Selling House -- Buying a rental

[mattuga]

My wife and I would like to move up to the Canton area but I am curious how we are going to make the transition without one of the 2 scenarios:

1) Putting house on market and waiting to buy until our house closes to use funds for next house down payment. We'd need temporary housing.

2) Put house on market and buy next house before current house is sold. Could not put as much down, more like 5% instead of 20%.

I'm looking at a quasi 3rd scenario. I've been wanting to get into the rental house market and I'm thinking to go with option 2 but buy a house that is less than half our total budget. The goal would be to move into it and get it ready to rent while we find the house we want to settle in so we can take our time with the longer term buy and create an investment property. I'm thinking the rental to be a 3/2 in a good school district should be easy to rent. It is just my wife and 4 month old so, we both work from home.

We considered living with the in laws to alleviate the scenario but that just ain't happening with me working at home. That would create the pressure of buying a house to get out of a living situation is what I would like to avoid.

We'd have 9-12 months of cash savings no matter what scenario we put ourselves in so that isn't really an issue (I know some 2008 experiences are coming to mind though).

 

[NE GA Pappy]

there is no way I would have 2 mortgages to meet every month, unless there is a sure method to pay them...

Too many houses have sat on the market for years and not sold. I know we have a buyers market now, and you probably won't get hung in that scenario, but I wouldn't chance it.

 

[Killdee]

My bro in laws house sat for over a year before they sold it last week.

 

[mattuga]

there is no way I would have 2 mortgages to meet every month, unless there is a sure method to pay them...

Too many houses have sat on the market for years and not sold. I know we have a buyers market now, and you probably won't get hung in that scenario, but I wouldn't chance it.

We will have no other debt and newish highly reliable vehicles. We have savings for 12 months to cover both mortgages if needed (which simply won't happen but prepared anyways). I had a 15 year mortgage for a while so I should get back a good chunk. We are currently in an area that can sell our house quickly if we are at market rate, in Smyrna(ish). I think the move to get a rental house is good now because rates will not be going down soon, if ever this low again.

I'm just wondering what is the best approach for my scenario # 3. In that case we put our house on the market and begin looking for a house that would make a good rental. Our current house should fetch pretty good instant demand and I'm more worried about the time it will take to buy our next house and not matching up with how quick our house will sell (we don't have a magical house just easy to sell at market rate in our area).

For my next long term family house I'm not looking for a $400k cookie cutter house on .3 acres. If I was then I could find one in Canton no problem in a few days but I won't live in that neighborhood setup ever. I want 1-2 acres+ and we will need to be flexible in our timing to get the house we want with that land even around Canton. Also being able to "pounce" on the right house is important and I won't take a larger end mortgage without a big down payment. I don't want large amount of cash in 2 houses. Instead I'm looking at taking a $200k mortgage for a home to live in temporarily and then rent is easy once we find the long term home. I would not look for "profit" on the monthly rent but to pay it off asap with rental fees to create capital off other people. The market I want to buy in should provide good renters.

Thanks for the input. I'm 34 to put in perspective, I'm not avoiding a putting into 401k for this or risking retirement. This question is to help me maximize the value and minimize the risk of our move. I'm looking somewhere to invest while making a home change, kind of flush with a little money and want to take advantage of the low mortgage rates.

I know someone can tell me why this is a bad idea and I am wide open to that. I do not want to be stuck needing to buy a house and rushing into a buy, that is my main concern.

 

[PappyHoel]

What part of Ga are you in? That is key in how quickly your house will sell.

The houses around here are selling in 24 hours and im in semi-rural GA. Dawsonville, kinda near canton. I sold my rental in Sugar Hill in 3 days, cash. The current home I am in was on the market for about 12 hours before I put it under contract.

All of that to say, you need to be ready to pounce when the property you're looking for becomes available. We looked for about 8 months, but we were ready to pull the trigger when the right house came available.

 

[mattuga]

My bro in laws house sat for over a year before they sold it last week.

A properly priced home in my neighborhood won't last a month. We are not a high dollar home (neighborhood is $210k-$260ish) but our area is growing. High schools not great but it is more a transition area for families like mine. Funny thing is we are one of those that benefit from Zillow being off with the Zestimate. I know that won't transition into a crazy windfall or maybe even more $$ but the perception is nice haha. They have us $30k above our appraisal 2 years ago when we refi'd to 30 year.

Side note: PM if you are a real estate agent reading that, we need an agent and I work better with strangers than family & friend on $$ matters.

 

[NE GA Pappy]

(which simply won't happen but prepared anyways).

said tens of thousands who lost one or both homes when the economy tanked in 2008

 

[mattuga]

What part of Ga are you in? That is key in how quickly your house will sell.

The houses around here are selling in 24 hours and im in semi-rural GA. Dawsonville, kinda near canton. I sold my rental in Sugar Hill in 3 days, cash. The current home I am in was on the market for about 12 hours before I put it under contract.

All of that to say, you need to be ready to pounce when the property you're looking for becomes available. We looked for about 8 months, but we were ready to pull the trigger when the right house came available.

I am on the Smryna/Vinings side of Mableton, GA off Nickajack Road. Shannon Glen neighborhood, one of ole John Weiland's first neighborhoods. Again, nothing fancy but pretty easy sell at market rate.

We'll need to be ready to pounce on the right property in Canton, that is my whole thing about not being able to live with in laws while waiting for the right property. I want to get into the rental market and with rates going up this seems like a reasonable transition while mitigating risk on our next move.

I am looking at this like my Craigslist buys, all my good deals on craigslist were done fast before someone else saw the value or we got in a bidding war. I won't have the $$ to put down what I require of myself to put down for the next home (just because the bank will loan it doesn't mean I want the terms)


Thanks for the input.

 

[JackSprat]

I couldn't believe we sold my mother's house for top dollar in two days because it is in the best elem. school district in Dekalb County. All cash sale.

Don't have kids so stuff like that doesn't make any difference to me, but to them that do, it does.

 

[mattuga]

said tens of thousands who lost one or both homes when the economy tanked in 2008

That is why I am analyzing this scenario. Again, thanks for the advice. Especially since you've owned a rental before, good to hear your input, thanks!

I may have gotten the 2 Pappy responses confused but thanks for the input. That 2008 recession was the worst and best thing that happened to me. I graduated UGA in 2006 and saw firsthand what no experience and a dead economy will do you your mid-late 20s earnings.

 

[threeleggedpigmy]

The retal market is super strong right now

 

[threeleggedpigmy]

If you can not be a strong willed person, get a mgt company. Sad stories can break a land lord. Get as info on a tenant up front, then verify it. Get a strong lease, not an office Depot one. Shoot me a pm, I can send you to some websites for information to learn. These not the ones you have to buy anything at.

 

[westcobbdog]

My wife and I would like to move up to the Canton area but I am curious how we are going to make the transition without one of the 2 scenarios:

1) Putting house on market and waiting to buy until our house closes to use funds for next house down payment. We'd need temporary housing.

2) Put house on market and buy next house before current house is sold. Could not put as much down, more like 5% instead of 20%.

I'm looking at a quasi 3rd scenario. I've been wanting to get into the rental house market and I'm thinking to go with option 2 but buy a house that is less than half our total budget. The goal would be to move into it and get it ready to rent while we find the house we want to settle in so we can take our time with the longer term buy and create an investment property. I'm thinking the rental to be a 3/2 in a good school district should be easy to rent. It is just my wife and 4 month old so, we both work from home.

We considered living with the in laws to alleviate the scenario but that just ain't happening with me working at home. That would create the pressure of buying a house to get out of a living situation is what I would like to avoid.

We'd have 9-12 months of cash savings no matter what scenario we put ourselves in so that isn't really an issue (I know some 2008 experiences are coming to mind though).

No temp housing needed, you make your offer on new Canton home "contingent upon selling your home first"...its called a sale contingency....seller would likely in turn tell you the only way they go in contract in this market with a sale contingency is with a "contingency with a kick out" or kick out clause....so if you are in contract at say a 250k sales price as the Buyer and with a "kick out" the owner may take another offer for more money or for even less but say with a quicker closing, but before they could accept this sweeter offer they would need to turn back to you asking you to remove your sale contingency and thus prepare to close.

At that point most buyers can't remove that contingency and therefore bail out of contract but of course you get your earnest money back.

I do this sort of work daily if you need any help and work all over Metro Atl. / Cherokee County. Buyers agent free to you. You would need to be looking at houses as a buyer while your current home was active on the market so you learn areas and houses and what you like and don't. Once your current home went "in contract", you still have a "contingency to sell" ( in addition to appraisal and financing and inspection contingencies) but no need to be in a "kick out" anymore, only needing your home to "close first in order to complete the purchase of the property". So at this point you are a good buyer. Sure you have that big contingency, but a good agent can explain your contract to the listing agent therefore giving seller some comfort that you can close the deal. If the listing agent is smart they will certainly ask ALL about your contract on your current home ( maybe for a copy of cover page ) and also ask exactly what is that buyers situation....I have seen it where 7 contingency contracts went down like a stack of cards when one contract blew up creating a domino effect.

Regarding down payment, an FHA loan with 3.5% down is a good loan for buyers but a smart listing agent will warn the seller their home will get scrutinized 2 times...once by a home inspector and again later by the appraiser. But its still a great loan if not flush with cash. Ask Seller to pay your closing costs and you just need you down payment. There are now available 3 and 5% down payment conventional financing out there with no PMI...consider going this route. Also for every 1k you finance, you will pay about $6 or $7 in a payment. Best inspector I know and refer buyers to lives in Canton and has over 10k inspections.
Scenario 3 not your best play, imo. If you buy a "rental" first your second home is now your investment property and at a higher interest rate plus no homestead exemption on it.
Good Luck.

 

[mattuga]

Thanks so much for the info and advice. A lot to digest.

 

[dwhee87]

There are a few new realty companies that will buy your house outright if it doesn't sell in x days. I think one is Inq, (like 'ink'). Seems there's another that advertises on 750 WSB also. Might be worth checking out.

 

[PappyHoel]

I'm not sure it was mentioned above. I moved out of my house in sugar hill and still owned it. I had it rented in a week for double my mortgage payment (I was lucky). I rented that house for 3 years until I decided to sell it. All the while in the new house in dawsonville.

That might be an option for you? Maybe your hoa won't allow rentals?

 

[model88_308]

Worked a very similar situation for my daughter 2 yrs ago. A LOT depends on the saleability of your present house. If it's in pristine condition, in a popular area and priced correctly it will sell quickly. Minus one of those three, likely not so quickly. My daughter and SIL found their new house (repo) and we had to move quickly. They did qualify for both mortgages at the same time, while having about 50k in equity in old house and some cash on hand for FHA down.

We went under contract for new house, listed old house and proceded to closing (45 days). During that time the old house sold for a good price, to close within 45 days. Closed on new house and immediately moved in. Readied old house for closing and while awaiting for that closing, went to another bank for new loan on new house, figuring 45k down with conv loan (about 20% of original purchase price 220k).

New loan approved. Old house closes and new house closes same day (paying off FHA loan). The timing was such that they never made one payment under FHA mortgage. Actually, they had no mortgage payment on the new house for almost 3 months total.

Lots of planning needed. Nice original house needed. And excellent credit is needed. You can "use" a FHA loan in this respect almost as a "bridge" loan. Their debt ratio with both mortgages was 50+%, but approved by FHA.

Complicated, but they trusted their buyers agent and sales agent; me.

 

[rospaw]

I like your idea of purchasing a rental and living in it while selling home and searching for new home. I like it more after reading that you can handle / prepared for two households bills.
I would look in Wallaska area for a lower cost rental and even your new home. Lots of things for sale that are not with an agent/on the network or even listed at all. Driving some back roads will get you a deal on either a rental or primary with acreage especially in the Wallaska /140 area. When out looking at zillow listings, keep you eyes out while on the drive. Look for homes that are vacant, not kepted, high grass ect. Get on the County Board of Assessors under qpublic and find the owner and contact them with the "are you interested in selling?" And make sure you say " I am wanting to buy to MOVE ME AND MY FAMILY IN TO LIVE" line. I would not tell seller i was wanting to buy for a rental if i was cold calling the owner.
I drive thru the area often (next county over) and have seen some places that can be bought if someone would ask. You would be surprised to find out how much can be bought that never goes on the market. Many require some work is the main reason they will not list.

 

[Dog Hunter]

Mine sold last week. In the best school district in county we live in. On market for 750+ days and I had to take a lose to finally move it. Be very careful with two and be very careful until the papers are signed. JMHO