<p>DW wants another house and I’m trying to convince her that we still need to pay DD expenditures for at least 2 more year @ $60K and won’t be able to make the payment. </p>
<p>But the realtor has shown her the calculation that the rent on the present house will provide P&I for the new house by taking a 5/1 ARM and the only additional expenditure will be the property tax. He also indicated that the increase in income tax due to rental income will be offset by rebate on the mortgage interest.</p>
<p>I don’t like forward looking statements and I would prefer to wait 2 more years but DW think prices will go up in 2 years and now is the time to grab below market deals.</p>
<p>So I’ve couple of questions:
Does it make sense to put bank savings @ this time into down payment on real estate? Liquidity is the problem, but we do have option to also get a line of credit on the present house.
DW is interested in short sale and we don’t have any experience with it. Is it worth the risk?</p>
<p>This also jeopardize my future plans as the loan DW is looking at will force me to sustain my present level of income till I reach 60 (~15 more years) which seems like a very difficult preposition.</p>
<p>I wouldn’t suggest a 5/1 ARM to anyone… who knows what that loan will look like in 6 years. However, that being said, this is a great time to be buying properties as values are still low. I would say talk to an accountant rather then a realtor. A realtor may (not that they all are crooked) tell you anything to get you in that house as they stand to make a pretty penny when you do.</p>
<p>Is this a SMALLER house? That is the only thing I would even think about buying now that my kids are out of college (it’s the only thing I would have considered while they were IN college). We don’t need all this space.</p>
<p>Being landlords is not a walk in the park. Is your WIFE prepared to be the property manager for this rental? If anything goes wrong, YOU are the owners. You will need to attend to this.</p>
<p>POfIH, does your wife want to be a landlord? Dealing with tenants is not an easy job. Only you and your W can decide if you are ready to tackle this challenging job. Personally, I would not borrow money or take a loan against my current house to make an investment in illiquid asset (real estate). Does your W have any reasons other than investment for buying this property? (You do not have to answer if that is something you may not be comfortable talking about on the web.)</p>
<ol>
<li><p>Haven’t we collectively learned the lesson re ARMs???</p></li>
<li><p>I work in a business that is closely related to the real estate market in Nor Cal. At least out here, the feeling in the industry is that real estate will be flat for at least a couple more years. There is no urgency to buy a house now based on price.</p></li>
<li><p>Owning a rental means either that you must be available 24/7 to deal with issues related to the house, OR you must pay someone else to do that job.</p></li>
<li><p>The house will not be rented 100% of the time. Until you get your first renters, it will be empty. In between renters, it will be empty. Every day, week, or month that it is empty is PURE LOSS to your bottom line.</p></li>
<li><p>As long as one has kids in college, liquidity is everything. </p></li>
<li><p>Short sales are a pain in the a** for the buyer. They can take months, and you have nowhere near the negotiating power that you would with a private sale.</p></li>
</ol>
<p>If your DW wants a new house, isn’t selling the current one a possibility?</p>
<p>Eight years ago a realtor showed me calculations that the property I didn’t believe I could afford would quadruple in price within eight years. That property did go up quite a bit, but certainly never quadrupled, and now is valued at about 1.5 times the price that it had when I was looking at it. So now you know what I think of realtors and their calculators! I didn’t buy anything then. With luck we might be able to buy this year or next.</p>
<p>Don’t listen to this person’s sales pitch. Sit down with your wife and find out why SHE wants that house. Find out what real or perceived need owning that house would fulfill for her. It could be that she wants to be living in a smaller place or different neighborhood, but that she’s also not ready to let go of the family home just yet.</p>
<p>Having watched friends and brother being landlords I would never ever do it. Their tenants are always losing their jobs and it takes forever to evict them, and then you have to fix up the mess they’ve left.</p>
<p>You’re in California, like me. A state with high unemployment, with a new governor who will be proposing as-yet-unknown but likely to be serious cuts to state spending along with tax increases. I don’t know what home sales and the realty market are like in your area, but I certainly wouldn’t trust a realtor to provide me with that information if I was considering investing hundreds of thousands of dollars. Your wife in the past was interested in moving to be nearer your daughter.</p>
<p>I’m seeing lots of red flags. I think you are right to keep your assets liquid.</p>
<ol>
<li>It’s not a downsizing for us, as DW wants to move to a bigger land and house.</li>
<li>I don’t want to sell the present house because I think we can move back when we have to downsize.</li>
<li>We are not taking a loan against the present house to put down. I referred that as a security against the illiquidity of the new house.</li>
</ol>
<p>I don’t know about California, but the rental market for houses around here is dismal–so many people who can’t sell, or aren’t willing to sell at today’s prices, are trying to rent out their homes instead. Investigate carefully to see whether you’ll be able to get the rental income you need.</p>
<p>I often suffer from the feeling that it’d be nice to have a second home. Yep, I get caught up in the emotional urge. Fortunately, my DH has a lot more financial savvy than I do and so far, we don’t own another house.</p>
<ul>
<li><p>Real estate values are not growing, or may never grow, the way they did.</p></li>
<li><p>Just like in the 1929 depression, the fallout in 2008 weakened those who paid for stock (or mortages) using fake money, or perceived growth that never happened. Haven’t you learned how risky this is?</p></li>
<li><p>Does your wife really want to be a landlord? It’s not nearly as glorious as it sounds. Fixing a blocked toilet at 2:00am can wear you out.</p></li>
<li><p>Just because you have some money doesn’t mean you should run out and buy another home. Consider other investments: stocks, bonds, etc.</p></li>
<li><p>Do you really want to be locked in like this: *will force me to sustain my present level of income till I reach 60 (~15 more years) *</p></li>
</ul>
<p>ETA: I don’t have articles on this topics, but there will be a glut of McMasons soon. Why would you want a bigger house?</p>
<p>Is there a need for a bigger house and more land? (and thus more taxes, and more to maintain)? </p>
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</p>
<p>Well…maybe…assuming you can SELL (or rent) the new purchase when you feel like moving back. Lots of “ifs” here. </p>
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<p>POIH…from other threads and posts you seem to have a good income. How you choose to spend it is entirely up to you and your wife. Personally I think owning a rental home (that you MIGHT) move back into at a later date is not good economics. You may want to relocate entirely when the time comes to downsize again.</p>
<p>At one point, didn’t your wife want to move to Boston? At one point you contemplated buying a “starter” dwelling if your daughter went to NYC. No, you didn’t do any of these things (at least you didn’t post here about them) but they were discussed in the past.</p>
<p>If you really want to tie your assets up in real estate, that is your decision. If it were me, I would sell the current house if I wanted another home. The idea of “moving back” just might not wash in the future. Plus you don’t know what kinds of “damage” tenants might do to your home. And, like I said…you may decide to relocate entirely.</p>
<p>I really think your wife just needs a new hobby after your daughter has left for college. How about planning a vacation? It’s cheaper and more enjoyable.</p>
<p>There are lots of red flags here. The most important one is that you and your wife clearly don’t agree. If she wants a new house and you don’t you may feel resentful about not only tying up liquidity, but that you have to maintain your current income which you said would be tough. </p>
<p>Nobody on a message board who doesn’t know you or your finances can tell you whether to buy a house. But, I think you and your wife need to agree as to whether it’s a good idea. You clearly haven’t “bought in.” DH and I have been debating whether to get a new/used car for months now (with our lower income, possibly as big of a decision as you are making). I certainly wouldn’t get one unless there is a 100 percent buy in on his part.</p>
<p>This doesn’t make much practical sense - right when your kids have left home for college, giving you more room in the house, your W wants to upsize as opposed to thinking about downsizing like most people would do if planning any change at all, and you want to keep the old house for when you downsize later which means you’d only live in the upsized home for a small number of years. This sounds really odd.</p>
<p>Interest rates are at historical lows - that’s the time to get fixed rate loans - not ARMs which generally only have one direction they’ll adjust to - upwards.</p>
<p>If you/she really want to move to a new house then it makes the most sense to sell your existing one and buy the new one so you can avoid having to be a landlord and also suffer the consequences of the fact that most renters don’t care about maintenance - the landscaping and all other little maintenance things homeowners do will stop which will cost you more either in paying someone else to do it or in suffering the damage. The times the house is unrented equals no income - just liability. I know it’s not a great time to sell but that’s offset by getting a lower price on what you buy so I don’t think that’s anything to worry about. Just make sure you have a realistic idea of what your house is worth in the current market.</p>
<p>Have you discussed with your W why she wants to move to the other house? Is it to go to a different area, because she’s sick and tired of the current house, because she wants to experience a nicer home, etc.? She must be looking for something she doesn’t have in your current home. Maybe there’s a good compromise in doing some affordable remodeling of the existing home to suit her desires.</p>
<p>If you rent out your house to strangers who don’t care about it like you do it won’t be in the same shape you left it in. If your wife truly likes the house well enough to want to return to it she shouldn’t let someone else, especially renters, live in it.</p>
<p>Don’t do it. The other problems have already been covered. </p>
<p>There is another issue here. Sounds like another bored empty nester to me. If you really want a bigger house/lot- please buy ours. We’re stuck until the house sells, sigh. Plan a vacation- she probably needs and deserves one (I do).</p>