Selling primary residence to fund real estate investing?

Question

Has anyone done this or considered doing this?

I currently live in a condo, have been living in it since 2001. I've already put quite a bit of money into it, as it was a fixer upper and still needs thousands of dollars of additional repairs. Renting it out is not an option since it's not in rentable condition and even if it was I'd lose around $200 a month at least.

I've thought about selling and renting for a few reasons:

1. I work 47 miles from where I live, I'd like to kill my commute within reason.

2. I don't want to pour more money into my condo when the value won't increase that much.

3. I can live closer to work

The downsides:

1. I'd lose 6% of the sale price to real estate commissions

2. I'd have to pay sellers closing costs I'd assume

3. I work in west LA/Santa Monica area and rent around there is ridiculously expensive, which will make finding something affordable a challenge

4. Moving is expensive

I do have equity so I want to free up cash to invest. I don't own any rental properties yet and I only have a minimal amount of cash to invest at this point. I'd sell, rent an apartment closer to work and go and look for a buy and hold investment.

Ali Boone · Answer

You drive from the OC to WLA/SM every day?? Phew. No wonder you want to move closer. For anyone not familiar with LA traffic, 47 miles here means something wayyy different than 47 miles anywhere else! :)

No but seriously, it's a conundrum. My first gut feeling is to tell you to move. Don't underestimate the value of sanity in all of this. As for 6% agent fees, that is a small price to pay for happiness, especially if it still means you are profiting from the sale. Who cares about that 6% then? You'll have to pay it now or some other time down the road. Closing fees, you don't have to pay those by any means. Even if you did, you can make those and that 6% interest back with an investment property really easy, between the actual cash flow and the tax benefits. And add gas savings into the mix too. I used to commute from West LA to Palmdale every day and I'll never forget the month that my gas payment was more than my rent!

Rent out here is atrocious, but it can't be too terribly worse than in the OC. West LA especially has some cool places. It's once you hit right near the beach everything shoots up really bad (says my studio with no kitchen).

Yep, I've convinced myself by talking it out that I think you should do the move. Moving doesn't have to be too expensive either. Just buy a bunch of friends a couple cases of beer and you're good to go.

Patrick McGowen · Answer

You have several options:

Rent your condo out and move

Sell condo

Take out equity loan and invest it

Do nothing

Do the math and compare, certainly travel cost is a consideration. I just found out that an almost identical house (spec home) in my neighborhood was renting for less than my mortgage payment! Add to that the fact that my down payment is capital that I can’t use somewhere else. Also add to that the repairs, maintenance and improvements I have made. Hindsight being 20/20, if I would have rented for the last 7 years and put my down payment into an investment property as well as the extra money I have been throwing at the house (repairs, extra mortgage cost, etc.), I would probably have enough investment cash flow (even with housing bubble) to cover at least half my rent. When I bought, I never even made this comparative analysis.

I knew from Rich Dad Poor Dad that house is not an asset, still I couldn’t help making a stupid investment decision because of my programming (in robot voice “need to own my home”). This is more for people considering buying a home, DO THE MATH! Whatever helps you achieve your financial goals faster is what you should do. Good luck.

Brant Richardson · Answer

You should rehab the kitchen regardless of whether you decide to rent or sell.

Brant Richardson · Answer

I have been saving money for many years to buy a home in Santa Barbara.  It finally dawned on me that I could use my down payment money to buy many cash flowing properties elsewhere and I would be better off.  If it also saved me a long commute it would be even more of a no brainer.

Marco Santarelli · Answer

Hi @Jonathan M.,

Welcome to BiggerPockets!

You may have a good idea.  There are many people who have opted to rent versus buy because it is cheaper for them, and invest the savings.  A lot of them have rolled their dormant equity into income-producing real estate in other markets.  This is a great strategy for many people in expensive markets like what we have here in Orange County, CA.

Be sure to check out the Ultimate Beginners Guide as well as my 10 Rules of Successful Real Estate Investing.

Continues success!

Jonathan M. · Answer

Thank you both for your responses.

@Ali Boone

If I do something it will be in the next 6 months. I have a roommate currently and he's not moving out until around March or so. Once he moves out I'll have to make a decision. Fortunately I work at home 2 days a week but the 3 days I drive out there, my goodness, it's rough. I do have friends and coworkers that live out there so they can point me in the right direction as far as apartment hunting.

@Patrick McGowen

If I could rent it out I would but I'd lose money. I'd have to spend over $10,000 replacing my builders grade cabinets that are literally falling apart and bathroom repairs. Fixing the corroding aluminum framed windows would cost another $6,000. After I do all of that I could get $1600 a month if I rent it out. After PITI + HOA that leaves me with a little over $200 a month to cover maintenance, vacancy allowance and possible HOA assessments if I self manage. In short I would lose money.

I haven't looked at the home equity option, I have a little over 20% equity. Would that be an option for someone in my position? That's something I'll have to research.

That leaves me with 3 options, sell and move to LA, see if I qualify for a HELOC and invest the money, or do nothing and continue saving until I have enough to invest.

Thank you both for your responses.

Selling primary residence to fund real estate investing?

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