Update - selling the house
24th April 2007
So we’ve gone through the negotiations and have agreed to sell our home in Detroit… The final sale price is quite a bit lower than we’d hoped for ($375K) but given the market conditions and the limited time we have to take advantage of my wife’s relocation package (which covers commission) we felt it was the best deal we could make.
The buyer is actually an Iranian national whose wife lives in the area. Personally, if I lived in Iran I’d be looking to expatriate some assets too… Who knows where the posturing (on both sides) will lead and war is typically very bad for local investments.
They are paying cash and have no house to sell which removes some risk of having to wait on a contingent sale or for financing approval. Apparently appraisers in Michigan are being very conservative these days with valuations as some of them have lost their licenses in recent months due to the number of bad loans our there. There is some added risk in the buyer’s ability to transfer the funds into the US in a timely manner so we’ll have to wait and see if this proves to be a problem. The closing is currently scheduled for the end of May.
So, fingers crossed that things go smoothly. We sell an asset that has a high negative cash flow and probably will continue to depreciate (or at least stagnate) for the next couple of years and the buyer gets a great place to live.
The sale will have a positive effect on our net worth as I’ve been carrying the house at a value of $350K. It will also greatly improve our cash flow to the tune of a couple thousand dollars a month.
As for the equity we’ll receive in cash, my wife and I have decided on the following:
- We will each take $20-25K to invest/spend as we wish.
- My wife will likely buy a nice breeding prospect (a German Holsteiner mare)
- I will likely purchase a new TV to replace our 20″ set, and invest the rest in a mix of stocks/funds as ‘play money’
- Another $25,000 will be set aside to pay off our 0% credit card debt when it comes due, making our current savings our emergency fund.
- The remaining balance will either be invested in index funds, bonds and possibly precious metals (more on this later) as part of a retirement savings goal. However, some of it may go towards the purchase of our eventual retirement home (either bare land or an income property) in New Zealand. (More on this later as well)
- All of the above is subject to change as conditions warrant…
We also considered paying down the mortgage on our current house but my thought is that over the long haul, we should be able to make a better return than the 6% interest rate (less tax deductions) our current mortgage is at. We may also refinance our current house if rates stay low (currently 5.5%) or drop further. I’d rather have access to the funds as well in the event that something bad happens and we need the money to live on. Between our current savings and the rest of the money we should be able to support ourselves for well over a year on no income if that ever became necessary.
May 12th, 2007 at 7:06 pm
Just curious. Is the buyer still coming through? Transferring funds from another country sounds a little scary from the seller’s perspective.
Hazzard
May 14th, 2007 at 6:16 am
The buyer has still not produced the funds. Fortunately we have another buyer interested. We’re still negotiating price (she’s lower than the first buyer).
We sprung for an appraisel to see what the place is really worth. Should have the results this week.
May 20th, 2007 at 12:46 pm
That sale backed by an international transfer of funds sounds dicey, I’ll be checking back to see if you manage to pull that one off (and good for you if you can make it work!)
Not sure how much equity you’ll be freeing up in this exchange, but it does seem that you’re raiding the piggy bank kind of hard: $40 - $50 grand extracted for individual investing/spending (which usually means: spending) plus a big screen TV.
Building wealth via real estate means using property appreciation and leverage to cascade into larger and more efficient investments – and that usually means adopting a philosophy that states that equity is used strictly and exclusively to build more equity, preferably tax free.
High leverage and low volatility mean that real estate beats the pants off of stocks as a long-term wealth building strategy, but only if you keep all of the proceeds in the game when you’re moving from property to property.