sorta a rant about a friend (home resale) (pay, rent, debts)
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My dear friend from grade school is wanting to sell her home because she wants a brand new one and because she believes she'll make some money to pay off some debt. When she announced her plan I had a red flag go off in my mind, but I couldn't articulate why. Maybe it's a solid decision for her and I don't see it, but I'm curious how the numbers really come out.
She bought her home for $200k in 2013 and she says she'll get $254k if she sells today. It *looks* like a profit of $54k, but what I'm not sure she understands is that she *just* paid the buyers' fees (probably 3%), put in at least $3-5k worth of updates and now she's going to pay for seller's fees (let's just say it's 7%).
I suppose she's coming out ahead with an addition $20k or so, but she wants to buy a new home in the coming year and she'll be renting in the meantime... so she'll be moving 2x in the next 12 months. Her next buyer's fees might be even more than before (as the market has improved since 2013) and she'll have the costs of moving furniture and paying rent. What does it really leave her at the end of it all? Seems to me that when everything is said and done it looks like $7k or so.
If she just truly wants to live in a new home, that's fine. It was her first home (in a really great community with awesome schools) and maybe she just inexperienced or impatient. It's just that she seemed so happy with her purchase a few years ago. Also I keep thinking about how the money spent on real estate fees could be redirected to pay her consumer debts or towards savings. My fear is that she'll do what she did last time... buy the house and then run out to get new furniture for it. That could easily wipe out the $7k, but I guess she'd finally have everything she wanted, right???
She's gonna spend 8-10% of that 250k on the fees, commissions, prepping new house, moving costs etc. She might walk with something 30k/35k if she is lucky and negotiates well. (I average the complete cost of a sale of a house and move to new house is about 10% of sale price. That includes all fees commissions moving costs, doing xyz to new house sundry stuff). The commission alone is $15,000 at 6%. leaves her with 40k. Take out % of closing costs, moving fees movers security and first month on the rental etc another 5-8k maybe 10k more.
Either way selling to pay off debt renting for a year then buying imo doesn't make sense. She's giving up a LOTof equity to do something like this. She is better off selling then buying immediately. Even if she walks with 40k she's still only looking at 200k house at 20% down. That's IF she still has the 40k in a year. And she can find a house for 200,000 and IF she can qualify. The lending rules, qualifications, home prices, loan rates may be too much for her and she won't be able to buy back in
If it's a house she wants to move away from.. her decision. I know people who sell after a year of buying because they realized they got the wrong house. When a mistake like that happens, better to be on the positive side then being stuck or taking a big loss.
It is her decision. We have what everyone calls a dream home with just about every upgrade you can add, the neighborhood to be in, everything is moving this way from retail to jobs. I offered to move to AK or OK to get away from here. Elementary school opened 2012, High school will open this year - in walking distance for kids. Please let me out!
How much is rent for a place equivalent to her home in that area?
My dear friend from grade school is wanting to sell her home because she wants a brand new one and because she believes she'll make some money to pay off some debt. When she announced her plan I had a red flag go off in my mind, but I couldn't articulate why. Maybe it's a solid decision for her and I don't see it, but I'm curious how the numbers really come out.
She bought her home for $200k in 2013 and she says she'll get $254k if she sells today. It *looks* like a profit of $54k, but what I'm not sure she understands is that she *just* paid the buyers' fees (probably 3%), put in at least $3-5k worth of updates and now she's going to pay for seller's fees (let's just say it's 7%).
I suppose she's coming out ahead with an addition $20k or so, but she wants to buy a new home in the coming year and she'll be renting in the meantime... so she'll be moving 2x in the next 12 months. Her next buyer's fees might be even more than before (as the market has improved since 2013) and she'll have the costs of moving furniture and paying rent. What does it really leave her at the end of it all? Seems to me that when everything is said and done it looks like $7k or so.
If she just truly wants to live in a new home, that's fine. It was her first home (in a really great community with awesome schools) and maybe she just inexperienced or impatient. It's just that she seemed so happy with her purchase a few years ago. Also I keep thinking about how the money spent on real estate fees could be redirected to pay her consumer debts or towards savings. My fear is that she'll do what she did last time... buy the house and then run out to get new furniture for it. That could easily wipe out the $7k, but I guess she'd finally have everything she wanted, right???
Thanks for letting me complain.
The bolded sentence is the statement that stuck out to me. She has no cash reserves - in fact she is apparently in some degree of financial straits, yet she wants to buy what I assume is a more expensive house after having lived in her current home for less than two years. That sounds a bit impulsive, which is probably the mentality that got her where she is at today. She is trying "to borrow her way into prosperity. By using her house as a bank account That is a recipe for disaster. It's her life though. She can do whatever she wants, and oour (or your) thoughts are probably not going to change her mind.
Without knowing the all particulars, and all else being equal, this does not sound like a wise financial decision.
If her motivation is to turn some equity in the property into cash to pay down other debts, she may be better off looking to refinance or take a second loan on the property at a favorable rate to pay down debt with a less favorable rate. It would avoid some of the additional costs in the sale process, purchase process, cost of renting, making multiple moves (to an apartment, then to another home), etc.
Of course, there could be other reasons. Maybe for some reason, the house is not working for her. Maybe she found she is struggling to afford unplanned maintenance/upkeep and thinks a brand new house would help her avoid unanticipated expenses. Or there could be a few factors when combined are making a compelling case in her mind.
However, purely on financial principle, selling a house after just two years is generally too soon to realize any significant gain.
The bolded sentence is the statement that stuck out to me. She has no cash reserves - in fact she is apparently in some degree of financial straits, yet she wants to buy what I assume is a more expensive house after having lived in her current home for less than two years. That sounds a bit impulsive, which is probably the mentality that got her where she is at today. She is trying "to borrow her way into prosperity. By using her house as a bank account That is a recipe for disaster. It's her life though. She can do whatever she wants, and oour (or your) thoughts are probably not going to change her mind.
That's why I shared my real thoughts here. All she heard from me is "oh that's exciting! I bet you'll get full asking price!". But it makes me feel like a fake and I hate that.
My dear friend from grade school is wanting to sell her home because she wants a brand new one and because she believes she'll make some money to pay off some debt. When she announced her plan I had a red flag go off in my mind, but I couldn't articulate why. Maybe it's a solid decision for her and I don't see it, but I'm curious how the numbers really come out.
She bought her home for $200k in 2013 and she says she'll get $254k if she sells today. It *looks* like a profit of $54k, but what I'm not sure she understands is that she *just* paid the buyers' fees (probably 3%), put in at least $3-5k worth of updates and now she's going to pay for seller's fees (let's just say it's 7%).
I suppose she's coming out ahead with an addition $20k or so, but she wants to buy a new home in the coming year and she'll be renting in the meantime... so she'll be moving 2x in the next 12 months. Her next buyer's fees might be even more than before (as the market has improved since 2013) and she'll have the costs of moving furniture and paying rent. What does it really leave her at the end of it all? Seems to me that when everything is said and done it looks like $7k or so.
If she just truly wants to live in a new home, that's fine. It was her first home (in a really great community with awesome schools) and maybe she just inexperienced or impatient. It's just that she seemed so happy with her purchase a few years ago. Also I keep thinking about how the money spent on real estate fees could be redirected to pay her consumer debts or towards savings. My fear is that she'll do what she did last time... buy the house and then run out to get new furniture for it. That could easily wipe out the $7k, but I guess she'd finally have everything she wanted, right???
Thanks for letting me complain.
Unless the new home is cheaper than the old one, her total debt will actually increase. It would basically be equivalent to taking out a home equity loan or credit line to consolidate the debt. If she's just going to run the credit cards back up again, she'll be worse off. On the other hand, if she is disciplined enough it could reduce her interest expense.
Of course if she is not asking you for advice, chances are she's going to do what she's going to do and it doesn't do much good to worry about it. In other words, live your life, not hers.
Unless the new home is cheaper than the old one, her total debt will actually increase.
Of course if she is not asking you for advice, chances are she's going to do what she's going to do and it doesn't do much good to worry about it. In other words, live your life, not hers.
Yes, she is doing it and yes, I know the consequences are not mine (thank goodness). I just really wanted to vent to an audience who would see it as I do.
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