand point, you clear $1k/month from rental, but you can clear that if you sold and invested it as well. $1k/month is < 4% on $350k. Main issue being if you think condo or stocks will appreciate faster.
I purchased my first home in 2004, a 2/2 condo in the SF Bay Area
with the plan to keep it for a few years (+-5), sell it, and then use the equity to buy something better.
Currently I've got about $350k in equity based on recent comps.
That would be enough to either pay off a home in the area we are considering
or put a nice down of 80% or more.
So... on the whole you're doing just fine.
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So here we are today, wife and I are just in the beginning stages of considering to move out of state.
The plan, for now, would be to rent a home in the area that we are planning to move to...
If you're leaving the state... sell first. Set the sale proceeds aside. And then rent for a while. Plain vanilla approach.
Make the next buy decision only after getting settled into the new job/town/friends/etc.
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Realistically, if we sell the condo, we couldn't afford to move back to the area.
Home wise, yes. Other things, not so much. Not bad, but a work in progress.
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If you're leaving the state... sell first. Set the sale proceeds aside. And then rent for a while. Plain vanilla approach.
Why? I'm not doubting you, just trying to understand the reasoning why and why this would vary depending on if we stay in state or move out. Would be wise to keep it: (1) as an investment and (2) on the unexpected chance that we will come back, no?
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Make the next buy decision only after getting settled into the new job/town/friends/etc.
The job I would be taking with me, working remotely and the wife is disabled, so that is settled. The town, we have it narrowed down and continue to do so, but are not positive, so that would be the main reason to rent before buying. Friends, neither of us are very social people, so that wouldn't matter so much. More important would be a decent sized hospital with an ED for the wife's ongoing medical conditions.
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Is a move back expected to happen? Realistically?
No, but anything is possible. I'd prefer to keep the home until we at least establish for sure the town we want to live in and are ready to buy. That way, would have the option to come back if needed. With median home prices over $1mil and rent over $3k/mo for a tiny studio apartment currently in the San Francisco area, there is no way we could afford to come back if needed.
Besides, it would be positive income. Not a lot, but a decent amount and that is a good thing. Also, more tax deductions. Would also be additional work, so I am keeping that in mind.
Why? I'm not doubting you, just trying to understand the reasoning why
and why this would vary depending on if we...
If you're leaving the zip code.
You don't want to volunteer to be an accidental or out of town landlord.
Move on to your new life unencumbered by concern or obligation and carrying a few fat CD's.
If you could afford to mothball the place for a year... maybe other options are possible.
Can you afford to do that?
You said you couldn't afford the area later if you sold it, but can you afford it now as is? Is the CoL part of why you are moving away? Because if it is, you won't be able to afford it later either even with the condo since you aren't doing better now.
We wouldn't be able to afford to move back if prices continue to climb as they are. Median home price is over $1mil and rent is $3k or more for a tiny studio apartment in the San Francisco area. We can afford it now because I bought when prices were a lot lower, it's tough, but we're making it.
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Is it your first rental and you want to be far away from it? Rentals are good money but learning curve is high too.
I realize that and would look more into it from a financial and legal standpoint if I were to go that route as it would be my first rental. Realistically, would be a half day drive or so away. Not like I would be across the country, but still a considerable distance, so plan would be to work with a property manager for all the routine stuff.
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If '09 repeats, would you be able to keep condo plus the new home?
That I don't know and it is one of the concerns. If I wouldn't be able to rent it out and at least break even, it may be an issue and of course if that is the case, I may very well be underwater on it again.
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From money stand point, you clear $1k/month from rental, but you can clear that if you sold and invested it as well. $1k/month is < 4% on $350k. Main issue being if you think condo or stocks will appreciate faster.
That is the other way I am thinking about it and wondering if I (we) are disciplined enough to hang on to it long term. I'd like to think I am, but that's never been a problem I've had either. Just knowing myself, if I do sell, I think it would be best to invest it in our future home as a large down or payoff as opposed to hanging on to it, but would have to look at the numbers at the time. Bay Area prices have appreciated very rapidly the past few years, but are slowing down. No way to tell if that will continue.
Will your condo board allow you to rent out your condo?
Some condo buildings have a limit as to how many can be rented out in a given period of time. For example, many places allow for no more than 10% of the units be rented. If your bylaws have such a provision and the building has reached the 10% limit, then you won't be able to rent it out.
Will your condo board allow you to rent out your condo?
Some condo buildings have a limit as to how many can be rented out in a given period of time. For example, many places allow for no more than 10% of the units be rented. If your bylaws have such a provision and the building has reached the 10% limit, then you won't be able to rent it out.
Yes, there is nothing in the CCRs or bylaws about that. Currently, over 30% of the 96 units are rentals.
You don't want to volunteer to be an accidental or out of town landlord.
Move on to your new life unencumbered by concern or obligation and carrying a few fat CD's.
If you could afford to mothball the place for a year... maybe other options are possible.
Can you afford to do that?
Possibly, would have to look at the specifics at the time. Would seem like a waste of money though, having a home just sitting empty when it could be making money, especially with the (current) low vacancy rate.
That would be nice though, not having the burden of managing a property from afar AND having the ability to pay off or put a significant down payment on our next home.
Yes, there is nothing in the CCRs or bylaws about that. Currently, over 30% of the 96 units are rentals.
Just keep in mind that there is a tipping point where if too many units are rented out, it devalues each and every unit in the building. Absentee landlords tend to vote against any special assessments needed to make repairs or upgrades to the building.
In fact, many financial institutions judge a condo complex to be risky if more than 25% of the units are rented out and refuse financing to new buyers. As a result, such condo complexes may become desperate. To attract buyers, they may start selling the vacant units at lower prices, adversely affecting the value of the other units within the same complex. As the complex makes the transition from mostly owner-occupied to mostly rented out, it enters a very dangerous stage: It may degrade itself to the point of depleting its budget and reserve fund. If the unit owners cannot replenish those funds, as a last resort, a common loan is arranged for the complex to maintain its very existence – passing the costs and repayment of such loan to the condo unit owners.
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Do keep the above^^^^in mind should you hope to sell your unit somewhere down the line.
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