My Personal Finance Journey

Personal finance observation, musing and decisions in a journey toward financial independence by 2020 with at least $3 million.

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The Question of Selling or Renting Out, Part 3: The Decision

Contributed by mm | October 2, 2005 9:14 PM PST

It has been a long while since I last discussed the topic of selling or renting out my current house. To bring you up to speed, I will soon take an international assignment to work in Asia for a few years, and how to treat my current house thus became a realistic topic of personal finance soul searching.

Back in June, I have listed the numbers and performed a quantitative analysis of the selling vs renting out scenarios. By the end of the day, it boiled down to one variable: the expectation of future housing price inflation. The model pretty much says if the house will appreciate at 5% a year in the next few years, leasing out the house makes more sense. Otherwise, selling right now will stand out as a better choice.

The problem is: the future housing price appreciation is decidedly a variable I cannot tell with much accuracy, so to some extent, I didn't make much progress in the last three months. On one hand, I'm a born risk averser, and any talks of potential housing bubble (there are plenty nowadays) echo my instinct. On the other hand, I'm fearing "seller's remorse," -- two years ago, I already thought the housing market is in a dangerous zone, but managed to pull the trigger, and the move is now proven to be a complete win -- who knows the current frenzy will not continue for another few years? (Mr. Greenspan mentioned "irrational exuberance" in December 1996, or more than three years before the actual market crash.)

Anyway, with my move date looming, I think I finally made up my mind: it is time to sell.

It is really hard to explain what particular event helped me to make the hard decision, and again, it is more based on intuition rather than hard facts -- I really don't think anyone has a perfect crystal balls to tell a market high. However, if I need to point to one thing, I will say it's Mr. Greenspan's recent series of warnings on the end of housing boom. The Chief seems to be determined to continue to raise interest rates to pop the bubble, and the outcome does not look like beautiful.

In the end, it is more a leap of faith on my end, and history will tell me (and everyone who will continue to watch this blog) if I make the right choice a few years down the road. But for now, I will not look back -- it is probably time to turn on the safety valve by selling, and it allows me to have the peace of mind sleeping in a different continent.

(Some more details: actually I traded the home-selling commission coverage in my benefits to other cash allowances, because I believe I can play for-sale-by-owner and save myself some money in the process. I have hired maid, carpet cleaner and gardener to dress my house for better appeal, and am all prepared to list my house very soon. The FSBO process should be very fun and will provide some good food for this blog!)

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This Post Has Received 6 Comments. Share Your Opinions Too.

JC Commented on October 2, 2005

They say a "bird in the hand is worth 2 in the bush." Regardless of what the immediate future holds for the real estate market, it's hard to see this an an unwise decision. Real estate is cyclical. Is there anybody out there who believes this is the bottom of the market? Hardly.

Also, renting a house from overseas is no fun (I've been there and done that). It's difficult and nothing like being close to watch your property.

FSBO? Sure, you can go that way. But is that the best way to handle it? If you're up to it, go for it, but you may be penny-wise and pound-foolish. A good realtor does more for you than take a fat commission. The last house I sold netted me an extra $50k because I used a realtor. If I put it on the market myself, I would have been happy to settle for $50k less than it eventually sold for. It took a realtor to tell me that I was setting my sights far too low for my market.

FSBO if you want, but don't leave money on the table...


Guest Commented on October 3, 2005

I think you made the right decision. I just came back from a fishing trip to Seattle. I was amazed at the housing prices. Our guide shared with us that he paid $300,000 for a 1200 sq ft "shack" on an acre lot somewhere in the middle of nowhere. I told him that $300,000 would buy me a 5/6 bedroom "McMansion" of approximately 4000+ square feet back in Texas. I was totally amazed and shocked. Granted the views are great out there but still.

I just can't figure out how people live in high priced real estate areas. Everyone I talked to up there agreed that the real estate market can't sustain itself at the level its at right now.

2million Commented on October 3, 2005

I'm no expert, but I wouldn't worry about leaving money on the table FSBO if you are knowledgeable about the neighborhood market. If your house is in a neighborhood with homes that are similar or identical that have recently sold than you should be able to get a very good idea what the asking price of your house should be. However, if the house is a "one-of-a-kind" I might agree with JC about potentially leaving money on the table.

Josh Commented on October 3, 2005

mm, What are your plans with the sale proceeds from your house? You could put a portion into a REIT fund (I am invested in Fidelity's Real Estate Fund).

Michelle Commented on October 6, 2005

Yup! I think the decision you took was good enough as the prices are already high.

Raquel Commented on October 10, 2005

Even I didn't understand how people live in high priced real estate areas.

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