Should I sell?

[LAMBO-N-IT]

Real estate sales have been ridiculous in Vancouver Canada but not as extreme as the states. A house that I have built with an approximate cost of 900k was originally to be sold at 1.2 million. It had a small deposit (My mistake) which the buyer walked away from. Fast forward to now and I have someone that has been eying the house since it was on sale for 1.2 million. He offered me 900k and I accepted. He wrote me a check for a deposit with financing being the only restriction. He then came back to me 2 weeks later saying he can't get financing for 900k. Another 2 weeks go by and yesterday he asks me to sell it to him for 800k no restrictions 100k deposit. What should I do?

I can keep the house because I listed the house for rent a few weeks ago and have found new tenants for it for $3300 a month plus they pay utilities etc. What would be the logical thing to do here? Should I hold on a few more years collect the 3300 a month and then sell or take a 100k hit and sell now? I was on the verge of losing everything at one point and took decent hits to rid myself of some things that I knew had no chance in hell of making me money and the rent was too low. I am comfortable holding or selling. the mortgage on the house is easily taken care of by the rent plus some in my pocket.

 

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[yveskleinsky]

How on earth does $3300/month cover a mortgage on a $900k house?

 

[LAMBO-N-IT]

sorry should have mentioned I owe a bit under 400k on it

 

[yveskleinsky]

What are the terms of your current mortgage? The reason I ask (and I don't know anything about the lending market in Canada), is if you are in a loan that is set to adjust or that has a teaser rate that may affect your decision to sell or hold.

It sounds like you have substantial equity in the home. This being the case you may want to meet with both a lender (see if you can access any of that equity without selling the home), and a tax advisor (find out what are the tax consequences for selling). Research both roads and then take the one that makes the most sense to you. As you mentioned, you are in a great position as your property is paying for itself. There is no "right" answer to your question. The answer depends on what your plan (short and long term) is.

I will forewarn you, if you don't have a plan for your proceeds/equity it is easy to piss it all away. Get a plan before you make a decision. Keep us posted!

 

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[AroundTheWorld]

From strictly a numbers point of view look at your two options:

1. Sell now. What kind of a return could you get from the proceeds of the sale, over... say a 5 year period? What would you invest in - and what is your return in that investment?
   
2. Hold. Rent pays mortgage. What do you expect the market there to do over the next 5 years? Will that projection be more or less than what you could get in option #1?

 

[MJ DeMarco]

The answer depends on your goals. Do you need the cash for other investments? What is your future objective? That will weigh heavily.

From my POV, since you aren't upside down on it, I'd hold and try to rent it. When the credit markets improve, the buyer pool will increase hopefully bringing you back to break-even.

 

[hatterasguy]

I'd keep it for the next 2-3 years. No reason to lose $100k now if you can afford to rent it and wait.


Selling property now sucks, only do it if you have to.

 

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[Russ H]

You mention that house has cost you 900K.

Then later you say you have lots of equity (500K) in it.

So if you sell for 900K, do you just get your $$$ out of it? Or do you owe taxes?

If you sell for 800K, you LOSE 100K of your OWN MONEY??? Still owe taxes on the balance?

Please clarify. Thanks.

*****

A few observations:

The person who made the offer and can't get financing wants you to lower the price?

Any guarantee that he WILL get financing?

How much skin does he have in this? (what's his good faith deposit?)

Just sounds like he's negotiating to me. He'll keep going lower until you say no.

And after all that, he STILL might come up zeros w/financing (esp w/today's market).

*****

As far as selling goes, I agree with the other posters:

1. What would you do with the $$$ if you had it? Would you do MORE with it than by hanging onto the house?

2. If you have a renter, you can always call his bluff. Let his time run out on the contract, then give him a notice to perform. If he doesn't, you get his security deposit. Or (depends on contract), you return the deposit, tear up the paperwork, and keep the house.

******

My gut says this guy is playing you.

But that's just me.

I'm a hardballer when it comes to RE negotiations--
put up or shut up.

I always go into a deal ready to walk away
if the other parties are playing around.

Everyone has their own style.

You need to play to your strengths.

-Russ H.

 

[Jonleehacker]

Bound to be a pop in house prices with the 2010 Olympics coming to Vancouver. If the renter's cover costs, it might be worth a gamble on the Olympics creating a buzz for such an amazing city.

**Go Canucks!!!**

 

[andviv]

Interesting situation.

If it were me on that one, I'd sell, take the hit, and then use the money to buy a dozen cashflowing properties. In today's market that should be doable. The cashflow from the new properties should be a better return than $3,300/mo on the $500K you have in it. Enjoy the cashflow meanwhile.

Hold the properties and sell them when the market recovers.

But of course, I'm not the one in that situation and your market is not the same as mine.

Also... I agree with Russ. Get a non-refundable deposit (actually, get the seller to sign an option to buy for a $10,000 non-refundable fee, the option expires in six months). Probably the buyer is just window-shopping and can't/won't get financing. The option to buy will clear all the doubts.

 

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[Russ H]

An exercise, just for fun (not exactly realistic)

My area right now:

With 400,000, I could put 20% down on 25 houses selling for $80K right now (25 x 80K x 20% = $400K).

These houses are foreclosures that are in neighborhoods of $200K+ homes (in fact, the reason they foreclosed is b/c these houses sold for over $300K just 2 years ago!).

Each of those houses rents for ~$800/mo.

80%/7.5% mortgage goes for $450/mo, prop taxes are ~ $100/mo.

So you get:

-25 props that cashflow about $200/mo (w/8.3% vacancy, area norm is under 8%)

-That's enough props that you can slowly sell over time, making each a primary res, and paying no capital gains.

-OR . . . sell a few and 1031 them into multi-family (you could do that as a first step, too).

If the RE market comes back just the tiniest bit (if houses start selling again, for, oh, $175K each-- about HALF of what they went for 2-3 years ago), then you'd have:

25 houses w/ 64K mortgages

Sold for $175 apiece

That's about $100K per house after realtor's fees and closing costs.

25 houses X 100K per house = $2.5 million PROFIT before taxes.

Two issues:

1. Hard to get loans on more than 4-5 houses (but there ARE ways!)

2. Need to plan for some kind of management company to handle them, so monthly profit goes down.

Aside from this, you can see that $400K in today's RE market can bring you a LOT more if it's distributed amongst cashflowing leveraged properties, then in one prop w/lots of equity.

Just my .02, and this scenario is not realistic-- I should emphasize this. It's just a quick math exercise.

It would be MUCH easier to buy 5 $80K houses, w/$80K down (total) and get ~$1000/mo in cashflow.

Having 25 houses is a mgt nightmare. But it does show the power of leverage (and making money when you buy).

-Russ H.