The Big Move

33 thoughts on “The Big Move”

  1. Late to the game, but…

    If she bought for $400K and sells for $900K, they are already really really close to the capital gains threshold (assuming that she and her husband have lived there at least five of the past eight years). Worst case scenario would be: they rent for five years, sell for $1.1M, basis has fallen to $300K due to (mandatory!) depreciation… then they have a nonexempt capital gain of $800K, so they owe $160K in taxes. And don’t forget that the rental income in the meantime is taxable too. Talk to a tax accountant before making a decision.

  2. Sell, sell, sell. Now is the time to sell and get the extra cash under your own control. The SF market will tank — if you think that it will not, remember the Crash of 2008 which the experts said would not happen right up to September 2008. Also, look at Toronto and its Slo-Mo Crash. You will be too far away to take effective action and by the time you realize that the real estate market in SF is crashing, everyone else will be selling. Chances are you be upside down on your SF apartment.

    Don’t be greedy and try to squeeze every last penny out of the SF apartment. Focus on your present good fortune. Take the equity and use it for your family. Remember the famous quote, “Don’t look back, Mrs. Lott.”

    1. Sell sell sell is right.

      If they want to be landlords, they should become landlords in their new hometown, where if anything breaks they can stop by and fix it without getting on an airplane.

      I never quite grasped this new American custom of owning rental properties an airplane ride away from where you live. Just more of our insanity as far as I’m concerned. In a very brief window everyone alive now will be dead. Why waste time on a property 3,000 miles away?

    2. The “experts” that denied the reality of the early 2000’s real estate (and financial) bubble were clearly smoking dope (or deceiving). Anyone with a sense of market history could clearly see a massive bubble aching to pop (same with the dot com bubble). Predicting a pop is indeed tricky, but bubbles aren’t that hard to discern if you take a ruthlessly calculating perspective.

  3. I am also a Bay Area expat living in the town they are moving to – if you visit them, let me know and I will buy you a beer. The winters can really suck here and finding a job can be tough, but for those who can swing it, it can be a great place to live.

  4. They need to sell now and take the capital gain benefit. Once they are gone for a few years the entire gain is taxable. That could easily be a big tax hit.

  5. Hi Johhny,
    I’ve been reading and really enjoying your blog for several months. Housing cost in the Bay area are tragically obscene! Where I live in SW Pennsylvania a very livable mid or early 20th century home can be had for 40 – 80k and basket case house for as little as 10k. The downside is the lack of art, culture and diversity (although there is some). Basically housing cost 5% of what it does in the most expensive markets. It’s truly astounding.

    We are currently visiting relatives in Moscow Idaho. It’s a beautiful little college town with quiet mid/early century neighborhoods, probably quiet similar to the place your neighbors are moving. Housing cost are in the midpoint between the two extremes, 200 – 300k is probably the average.

    Anyway thanks for a great blog!
    Also I’ve got 2 reading recommendations for you, William Langewiesche’s essay The Stranger’s Path and John Stilgoe’s book Outside Lies Magic. Your outlook and writing very much reminds me of these two authors.

    -PA Hiker

  6. Based on the description here, I’m pretty sure I live in the town next to the one they are moving to. It’s a great place to live especially for young families. Many who have moved into the town in recent years have been big city refugees with lots of equity so they can afford to buy nice homes. The adverse effect on the locals is that the town is now out of reach for many locals and working people who are looking to buy their first home and rents are very high for the area ($1200 plus for two bedroom). Next door communities are starting to absorb the overflow.

    Contrary to what another poster said earlier, all of Western Mass is not depressed. It’s a mixed bag. There certainly are depressed areas, but here are also very nice towns and areas of growth. I’ve lived here for 36 years now after fleeing Boston (early adopter) and watched the change for the better.

  7. “Holding it will provide a steady rental income that will cover all their expenses in Massachusetts. Selling it will provide a lump sum of cash that will allow them to live mortgage free in their new home and have plenty of money left in savings. They still haven’t decided.”

    Which would you choose, Johnny?

    In this case, I’d take the cash in a heartbeat, keep living expenses low, and still have a sizeable amount left to keep an emergency fund. You’ve written enough about the labyrinthine political and legal environment in California to convince me that the hassle of owning a rental there wouldn’t be worth it. Simplify, simplify.

    Either way, they’re going to make a good choice. What a great position in which they find themselves.

      1. I can understand why they may be leaning that way, but the market value could drop $250,000 in 2-3 years from now for any number of known or unknown factors. If they are trying to call the peak, they’re being naive. They should sell now with a ton of cash and maximize their profit margin, not try to get the maximum possible profit.

      2. I think wait-and-see is wise. Of course, I don’t know their individual circumstances, but moving from big city West Coast to small city East Coast is a major cultural change. They may decide to return. I live in a state that is *never* on “would like to move to” list and I spent many a year trying to leave. I finally got a job in a state in another part of the country and discovered I had trouble fitting in — I didn’t talk right, I didn’t like the right kinds of food, I rooted for the wrong sports teams, etc. I eventually returned to my former state, where I fit in well and could simultaneously feel superior to the rabble here. :^) I have also moved from a progressive college town to a small rural city in the same state and can recognize that if I didn’t have children, attend church, or have some basic knowledge of farming culture that I might have trouble adjusting. I am sure their decision was difficult because their current home is beautiful. Good luck!

        1. Good point, Diane. I didn’t think about that.

          Maybe they need to just find a really good management company if they hold onto the SF condo…and be willing to pay accordingly.

        2. I’d never sell CA coastal real estate until they do something to adjust their supply constraints. Sure, it may drop in price from $900k but it’s way more likely that it’s going to rise even more. And thanks to Prop 13, their expenses are locked in. Most states cap rising property value by concurrently raising taxable value. Not CA.

            1. Eh. California has some of the oldest housing stock in the United States outside of the original colonies. I’m sure earthquakes are scary while you are experiencing a legit one, but rational risk management says if one is concerned about such things, one should never purchase real estate in the perceived danger zone in the first place. Every day is essentially a gamble and a new roll of the dice.

              1. Every place has a risk of some kind. Floods, forest fires, hurricanes, tornados, toxic waste, elderly nuclear power plants, volcanoes… Pick your poison and prepare accourdingly.

          1. To avoid capital gains tax when selling a house, the seller must have used the house as his or her principal residence for 2 out of the 5 years preceding the sale. If they take the wait-and-see approach, they risk incurring a significant tax hit on the sale.

        3. I’d still sell in a heartbeat if I was them. Even if they move back, the apartment won’t work with the new baby, so it’s not really a fallback option. They’d still need to find some other place.

          And I’d be exceptionally wary of Bay Area real estate. The story of Johnny’s friends ought to be a very worrisome one for people in the Bay Area. Society – business, government, everything – has a pretty strong need for the kind of leadership and guidance people with 10-15 years experience provide, and a big part of that cohort are parents who can’t afford to raise their kids in SF. The area is pricing an important part of their future out.

  8. They’ve about $600K in gain, less whatever they pay in selling costs and whatever improvements they might have made to the place. As a couple they can take $500K in gain tax free, or at least free of federal tax. That’s a good option and there aren’t many places in the US where a couple might get that sort of gain on their house.

  9. No question- for me it’s mortgage free! A rental across the country sounds like stress and who knows what kind of problems could arise. I agree with Michael.

  10. Johnny, as you often point out, the USA is full of towns and cities with great bones and housing stock at very affordable prices. If everyone who could support themselves without living in SF, NYC, etc moved to these other towns it would be great!

  11. My wife and I did a similar thing. Moved from a major world city where we could barely scrape by each month paying huge rent for a room in a shared flat, to a mid-sized Canadian city where we pay (a lot) less per month for a mortgage on a 100 year old house in a walkable neighbourhood right next to downtown. I went from a 45 min cycle to work to a 3 min cycle to work. And now we can actually afford to do things – there’s no point living in a thriving world city when you can’t afford to do much because you spend everything on rent.

  12. We’re in the same boat at the moment in a sense, I’ve been weighing the benefits of currently being car- and mortgage-free against more space, building some equity, though needing a car and a downpayment. Having the ability to telework when I’m not on a job assignment changes the equation a bit and has had me thinking a bit further afield. As long as it’s within public transit commuting distance of New York City, it could work.

  13. Sell!! Take the money (you are already running) ;=)
    Diversify your future investments.
    If you want RE rentals, do it locally after you understand your new location. Good luck!!

    1. Dittos. I’m hesitant to start owning rentals in my own neighborhood. The thought of ‘managing’ a rental from 3,000 miles away would not happen. Take the money. Live mortgage free in MA and set up your retirement fund well at the beginning.

  14. Speaking as an experienced landlord, the benefits of a clean break are many, living mortgage- and hassle-free chief among them. If one has the time and psychic energy to devote to managing (or paying someone to manage) property from a distance, then go for it.

  15. Eastern Massachusetts has some ridiculous prices, but lots of jobs. Western Massachusetts has some great bargains and pretty country, but it is a depressed area. On the other hand, Massachusetts does towns moderately well for historical reason. The whole state is technically all “towns”, and most of them have some kind of town center with shops, sidewalks and sometimes other amenities. If you don’t mind the winters, the vicious drivers and can find some kind of work, Massachusetts can be a pretty good choice. (The school systems are pretty good too.)

  16. You are a good friend, helping them move.
    If they decide to rent it, maybe you could manage it for them, since you are next door and they are so far away.
    Real estate agents around here charge around 5% + a fixed fee, I think.
    Which is a lot, maybe you could offer to do it for less than the average rate.

    1. We’ve already come to an agreement. If they need little stuff like calling a plumber if there’s a problem I’ll be doing that for free for them. It’s not hard or time consuming. If they need persistent management that’s not my thing…

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