Did you ever sell your primary residence to get more income?

Did you ever sell your primary residence to get more income?

Orlando, FL · Member since 2017 · 147 posts · 92 votes

I'm wondering if any of you ever sold your primary residence, for any number of reasons. Maybe, like me, you discovered Bigger Pockets and Rich Dad, Poor Dad, and suddenly began to question why you were paying such a a high mortgage. Or you wanted to get the equity out of it, or you were anticipating a price correction in a hot market.

We have only owned our primary residence for 3 years, so I don't know if it would be worth it to try to sell with closing costs, but the neighborhood is a hot one and the house has appreciated at least 10%. I think the values have approached pre-2008 levels. I like the house and the location, but I don't feel super attached to it... and although moving would be a hassle, if it made sense financially, my husband would also be fine with moving. (Our kids, not so much, but they're still little).

The mortgage payment feels like an albatross around my neck, plus property taxes are high. I did get a HELOC on it for $50,000, whereas if we sold, ideally we'd make at least $110,000 after closing costs... If we closed the HELOC before three years were up, we'd be fined $750...

If you did ever do something like this, what did you do afterward? Did you rent? Live in one of your own rental properties? House hacking a duplex/triplex/etc? (I don' think there are many of those in my area...)

Would love to hear from people who've traveled down this road before.

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Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
9y

NO!  I for one don't feel your home should be considered an investment.  It is a safe haven for you and your family and should not be gambled with.  I've had mine paid off for many years and figured that if I can not make it as a Real Estate investor using other means then why would I risk my home.  My two cents.

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  • Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    9y
    Yes
  • Orlando, FL · Member since 2017 · 147 posts · 92 votes
    9y

    How did it work out for you, @Ben Leybovich? Or do you talk about it on your podcast? I'm about 20 episodes in so far and haven't made my way to Episode 152 yet... 

  • Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    9y
    Originally posted by @Rachel N.:

    How did it work out for you, @Ben Leybovich? Or do you talk about it on your podcast? I'm about 20 episodes in so far and haven't made my way to Episode 152 yet... 

     Wrote a book about it. Called House Hacking. Search it on Amazon. Doing very well indeed!

  • Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
    9y

    NO!  I for one don't feel your home should be considered an investment.  It is a safe haven for you and your family and should not be gambled with.  I've had mine paid off for many years and figured that if I can not make it as a Real Estate investor using other means then why would I risk my home.  My two cents.

  • Orlando, FL · Member since 2017 · 147 posts · 92 votes
    9y
    Good point, @Rocky V. It's interesting to consider the home as a safe space for family, too, and not as an investment. Anyone else?
  • Real Estate Agent · New York, NY · Member since 2017 · 66 posts · 26 votes
    9y

    home = invetment; imagine someone came up to you and say dill give u 50 million to move out tomorrow.... would u take it?? uhh yes... at the top of the market, sell, get a comparable house... as an an agent, were comping properties ALL the time, no matter how special one thinks their apartment is, we can always comp it... even if i see a $60 million apartment...

  • Real Estate Agent · New York, NY · Member since 2017 · 66 posts · 26 votes
    9y

    if u think its going down and for whatever situation u have to move before it goes up, how pissed would u be that u didn't sell it?  what if god forbid, it was underwater and u owed the bank money?

  • Real Estate Agent · New York, NY · Member since 2017 · 66 posts · 26 votes
    9y

    my parents bought in Laguna Beach in 2006, its still worth 1/2 today for what they paid... they just don't want to sell it and lose that much $$$

  • Real Estate Agent · New York, NY · Member since 2017 · 66 posts · 26 votes
    9y

    ur an investor, NO EMOTIONS.. BUSINESS. remember?

  • Investor · Orlando, FL · Member since 2016 · 44 posts · 85 votes
    9y
    Rachel N. Yes, but not in the way you're describing. We moved to Orlando last summer from Wichita, KS. When I started looking around at real estate prices, I was like, "Wow, this place is really expensive." Closing on our house in KS was not going to coincide perfectly with our move, so we started looking for a rental to live in. After selling our house, I started looking around for places to invest the money for the next year. The plan was, after our lease was up, we would then take the money that was invested and buy our primary home. However, I discovered BP and REI when looking for a place to invest the money. I also sold an inherited small apt complex that I owned with my sister, and did a cash out refi of an accidental rental property we owned in Birmingham, AL. So, over the course of last year, I purchased four turnkey properties and a small fixer from a wholesaler in the Midwest. I'm currently under contact to purchase a duplex. So, in answer to your question, yes. We would love to have a primary home for our family. However, we have some very nice cashflow coming in from our rentals and want to keep increasing it by buying more. So, we're willing to sacrifice for the next few years to increase our income via REI. And frankly, it's really not a sacrifice as we're renting a nice townhouse. I have become really interested in REI and want to become a more active investor by increasing my knowledge and taking action beyond purchasing turnkeys. This is currently the track we're on which wouldn't be possible if we saddled ourselves with a fat mortgage payment not to mention having to save for the down payment. It is hard for me to think of purchasing a home with money I could use to purchase another rental that would further increase our monthly cash flow.
  • Ryan IngramBusiness Member
    Rental Property Investor · Dayton, OH · Member since 2017 · 247 posts · 225 votes
    9y
    Yes, I'm actually in the process of this. We are relocating from NC to OH. We are using the equity from our home to purchase (in cash) a rental here in OH. We close on Tuesday. It's a duplex that is fully occupied and rents for $890 per month. We are only half way through the process, with a lot of years ahead of us; however, I'm confident in the choice.
  • Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    9y

    I recently sold my primary residence (this month) which I bought in 2010. Wanted to move to another side of town about 30 minutes away for various reasons, but also wanted to pull the money out. Renting it out didn't seem too appealing and I felt at least for the neighborhood appreciation for this cycle at least was at peak or pretty close.. 

    I'm currently renting, but rents are very high here. I don't know the local market in Orlando so maybe it's possible to rent something for much cheaper than your mortgage. I am hoping for prices to go down in the near future. 

    You mentioned there aren't many 2-4 units but perhaps you could do something like Ben Leybovich mentioned and buy a house that has a separate guest house? You are in Orlando , so I imagine it could be good for short term rentals on Airbnb...but then of course you'd be paying current 'hot' market rates for it unless you found a deal that was a fixer. Don't know how many are on the market in your area though, if it's like L.A now there aren't really those types of deals on the MLS.

  • Investor · Orlando, FL · Member since 2016 · 355 posts · 380 votes
    9y

    @Rachel N., I just moved out of my former primary residence in Chattanooga and just added it to my rental portfolio when I quit my job and relocated to Orlando. I bought it for $338,000 (retail price in a great neighborhood), paid 5% down, the monthly PITI is $2,115, and I rented it out for $3,000 per month. Not bad cash flow for a 5% down deal on full retail price. If you're in one of the high end areas of Orlando, you may well be able to achieve similarly high levels of cash flow. I routinely work with leasing clients who are looking to rent in the $2,000 - $3500 per month range. I can help you figure out what the market rent may be for your house if that sounds attractive. You're also correct about how much the Orlando market has appreciated over the last several years. It's a red hot market for sellers right now, and you're setting on a lot of equity that could be used for your investing (either in the form of a HELOC as you mentioned or as cash after the sale).

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    as normal US homeowner I have moved like the rest of the US on an average of every 7 years.. And being that I bought in the SF Bay area and in Portland Oregon I seem to have been fortunate in timing.. Now I sold each time to either move up in home or relocate in area.. Like Selling in Palo Alto and moving 70 miles to the Napa Valley.. etc.. but each time I was able to pocket significant TAX FREE gains.. to the tune of 400 to 500k each time.. use a portion of that to buy my next principal residence and the other money to invest in my ventures.. which some did great and some blew up  :)..

    Just have to think it through I am about to do the same here in PDX>. as I have gotten 500k plus equity in this home in the last 5 years Thank you appreciation.. so I may sell It and pocket the TAX free 500k.. I already bought the replacement home for cash.. so just trying to figure out if I want two houses or just one.. and do I want to leave 500k plus sitting idle.. One reason its so tough Is I love this home in PDX I built it custom for my exact needs so its uber comfortable.

  • Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Rachel N. I've never done it. It costs money to sell (figure ~10%) and it only works if you're going to downsize or rent. Where I live, I'd pay more to rent a comparable home than I pay with my mortgage. And even if I did "downsize" to a home that was $200K less I'd probably still have the same mortgage (slightly rising interest rates). So, sure, I now have another $200K to invest but my monthly mortgage is about the same and it cost me more than 1/2 of that $200K in selling costs. All of this is to say, you really have to look at the true net-cash benefit to you and make a decision. Then (for fun) look at the return (for me I like to use 10% cash-on-cash) and see how long it takes for that 10% return to offset those selling costs. Of course, if I decide to go from my home to renting a 2 bedroom/1 bathroom apartment in Escondido the economics change a lot. But (heck no!) that's not an option for me. Consequently, my "realized gains" would be different from a clone of me that was okay doing that. Double consequently, only *your* realized gains can be used to gauge the effectiveness of the strategy.
  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    9y

    Well, I sold my home to cut my expenses. The HOA was only $74 a year, but the rest of it came to almost $1600 / mo. I'm renting a much smaller place now for half of that. I even still have a garage - 1/2 of the garage with my own overhead door and opener. The other tenant in this duplex uses her side for storage.

  • Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    9y
    Andrew Johnson good point on transaction costs. I think it's something many don't think about when they calculate their ROI on their home . If your home went up 10 % you are really up zero after transaction costs . Realtor commissions then I had to over $2000 just in city transfer taxes then there was the county tax transfer fee , termite etc etc . Then there are things to do to make it ready for market , paint the house , etc . If it's a big enough gain it's not as big a deal of course .
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Joseph M. that's why I always keep my CA brokers license current.. I can list my own stuff.. saves huge money.

    and I am a broker in CA.. and then when I go to other states I don't need representation I have them discount what they would pay another agent or I get a referral fee..  Real estate license to me is critical to my on going financial well being.

  • Rental Property Investor · Mason City, IA · Member since 2017 · 4 posts · 2 votes
    9y
    We are in the process of selling our current house. We have lived here for 7 1/2 years. We have a 30 year but have been paying double payments since day 1. Needless to say we don't owe the bank but $30,000 after paying $120,000 and made massive improvements while living here that we are going to list it for $50,000 more than what we paid. Yeah we might have to lower it but it's a starting point. We are buying a different house, once this sells it will wipe out all our loans but the new house. We have a loan on one of our rentals and a vehicle besides the house we are selling. Very excited to only have one loan to deal with soon!
  • Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    9y
    Jay Hinrichs great points . I found a great top selling broker that has been in business since the late 70s and they provided great value, but it would of been nice to save at least the list side of the commission by being licensed . I do plan on getting licensed soon .
  • Investor · CT · Member since 2017 · 165 posts · 75 votes
    9y

    Great topic @Rachel N.  I've been listening to Set for Life and I'm also asking myself if I should do the same.  I'm in a really cheap 2 bedroom condo that I'm considering selling to purchase a  house hack (2 family, duplex, or single family with in law suite to rent out).  It would mean buying something more expensive but the equity in the long run and tenant paying my mortgage may be worth it.  I'm still young and don't have kids, I can't think of any reason to buy a large home with no potential investment possibility, it would financially handicap my future and lifestyle of eating out and travel.  Until I'm financially free and have a good nest egg to reinvest or have kids, it's not feasible to me to just buy any random house that looks shiny and new.  If the house is a financial struggle, I would sell now while the market is good, get your money, and reinvest in a house hack duplex, 2 family, 3 family etc.  I can't understand why people would think a house isn't an investment tool, it should be looked at as an investment until you are financially free or have enough that the extra income isn't needed.  I'm a middle class American and need a tenant to pay my mortgage.  That's the only light at the end of the tunnel in this rate race for me. Heck, I know a millionaires Italian guy that has a gorgeous house, over a million dollars worth, he rents out the basement for $1000, and he's a mechanic, smart guy, that covers his property taxes. 

  • Orlando, FL · Member since 2017 · 147 posts · 92 votes
    9y

    Thanks, everyone, for your replies. 

    @Steven Greenhill, those are good questions, and I'm asking myself the same things. I don't feel emotionally attached to my house, but it is in a neighborhood we really wanted to be in, close to our jobs, and it was hard to find a place within our price range where we are... plus all the duplexes/triplexes I see online are tiny or super old or in neighborhoods nowhere near where we work...

    @Robin Hines, are all your properties in the Midwest? Do you have anything local? And where did you find that duplex, or is it not in Orlando? 

    @Ryan Ingram, that's great you found a duplex in the area you're moving. They are much harder to find in my area.

    @Joseph M., rents are probably a little less than the mortgage by a few hundred dollars - don't know if it would be worth it just for the rental. I do see guest houses occasionally with bigger houses, but that would mean going up in price from our current house, just because of the current market rates. We've talked about what it would cost to build a garage apartment, but that might end up being just as much as investing in another rental somewhere else in town. 

    @Andrew Ashby, that's a decent price to keep your former home as a rental! We're in Baldwin Park - I would just be sad to rent our place out if the renter didn't take care of it; I've always heard that turning your own place into a rental could be a bad idea. 

    @Jay Hinrichs, that's amazing you had such good timing when you moved each time. I would hate to have had to move in 2008 after buying in 2005... but it sounds like you also were relocating to different areas? My dilemma is that we have a great commute now and are in a newer house so there are fewer repairs, which I like... whereas most of the construction in the surrounding areas near our work is older.

  • Rental Property Investor · St. Louis, MO · Member since 2014 · 741 posts · 424 votes
    9y

    Hi @Rachel N. 

    I suggest that you read Scott Trench's book, 'Set for Life'.  It has ruined my happy living in Berkeley CA because I learned that I pay too much in rent. To free up money, one could earn more or could lower expenses, says Scott Trench.  By moving to a cheaper area, or getting a roommate, I could lower my expenses.  In your situation,  weigh the expenses of renting and owning, as one has to live somewhere.

    Disclaimer: I sold my California home of 22 years and bought 9 multi-famly properties in St. Louis.

  • Orlando, FL · Member since 2017 · 147 posts · 92 votes
    9y

    @Andrew Johnson, your point gave me a lot to think about. Once I account for closing costs, even though it would bring out a lot of cash in the short term, I don't know if it really compensates for what we put into it, plus the fact that we just bought three years ago. Also the market for duplexes in Orlando appears pretty depressing online (odd construction in neighborhoods we don't want to be in, or super old houses with small square footage that somehow happen to be duplexes), so it would mean leaving a house and a neighborhood we like and moving someplace random (and far from our jobs) just to get the benefits of having a duplex... 

    And @Jay Hinrichs, I've been thinking it would be great to get a real estate license if I get more deeply into the game... right now I've only got 1 rental property, a second one under contract, and I get deterred by all the other costs associated with being an agent (paying a broker, MLS, membership in the National Realtor organization)... I can definitely see how it would be worth it if you are doing a lot of deals. I sold our last home without using an agent, and we did well, but the other realtor was really unpleasant to work with because he did not like it that he was dealing with a for-sale-by-owner person...

    @Shelby Andersen, that's great that you will be able to kill two birds with one stone and finish your second mortgage up when you sell!

    @Mario B., good for you that you are going to house hack, and it sounds like a nice property you'd be moving up to for that duplex. Part of my hesitation is just the ugly duplexes and triplexes I've seen in my area... if you will be moving up a step, even better! I wish I had found Bigger Pockets a few years ago, when I thought that buying a giant, expensive house WAS a good investment, haha. 

  • Investor · CT · Member since 2017 · 165 posts · 75 votes
    9y

    @Kathy Henley I ask myself why I still live where I do, a city that always ranks top 10 most expensive in the us.  I paid $112k for a studio that is now worth $165k with no parking, no washer dryer, no dishwasher, I rent it out for $1400!  Do you know what I could buy with $165 k if I reinvest in the midwest!  I could probably do the same as you, buy an enormous multi family and retire! 

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