Is it worth a shot to sell these properties?

ponce418November 11, 2008

I'm fully aware that our timing is far from perfect but here's our story.

Hubbie & I purchased our home 5 years ago. Its a 2 BR starter home on a lake, 25 miles outside of Boston. At the time the average house in our state was selling for the high $300K's and we bought our house for around $250K. In the time we've owned it we've put in new windows, new floors, fenced in the yard, new deck, new front stairs, new dock and a myriad of other minor improvements.

In August of this year we found out that we're pregnant, expecting in April 2009.

My mother lives about an hour away in a 3 BR house that her and I own jointly. She initially purchased this house w/ my dad back in the 1970s for $25K and the most recent estimates are that its worth somewhere around $130-160K. My dad is deceased and mom has decided she wants to sell the house and move closer to us. Especially now that there's a grandchild on the way. Preferrably, she'd like to sell her house, then we'd use the proceeds as a downpayment for a larger house for all of us, with my husband and I listed as owners on the deed.

Recently we came across a property that would be perfect for our family. The hubbie, myself & baby would have plenty of room & privacy. There would also be a separate living room, bathroom and bedroom available for my mom. And the price of the property is reasonable.

So, we're seriously considering this idea of selling both properties to buy a larger house.

Many say this is NOT the time to play the real estate game. But I wonder if we could possibly make this work? I've looked at the final sale prices of comparable homes in our neighborhood. Those houses sold for approximately $10-20K more than what we currently owe on our mortgage. And our house has a larger, fenced in yard, 2-car garage and water access (which these other houses did NOT have). So it doesn't appear that we'd wind up "upside down."

Any thoughts, insights or advice for us as we consider this opportunity? We want to be smart about it so we've already agreed that we won't buy a bigger house unless at least one of our homes have sold.

But I guess what I'm wondering is whether we're crazy to even attempt this complex deal in the first place?

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Speak to a realtor or broker and find out what recent comps are like in your neighbourhood and get estimates on what yours is worth from a couple of others. In the end, all you can do (based on the info. you get) is put it on sale and see who bites. Things might be awful in parts of the country, but someone else might be downsizing nearby, or another young family may be looking for a country-ish location and love your place... or not.

    Bookmark   November 11, 2008 at 7:08PM
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I would call your mortgage company to make sure that you would be able to get a mortgage. (Things have changed quite a bit) If you can, there is no reason in the world not to sell to buy something else. You are not loosing anything. Whatever the market has decreased in your area on the sale of your home, also has decreased on your purchase. Its a wash.

    Bookmark   November 11, 2008 at 7:22PM
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what about selling your Mom's home, and use the proceeds to add an addition to your home?

    Bookmark   November 11, 2008 at 7:53PM
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Another thought--do you want your Mom, even if you really really love her, living with you for the rest of her life???
I personally would not. (either live with my kids or have them live with me.) Are there other siblings involved?
Just a thought.

    Bookmark   November 11, 2008 at 8:18PM
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Keep in mind that you (but not your Mom) may have some capital gain taxes to pay on your share of the house she lives in. If you inherited your interest in the house as an heir to your Dad, your basis is half of whatever it was valued at when his estate was settled. (This is where sometimes people trip themselves up by trying to downgrade the value of real property to avoid estate taxes and wind up paying more capital gains later.)

If you and your Mom own the house in equal shares, her capital gain would be nil since she has lived in it as her primary residence and she has up to $250K of sheltered gain to use up. But that's not true for you. Your capital gains would be the increase in your half share from the date you acquired it. You would pay a tax based on that amount and your other income. It's not outrageous, but something to think about before you get too far along in your plans.

When you sell your primary residence, your and your DH can shelter $500K of capital gain - and lucky you if you've that much gain!

(Of course, it's possible you have the property in some kind of fancy trust arrangement, in which case I have no idea how it would be treated tax-wise, but you didn't mention that so I'm assuming not.)


    Bookmark   November 12, 2008 at 1:01AM
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Thanks for all the advice, everyone. We have thought to contact a realtor but I hadn't thought to contact our mortgage broker. I'll be sure to do that.

I can understand the skepticism of some re: my mom moving in w/ us. But, here's the deal on that.

I'm an only child. My father, as mentioned, is deceased. Mom had me late in life. She's in her mid-80's at this point, living on the other side of the state from me.

Now, once our child is born next year, trekking back and forth to care for her at times while hubbie and I are juggling two full time careers plus a newborn, 2 dogs (and my husband's not too healthy mother and her needs) is NOT going to be easy. Having my mother out here, close by, where I can keep an eye on her and she can help out w/ certain things (because she's still active and wants to contribute in some way to the household), should make life just a tad bit easier on everyone.

Point being, eventually we'll have to do something and after thinking about this over the past 10 years that we've lived out here, we keep coming back to this being the best solution for us.

As for the captial gains, yup, I'm aware of that. I've already discussed it w/ a real estate attorney. Unfortunately, mom didn't make the most optimal decisions on some things after dad died and I was a tad bit too young at the time (early 20s) to know how to guide her thru this stuff.

It is what it is. Whether I sell the house now, a year from now or 5 years from now, as it stands I'm going to pay taxes. I have no interest in managing that property from the other side of the state (ie, renting) once mom vacates it. If we have to take a hit on taxes, that's just how it is.

But you certainly all gave me some things to think about and look into.

Thanks for all the great advice!

    Bookmark   November 12, 2008 at 10:32AM
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Sounds like the Littleton-Groton area? With at least two things in your favor, it sounds like a sound plan. There's a two year moretoreum on CG taxes, and a 10% rate proposed. Additionally I don't see why you can't do an IRC 1031 exchange, this is the perfect scenario. There are some great deals in that area, prices in Acton are pretty soft right now.

    Bookmark   November 15, 2008 at 2:50AM
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I dont think this will affect your decision, but I wanted to throw it out.

My mom is close in age to yours. When my oldest was born she was a huge help. She certainly couldn't care for an infant all day, but she was able to come over and babysit so I could run out to the grocery store, take a long shower, go for a run, etc. She could also vacuum a room and help with meals. Fast forward a few years and now she is still active and in good health, but not able to help out. Physically and mentally she really hasn't changed that much, but it's like she crossed a line in terms of her age and abilites. Now it's a very different dynamic. Now when she visits instead of helping with the kids, it's like having an extra kid.

I know I sound horrible, but I'm not complaining. It was nice of my mom to help out when she could. I'm just making the point that while to an outside observer she doesn't seem to have declined, in terms of her ability to help out she really has. ALso, there are safety issues with an older person caring for an infant. They might not hear a noise, can't carry the infant up or down stairs, may have trouble getting a baby out of a crib, may misread medicine dosages, may mix formular incorrectly or overheat stored breatmilk.....

Just an FYI. It sounds like you are planning on helping your mom and not the other way around so this info may not be that relevant to you.

    Bookmark   November 15, 2008 at 2:22PM
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