What to do with too-big house in a place you hate
Q: Four years ago, as a first-time homeowner, I bought a single-family home in the D.C. metro area. I hate to admit this, but I failed at the due diligence portion of buying a house.
As it turns out, I don’t want to live in the area in which I bought my house. I also bought too much house for me to live in, and the commute to work is unbearable. I desperately want to sell the house! So sell, you say. I would, but the price I’d get for the house would not cover the mortgage payoff; and I don’t have the funds to cover the shortfall/sellers’ cost. Any suggestions?
A: You’re right; one of the options we’d suggest is to sell the home. Since it sounds like you’re underwater (unusual for the D.C. area, where prices have gone up and are rising further now that the Amazon HQ2 will locate approximately another 25,000 workers in the metro area), selling is apparently costly.
Another option might be to rent the home for a while if rental prices are high enough to pay all of your expenses. While we don’t know where your home is in the D.C. metro area, we suspect that in some areas rental properties go pretty fast and at good rates.
Your issue doesn’t appear to be that you can’t afford to live there. You just don’t like living where you are. Fair enough, but if you rent out a room for the next year, you might save the cash and use those funds toward covering the mortgage payoff once you do sell.
We don’t know whether real estate values will continue to increase in the D.C. metro area. Prices in the D.C. area held up quite well during the Great Recession and have continued to increase since then. With Amazon moving into the area, you might find that real estate prices continue to increase; if they do, you might be able to recoup all of your expenses in the next year or so.
Nothing with real estate generally happens fast. That’s why we talk about having a five- to seven-year plan (at a minimum) when you buy your home. Because you want to sell just four years after you bought the home, the costs (brokerage fees, transfer taxes, etc.) will likely eat up any appreciation in value your property has earned.
Say you purchased your home for $500,000 and took out a $475,000 loan. You might have paid that loan down to $465,000, but if you sell your home for what you paid for it, you might still have to pay a real estate broker $25,000 and several thousand dollars more in closing costs. But, as we see it, if you are within $10,000 to get it all done, you might want to figure out whether you should get that money elsewhere now to get out of a situation that you appear to hate or wait a couple of years until the home value increases, you have more savings or you’ve paid down the mortgage enough to sell and pay everybody off.
Having said all that, you should explore what it would take to rent the home, what you would get out of the rental, how much time you’d have to spend managing the rental and whether you’d benefit from renting to move on with your life. Once your current home is rented, you can find another home.
This time, you can do your due diligence on the location of your next home by renting there for a while before buying. A couple of years from now, you can sell this home and decide where to buy your next one.
Ilyce Glink is the CEO of Best Money Moves and Samuel J. Tamkin is a real estate attorney. Contact them through the website ThinkGlink.com.
Renting your home might be a helpful solution as you wait for real estate values in the area to increase.