Waiting is agony.

threepinktreesMay 10, 2014

So, the day we accepted an offer in our house (set to close in five weeks) our absolute dream home came up for sale. We've been eyeing it forever. We put in an offer 7k over asking yesterday. Then today we heard there were two other offers also, so we upped our offer to 17k over asking. Now, we're just waiting. And waiting. I'm going crazy!

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Did you put an expiration time on your offer, like 24 hours?

    Bookmark   May 10, 2014 at 5:23PM
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We did. It expired at noon today, but apparently around here it doesn't matter. I think they're waiting to see if they can get anymore offers today. *sigh*

    Bookmark   May 10, 2014 at 6:08PM
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Wow. I hope you hear soon (and that it's good news)!

    Bookmark   May 10, 2014 at 7:02PM
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Ohhh good luck!!! Yours sounds like a very strong offer. I don't think it hurts to write a letter to the seller's letting them know how much you love the house and how long you've been eyeing it. People are emotional about real estate - use that.

    Bookmark   May 10, 2014 at 8:09PM
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We lost it :(. We were the highest offer but since we haven't actually closed on our house they countered with our offer price to another buyer. Heartbreaking! Lesson learned

    Bookmark   May 10, 2014 at 9:39PM
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I'm sorry. (Keep your eye on it. Perhaps the buyers will have to walk for one reason or another, and it'll come back on, with your house even closer to closing.)

    Bookmark   May 11, 2014 at 12:13PM
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A shame your offer wasn't accepted. But what was the lesson learned? You made a very strong offer for the house; what the owners decided was out of your control. And like kirkhall said, that deal may fall through. You should let the owners know you are still interested in being the backup offer. Do you need to have a house purchased to move into from yours, or will you be staying someplace during the interim of closing on the one you are selling and purchasing a new home?

    Bookmark   May 11, 2014 at 2:07PM
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Was your offer contingent on selling your current house?

    Bookmark   May 11, 2014 at 5:15PM
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Gyr-- the lesson I was referring to was that even if your house has a strong offer and you're under contract that won't be enough to beat out people without a home to sell.

At this point we're not sure what to do. There's nothing we love for sale right now and the rental market here is obscene. We may use just a portion of our equity after closing and buy a small, decent house to live in while we wait for one we really want so we'll be ready to pounce. It will be a lot cheaper than renting.

    Bookmark   May 11, 2014 at 8:16PM
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Really? Buying a house (with its transaction costs) and then selling it again shortly thereafter (with more transaction costs) is cheaper than renting? That doesn't sound right.

    Bookmark   May 11, 2014 at 8:40PM
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If the rental market is obscene they do not have to sell the little house, they can rent it out after they move into their dream home.

    Bookmark   May 11, 2014 at 8:46PM
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Lucille-- that's exactly what we are thinking of doing. We could get into it with a small downpayment and still pay several hundred dollars less than a rental. Plus, the house we're thinking about has 2 acres with setup for a pony and chickens, which is exactly what we want. It's a little farther out than ideal and it's a little smaller than I'd like, but muuuuuch better than renting something nasty for as much as we currently pay for mortgage, or more.

We know we could rent it for more than our monthly would be. And on top of that we'd still have the majority of our capital free to plop down on the perfect house should it come on the market.

My head is spinning right now, so many options and so much to think about!

If any of you have any advice or experience I'd love to hear it.

    Bookmark   May 11, 2014 at 9:34PM
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I'd want to look at the specific numbers a little more closely before jumping into buying an interim house. For me, they'd need to be pretty overwhelming to convince me to do that. What's the mortgage on the little house going to be, and what could it rent for? And what's rent on "something nasty" vs. what you expect your future mortgage to be?

Renting may feel like throwing money away, but it gives you incredible flexibility, because you don't own an illiquid asset.

There's also the question of how long it will likely be before you find a house you can buy.

    Bookmark   May 12, 2014 at 2:29PM
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Weedy-- here's some examples.

We currently live in 2700 sq ft (we have six kids, and we're very comfortable in that amount of space, but can do less if necessary). We will walk away from this house with about $140k in cash.

For a 3 bedroom rental that's around 1200 square feet, we will spend about $1200 a month. This is the average for a 3 bed around here, not a luxury rental by any means, very spartan.

We can buy a home of that size for about $150k or a 2000 sq ft country home on a few acres for 200k. We could rent out either for around 1200 a month.

We would probably put around 40k down, leaving 100k for a downpayment when a home we love comes on the market.

I'm really conflicted and am not sure what we should do. The main goal of all this was to get our kids where they can have a dog, pony, and a rooster (my 6-yr-old has a few hens and is obsessed with getting a rooster too, not sure why).

    Bookmark   May 12, 2014 at 4:03PM
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Would the children have to change schools if you moved to the rental?

    Bookmark   May 12, 2014 at 5:04PM
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Jewel-- they go to a private school-- the same one my husband and I graduated from. They will go there no matter where we move so it won't matter.

    Bookmark   May 12, 2014 at 6:35PM
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Hmmm, I'm not sure the numbers are overwhelming. Here's my math:

The $200K home will cost nearly $1200/month (4% loan on 200K (yes, you're putting money down, but then the 40K isn't making money, so there's opportunity cost, so I included the full purchase price), 1% property tax, $1200/year insurance). So not a good plan to rent out, given that you'll have maintenance and repair costs plus potential vacancy. It'll be a money loser.

The $150K home will cost you $940/month (same assumptions as above), saving you $260/month. It'll cost you a couple grand of irretrievable costs to get into it. There's a year's worth of monthly "savings." Is it likely to take more than a year to find the dream house?

Then it'll cost you 6% to get out of it (even if you rent it now, you will eventually sell it). That's $9000: 3 more years of your monthly savings. Will it take you 4 years to find your dream house?

In the world of landlording, they use a 2% rule: if the monthly rent is 2% or more of the purchase price, it's a good deal. Sometimes they push that down as low as 1%. But on this math, 1200/150000=.8%, so it's not a great money-maker. On paper, your cash flow is a few hundred a month. But that goes away quickly with a month of vacancy or a big repair. Not to mention the hassle factor of landlording.

Overwhelming to me would mean mortgage PITI=$500 and rent=$1000, or something like that, coupled with an expectation of a very long house-hunting period.

If your market is that hot, it might be worth doing some door-knocking or letter-leaving in neighborhoods you'd like to live in. Hunt down your own house and thus get it pre-market instead of waiting to see who decides to sell.

    Bookmark   May 14, 2014 at 8:18AM
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Weedy. That is very interesting (and would mean nothing would be for rent in my area, which isn't the case.)

I am eager to learn more about landlording math, but don't need to hijack this thread. Is this something someone would be interested in posting on Household finances, or similar?

What I mean by this wouldn't work in my area is this:
700K houses renting for 3500. That is only .5% Likewise, 500K houses renting for 2000-2500 (also about .5%)

In our area, rent is about $1 to 1.25 per sq ft--so not inexpensive by rental standards... but no where near 2% of the cost of the home if it were put on the market...

So, why is that? It must have something to do with the balance of the rate of housing price increases to rent return?

It can't just be a flat 2% rule... What is missing?

    Bookmark   May 14, 2014 at 4:00PM
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That's very interesting weedy, we clearly need to look at the math more carefully.

The baby farm sold the day after we looked at it. I think we've become the magic clients-- we look at something and then it sells. This farm had been on the market 200 days so we thought we had a couple days to mull it over :/.

Now we're really lost as to what we should do next....

    Bookmark   May 14, 2014 at 4:48PM
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Threepinktrees, you didn't tell how long you intended to live there before purchasing another home.

Purchasing a home to rent out is different than purchasing for owner occupancy. There are differences in mortgages, interest rates, insurance, taxes, etc. Plus you are responsible for paying for repairs. And you need to understand the laws if you are a landlord. Just for starters.

Then, if I understand you correctly, you plan to purchase another home to live in while keeping the mortgage to the home you plan to rent. Remember when you gave all your financial info to get approval for a loan? You must do that again to get a loan for the next home, too. How much you owe on the rental house is going to affect your approval amount for the new home you want to occupy. Your risk level is greater for the second home while owing so much for the rental house.

It does not make financial sense to purchase a house to reduce your rental costs for a few months.

    Bookmark   May 14, 2014 at 5:33PM
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One thing to think about is if you rent out the home, and then sell it later, you might have to pay some hefty capital gain taxes. We did in CA. Just an another thing to check out.

    Bookmark   May 14, 2014 at 6:09PM
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All good things to think about, thanks.

When we were looking at the little farm, we were thinking about staying about 5 years or so.

Now that that's off the table we need to start thinking from scratch again.

We need to double check, but the capital gains laws here most likely will not effect us as your profit has to be somewhere in the range of 250k plus, which ours is not.

I do not think we'd have trouble getting a loan on a second place. We actually qualify for a very high mortgage, even though we would never go that high, plus we would keep 100k for a future downpayment. Also, this rental market is insane, so as long as it was a decent place we could rent it in a heartbeat.

    Bookmark   May 14, 2014 at 6:59PM
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Five years changes the picture some; it sounded (to me) as if you were going to purchase the interim/rental and then immediately look for another house. In the latter instance, it might be only a few months until you located one you wanted to purchase. So that route didn't make appear to make sense.

If you are thinking five years, why put so little down? I would want to put a big down and have low payments, then sock away my monthly savings for the next purchase in five years. Why pay all of that interest if you do not need to?

    Bookmark   May 14, 2014 at 7:47PM
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kirkhall: The link below is where I first learned about the 50%/2% rule. There are references to additional websites in the blog post, and lots of comments/discussion/debate.

threeapples: I agree the picture is different if you're going to live "temporarily" somewhere for 5 years. Heck, that describes just about my whole adult life: a series of temporary What's the reason for waiting 5 years? Do you think the market will calm down some?

Here is a link that might be useful: 2% rule

    Bookmark   May 14, 2014 at 9:52PM
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(Thanks for the link weedy)

    Bookmark   May 14, 2014 at 11:55PM
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Before the baby farm got an offer I was totally fine with it as a five year house. It had everything we wanted for the kids. The house was just okay, but I've had my turn living in my dream house and now I'm ready for the perfect kid house. So the idea was to put down 40, have a small mortgage, and leave 100k for my husband to invest and grow for 5 years or so, and then do the next thing.

However, since the baby farm is off the table we're back to square one. We can't do a tiny house in town for five years-- I'm not interested in sacrificing that much of the kids' childhoods. It looks like we're just going to have to find a rental. I'm skeptical we'll find what we want this season, it's a crazy sellers' market this year and what we're looking for doesn't come up much anyway.

    Bookmark   May 15, 2014 at 12:41PM
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Well, you might try the personal letter or knocking on doors thing, if you have some specific homes or neighborhoods that you're very interested in.
There are often folks pondering whether to sell or not, and a letter or someone at their door stating that they are interested in purchasing their home might be what motivates them to get a move on.
I'm getting a letter once a week for a rental condo I own, because it's in a highly desirable complex and nothing is available. While I'm not interested in selling, every letter makes me pause and consider it after the troubles we've had with it lately (new water heater, a/c broke, water leaks to downstairs unit, etc)
The last house I sold, when my buyers couldn't find anything quickly enough (everything was going under contract the same day it listed, and they lived out of town so couldn't see it in time), I walked down to a house that had been on the market six years prior, and asked if they might be interested in selling again. We closed 45 days later.

    Bookmark   May 16, 2014 at 9:02AM
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c9-- I think that's a good plan. Maybe we'll just do some country road drives and see if anything looks promising.

    Bookmark   May 16, 2014 at 11:40AM
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