Should I sell my house, so I can have more money to invest?

Question

My house has been eating up every bit of income that I earn for the past 15 years, my wife has been wanting me to sell and downsize, but we still have three children living with us. I really want to start doing fix and flips, and will have about $80k to work with if I sell, but that's before buying or renting something to live in. There are almost no duplexes in are area, and my wife wants to move to CA someday but is also ready to get her PA/NJ RE license. This is a very confusing situation for me. What should I do? Any suggestions?

Alexander Felice · Answer

@Chris L. nailed it imo

If you can make 80k in cash by selling you should have a bit more than that in usable equity. Equity lines are pretty easy to get too. The last one I got had a digital market appraisal, took about 10 days, and cost me $171

If you sell that house you'll make one-time cash but you'll lose amortization benefits, tax benefits, and you'll have to pay taxes on any profit. Also, part of that cash will have to go back into buying something else. My bet is once all the numbers fall out at the end you'll find yourself downsizing with not much cash leftover to flip AND less equity. You've reaped a ton of hard to see benefits from paying on a mortgage for 15 years. I wouldn't be hasty to throw that out, instead, try to tap into it.

Bram Spiero · Answer

Hey @Nick Stango

It seems like there's a bunch of issues here, let's seperate them to make sure they don't get tangled.

1. You have a house on which your mortgage payments require too much of your income.

2. Getting rid of the house would free up 80k in equity you have in it, but then you would need somewhere to live.

3. You don't see opportunities for house hacking.

4. You want to do fix and flips.

5. In the long term you want to move to CA but in the long term your wife is considering being a RE agent on the east coast.

Here are the questions I would ask myself:

1. Can you refinance the house, now that you have 15 years worth of equity in it? This would reduce your monthly payments relieving some of the burden.

2. Do you have experience in flipping houses? If not, I would avoid pouring your hard earned 80k into a business where you really need to know what you are doing. You seem to be a contractor. What I would do is see if you can partner with someone who is already flipping houses. Offer your sweat equity instead of cash, take little or no profit off the first flip you do together and consider that tuition. Second flip, maybe invest a minority stake in the deal. Rinse and repeat.

3. Try to understand what your short and long term plans are. Do you want to be in CA in a year? In 5 years? In a decade. This will allow you and your wife to plan accordingly.

Hope this helps.

Chris L. · Answer

Have you checked with your bank about getting a home equity line of credit?

Nick Stango · Answer

@Carlos  O. can't rent the house for cash flow, i just refinanced and my monthly payment is still too high to rent with any positive cash flow. Although I did get a 15 year fixed at 3.875% so I'm paying over $1,000. per month in principle which is good, but my RE tax is $430. per month, expensive school district, and are kids are all out of school here. I really want to get started with buying foreclosures, fix and flips.

Carlos O. · Answer

I agree with @Alexander Felice, don't be too hasty to sell the house. Is it possible to turn it into a cashflowing rental? Depending on the numbers you may be able to do a cash out refi and still rent it for cashflow + all the other benefits of depreciation and taxes.

Nick Stango · Answer

@Chris L. I forgot to tag you In my last post.

Nick Stango · Answer

I can rent a townhouse for around $1800 per month, use the cash to get my fix and flip biz started, and see if I can find a duplex to house hack or flip. My wife and 25 year old daughter should have their RE licenses by then to save on the sales of the flips. There are lots of foreclosure properties becoming available lately.

Chris L. · Answer

@Nick Stango

Even if you sell you still need a place to live so you will have to run the costs associated with moving as well as the costs of your new place.

Have you run the numbers to include the cost for moving and what it would take you to get into a new place?

Once you have those figures, you can decide whether or not it makes sense to move.

Chris

Nick Stango · Answer

thanks @Chris L.  @Bram Spiero @Alexander Felice @Bhekizwe M.I just refinanced three months ago, before that I was sinking in debt, now I'm making ends meet, but still can't save, if I go for the equity, I'll only get 80% of my homes value so it will only be about $30k in equity. Plus my debt to income ratio was just good enough to get the refinance.

Bhekizwe M. · Answer

Sounds like refinancing would be ideal.

Should I sell my house, so I can have more money to invest?

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