Long term planning of selling your home?

[Sigarms]

For fun, re-run your economic comparison about your personal residence. Then add in the cost of what you would have had to pay rent had you not purchased and owned your home. Now the numbers that show the benefit of home ownership really start to skyrocket.

I have to admit and plead ignorance that I'm missing your point here.

Other than the fact that our home and property are basically "free" now other than paying the current taxes since the house and land loan are paid off, added what we've paid on that loan over the years we will hopefully recoup with interest on our end when we do sell, that is basically the only way I see the benefit of homeownership "skyrocketing".

I know someone paying $1,300 a month (not that much less on what we were paying for our house and 6 acres) for rent down in Charlotte for what I would consider a dump, and the biggest disadvantage I see with renting is you're basically peeing your money down a drain with no hope of any type of return investment.

 

[riptides]

Generational transfers is really the only way home "ownership" is returning on investment if one has a thirty year mortgage.

 

[Sigarms]

Generational transfers is really the only way home "ownership" is returning on investment if one has a thirty year mortgage.

Even after 30 years when the mortgage is paid off, I would assume worst case scenario you would get the value of the original dollar amount for what you paid for the home back. If you rent the same place after 30 years, you move and get nothing back in return. That said, you own it, you're also not paying the mortage, but any upkeep and repairs needed which add to the ownership.

I'm not a real estate kind of guy and only have only owned this one home in my life, but the above is my simple way of thinking

 

[plowhog]

I would assume worst case scenario you would get the value of the original dollar amount for what you paid for the home back. If you rent the same place after 30 years, you move and get nothing back in return.

People are different. Some keep a tidy house and yard, others do not.

Some take out a home mortgage and focus on paying it off entirely as quickly as they can. Others view increasing home equity as a source for loans to purchase boats and whatever-- doing that ensures they are in the debt cycle forever.

After 30 years, those who focused on early payoff are in entirely different circumstances than ones who tap equity for loans.

One of the wisest comments ever told to me was: "debt is like an accelerator. Whatever is going to happen, will just happen faster."

 

[Sigarms]

After 30 years, those who focused on early payoff are in entirely different circumstances than ones who tap equity for loans.

We took out a 30 year mortgage which we didn't really want to do because we were going to be adding a separate land payment as well. The game plan was to give us a little more breathing room on monthly payments (we looked at what the interest difference was at the time and it seemed acceptable). Think we were able to pay everything off in 17 years.

This is a stupid question, and I think the answer is no, but down the road, if it was agreed that to sell the house we'd need to put say 70k into it to increase the value, is there any advantage to taking out an equity loan for the improvements vs just paying for it up front?

 

[plowhog]

is there any advantage to taking out an equity loan for the improvements vs just paying for it up front?

Every circumstance is different, but paying cash is almost universal to be the cleanest, least costly way to do things.

Q- suppose you got halfway through renovation, and then due to a medical issue decided not to sell right away? Better off paying cash vs having a loan? What if the house takes a long time to sell?

I've never done a home equity loan, but I presume there might be setup or loan origination fees on top of interest.

One of the most confused things I have ever come across is the deductibility of mortgage interest against ordinary income. I think this is because the term "write off" is bandied about.

Many people believe the interest they pay on a loan reduces, dollar for dollar, the tax obligation they owe. If that were true it would be free money to play with. No matter how many times I tried to explain otherwise to my Dad, it was stuck in his mind that home interest is good because it would just go to pay taxes instead anyway.

How it really works is to adjust gross income. If you have $100k in income, and $20k in mortgage interest, then your adjusted gross income becomes $80k. You now owe tax on $80k not 100k.

But now I drift into financial matters where I am not qualified to speak ...

 

[EddieWalker]

...if it was agreed that to sell the house we'd need to put say 70k into it to increase the value...

I've only worked on homes in California and Texas, so this might not apply to your home and your area.

Almost every dollar that you spend on fixing up a home will only increase the value of that home by a percentage of that dollar.

You will be lucky to get .50cents more out of the house for every dollar spent.

If you spend $70,000 fixing up your home, you should expect to increase the sales price by $35,000

A Flipper makes money on a home when they buy it for less then it's worth. Then they put the very minimum into it to bring it up to where it will sell for what it's worth. The money they make is based on how little they paid for the house. This is very hard to do when you already own the house.

Only the top Realtors in your area will be able to tell you what to spend money on to sell your house. Getting a higher sales price out of it is almost impossible. Getting it to sell faster is the only reason to spend money on a house that you want to sell. Updating things like ugly tile, counters, flooring can all help you sell the house faster, but you will never get the money back that you spend on doing these things compared to not doing any of them at all.

I'm repeating myself, but it's the biggest mistake most sellers make. Do not hire a realtor until you talk to at least five. Only hire the one that is brutally honest with you on what your home needs to sell quickly, and for top dollar. Somebody that sells 50 homes a year or more will know what people are wanting. Somebody that sells a dozen homes a year or less is just going through the motions and clueless.

You have to remember, once you commit to selling your house, it is no longer your house. It is now the buyers house and everything you do is for the buyer. Do not put any time or money into the house because it's something that "you" have always wanted to do, or felt the house needed. Only do what the "buyer" will want done to buy your house.

 

[2manyrocks]

Home equity loans are one of the most dangerous kinds of loans because you have this cash that you are tempted to spend and often on stuff you really never needed in the first place, but then your are stuck having to repay the loan with interest. From a lender's viewpoint, lenders love them which sort of means that as a borrower, you shouldn't.

 

[Torvy]

It is a fallacy that taking out a loan is more expensive than paying cash. That said, if you don't invest the cash then you are better off spending it.

Home loans are typically among the lower interest options (marketing aside). The lender risk is lower than other collateral based loans.

You really want to look at the margins between your APR on the loan and your ROI if you invest. 50 year average on the S&P is fairly consistently 10%. So, if you can get an equity loan for 8% and keep your cash earning 10%, get the loan. Investment income has risk, but can be significantly more. My portfolio is low risk and earns upwards of 14%. No guarantees in the market. I am a risk averse investor. You take more risk driving on the highway than you do with most reputable funds.

 

[ericm979]

Ignoring the value of the upgrades as EddieWalker covered very well already, it also depends on how you're getting the $70k. If you're selling stock or other investments you'll be paying tax on that. Maybe long term capital gain, maybe straight income tax depending on the circumstances. Where with the loan there's no tax. But a home equity loan may be at a higher percentage than the going rate for a 30 year conforming fixed mortgage.