What to do with too-big house in a place you hate

Baltimore Sun Sunday - - REAL ESTATE - By Ilyce Glink and Sa­muel J. Tamkin

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.

DREAM­STIME

Rent­ing your home might be a help­ful so­lu­tion as you wait for real es­tate val­ues in the area to in­crease.

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