Real Estate - Sell Townhouse and Buy 'Forever' Home?

[Dubbington]

Hey BARF,

Wife and I are debating about selling, taking the equity from my townhouse and putting ALL of it down on much larger and expensive home that could possibly be our forever home in San Ramon

TL/DR - Good idea or bad?

The home checks a lot of boxes.

Around the corner from parents, like a 3-5 minute walk, in San Ramon.
Sister with nieces and nephew live in Danville
House on roughly 1/3 acre - but with additional back yard property my dad owns he'll give me it will make it about a 1/2 acre lot. (long story on why my dad owns some of the rear property)
3 car garage
single story
Room for a workshop and now 1 stall garage for a gym since they are all closed.

We've passed on many homes because we wanted to keep my townhouse as a rental. I bought 11 years ago and rents and value are nearly double. Even taking out about $200k from townhouse it can be rented to cover. Problem is $200k out for a down PLUS the current loan on the townhouse as debt regardless of being rented makes buying locally tough. Six weeks into being a dad, living in our 980sqft townhouse with 2 dogs & 3 cats, we've started entertaining the idea of selling.

Our lender said Jumbo loans have all but dried up. He said in order to buy anything it has to be a conventional which around here is borrowing $765k or less. So on a $1,300,000 house that would require $500k down roughly. That's possible with the equity from my townhouse and would make for a very manageable mortgage even with upcoming childcare. We'd still be saving monthly and wife's job/career in health care only going up.

If it's possibly our forever home, a dip in the market can be weathered. Also, with San Ramon growing and houses with land becoming more scarce, I'm thinking in 5-10 years it would be worth a little more if we had to bug to leave the state.

 

[Melissa]

going from a townhouse into a million dollar property with a huge mortgage and large down payment sounds fairly extreme. Is location your number one value?

 

[GAJ]

Hey BARF,

Wife and I are debating about selling, taking the equity from my townhouse and putting ALL of it down on much larger and expensive home that could possibly be our forever home in San Ramon

TL/DR - Good idea or bad?

The home checks a lot of boxes.

Around the corner from parents, like a 3-5 minute walk, in San Ramon.
Sister with nieces and nephew live in Danville
House on roughly 1/3 acre - but with additional back yard property my dad owns he'll give me it will make it about a 1/2 acre lot. (long story on why my dad owns some of the rear property)
3 car garage
single story
Room for a workshop and now 1 stall garage for a gym since they are all closed.

We've passed on many homes because we wanted to keep my townhouse as a rental. I bought 11 years ago and rents and value are nearly double. Even taking out about $200k from townhouse it can be rented to cover. Problem is $200k out for a down PLUS the current loan on the townhouse as debt regardless of being rented makes buying locally tough. Six weeks into being a dad, living in our 980sqft townhouse with 2 dogs & 3 cats, we've started entertaining the idea of selling.

Our lender said Jumbo loans have all but dried up. He said in order to buy anything it has to be a conventional which around here is borrowing $765k or less. So on a $1,300,000 house that would require $500k down roughly. That's possible with the equity from my townhouse and would make for a very manageable mortgage even with upcoming childcare. We'd still be saving monthly and wife's job/career in health care only going up.

If it's possibly our forever home, a dip in the market can be weathered. Also, with San Ramon growing and houses with land becoming more scarce, I'm thinking in 5-10 years it would be worth a little more if we had to bug to leave the state.

If you can swing the payments reasonably comfortably while maintaining a "safety" budget, sure.

What would you estimate the property would be worth adding in the additional "free" acreage?

If you lost your job tomorrow could your wife's salary cover it?

 

[afm199]

I think you would be an idiot for doing this, but what do I know?

 

[Caddywumpus]

Bad idea. This is peak market

 

[Eldritch]

Hey BARF,

Wife and I are debating about selling, taking the equity from my townhouse and putting ALL of it down on much larger and expensive home that could possibly be our forever home in San Ramon

TL/DR - Good idea or bad?

The home checks a lot of boxes.

Around the corner from parents, like a 3-5 minute walk, in San Ramon.
Sister with nieces and nephew live in Danville
House on roughly 1/3 acre - but with additional back yard property my dad owns he'll give me it will make it about a 1/2 acre lot. (long story on why my dad owns some of the rear property)
3 car garage
single story
Room for a workshop and now 1 stall garage for a gym since they are all closed.

We've passed on many homes because we wanted to keep my townhouse as a rental. I bought 11 years ago and rents and value are nearly double. Even taking out about $200k from townhouse it can be rented to cover. Problem is $200k out for a down PLUS the current loan on the townhouse as debt regardless of being rented makes buying locally tough. Six weeks into being a dad, living in our 980sqft townhouse with 2 dogs & 3 cats, we've started entertaining the idea of selling.

Our lender said Jumbo loans have all but dried up. He said in order to buy anything it has to be a conventional which around here is borrowing $765k or less. So on a $1,300,000 house that would require $500k down roughly. That's possible with the equity from my townhouse and would make for a very manageable mortgage even with upcoming childcare. We'd still be saving monthly and wife's job/career in health care only going up.

If it's possibly our forever home, a dip in the market can be weathered. Also, with San Ramon growing and houses with land becoming more scarce, I'm thinking in 5-10 years it would be worth a little more if we had to bug to leave the state.

I think that keeping the rental property should be a top priority in this market.

I assume you have already calculated GPR for the place. You should draft a CNA informed proforma for your rental and make sure you will be cash flowing after NOI. Use that cash flow with your reserve funding strategy and any other below the line expenses to determine your DCR and refi the property based on that DCR over say 15 years or whenever your proforma shows rents getting too far behind at a reasonable rate of increase. Say 3%?

Once you have that lined up, it should tell you what is reasonable debt to take on. San Ramon is out in BFE, so the cooling market in the Yay Area should not be counted on to provide a lot of equity benefit. You need to assume that you will be underwater on that property until the interest is paid off.

Bad idea. This is peak market

Which is relevant for investment properties, but he is talking about the need for a lifestyle change and making this a permanent home. If he has the capital, it makes sense, but per my above he should maintain the rental property and manage his assets very conservatively.

 

[UDRider]

The thing about forever home is that who the fuck knows what will happen in 5 years let along 10 or 20. If this is a peak market, and who knows, then your mortgage will be under water and what if you have to relocate?

 

[Eldritch]

The thing about forever home is that who the fuck knows what will happen in 5 years let along 10 or 20. If this is a peak market, and who knows, then your mortgage will be under water and what if you have to relocate?

He says he already factored in relocation, I gave some advice on how to do the math for some of it. :dunno

It COULD work, I haven't seen his portfolio, but dumping the existing asset just to take on a larger debt portfolio that produces no income with the hopes that the horizon will not end is a BAD IDEA.

Keep the rental, see how much you can refi at today's killer rates for more cash, if the numbers still line up and you can reasonably consider to carry the mortgage for 6-10 years until you are not underwater on the larger property, do it.

 

[UDRider]

Oops missed it.

 

[afm199]

Let me try again. The fact that you can "pay" for the house of your dreams does not mean you should buy it, particularly when debt will increase drastically.

 

[mrmarklin]

I knew a guy who sold his peninsula house in 2007 because of peak market. Problem is the peninsula never declined even after 2008.

If you can keep your rental and do this then you should.:thumbup

The Bay Area is always peak market.:cool

 

[FXCLM5]

hey, corona

will you cause a recession?

corona: fuck yea

ripple effects on your economy for-fukn ever

this is the risk your playing with right now

 

[Dubbington]

Can’t keep current as a rental and buy this particular house. Basically can’t keep current/rental and buy anything around $1.1m. That means pretty much any house in the east bay that meets out lot and sqft criteria. Both our jobs are in Walnut Creek and family in Danville/San Ramon.

I refi’d a year ago or so. I can again and get to 3% which will save about $150 more a month, nice but not going to make or break qualifying.

Mortgage on new home of $1.3 with $520k down is around $4500 including insurance and prop taxes. That’s very doable and we wouldn’t be maxed out eating too ramen.

Regarding the market I get it. Been at peak for a while. Timing the market never works and one can miss out on dream homes. I don’t see San Ramon values going down especially with many leaving SF and working from home. Rents a and East bay home values should stay solid.

Hell I bought in 2010 and 2 years later values were down. Now it’s nearly double.

Again, not saying the house at $1.3m is gonna double in 8 years, I just don’t see the desirability to go down. They’re not making more land.

 

[FXCLM5]

um we had a global recession in 2008

tahts why 2010 the market was still coming down

do you not see wtf corona is doing to us?

 

[Butch]

I am not hip to the term “forever home” but we bought this house in East San Jose a billion years ago and it actually took a little bit of time to realize that living at the bottom of mt Hamilton rd with a view of downtown San Jose and Francisco... rocked.

I can’t imagine where I would rather live. Except with a 3000 square foot garage. Here.
Or, LaHonda.

So... if you think you find a place that you would like to live forever, yeah? Do it!

 

[byke]

Do it. You guys are young with stable backbone careers. Be hard not to make money on a home in the bay area if you're going to hold it for a couple decades. They say never to buy a home with the intent to profit, btw, you buy something because you like it and can afford it, then just hope the money side works out, which it usually does in California. Odds are pretty good you'll retire as a millionaire just from the house, then gtfo of there and live proper in another area when it's time to slow down.

 

[greenmonster]

Regarding the OP’s comment about jumbo loans being scarce- I work for San Francisco Fire Credit Union and we’re doing jumbos and super jumbos on a daily basis. And no, you don’t have to be a firefighter to get a loan. Check out the website for current rates and to apply.
Rate can be fixed or adjustable, term up to 30 years, LTV up to 95% on jumbo up to $1.5M. On super jumbos up to $2.5M the max LTV is 70%

 

[tuxumino]

covid 19 will not be contained by 2021: single family homes with space in areas with open space will appreciate, high density housing in urban areas will depreciate. now is the time to do it, six months from now everyone will be trying to move out of the city.

 

[wazzuFreddo]

Right now 7.9% of mortgages are in one form of default or another while foreclosures are at record lows due to government intervention. About 1/5 people are out of work.

Make of that what you will. But it seems to be a false economy at the moment.

 

[kingmoochr]

Covid aside, we did just this 3 years ago. Couldn't keep our townhouse rental and buy a home we don't expect to leave. We've seen 150k+ appreciation in 3 years. Less than that in the townhome. You can't consider your home an investment, because you can't tolerate losing it, so it's not a purely mathematical exercise. If you're certain you don't plan on selling, and you can afford to make it happen, then do that. You may be underwater in 3 years, but you 1000% won't be in 30. My wife's sister's family is now stuck in their townhome because they never got serious and made it happen. 3 kids in a 2br 950sq/ft townhome...