Instant Millionare from Equity. WWYD?

[~queen~]

In my neighborhood, houses built 3-5 years ago by the water are now selling for $1mil over the original purchase price. This has caused almost every single home (about 25 total) to be up for sale and right now, 5 are on the market.

I was wondering, what would you do if you were one of the homeowners and your home appreciated in value that much almost overnight?

Mind you, these are very large homes (~5000 sf) on 1 acre lots. The original purchase price is equivalent to what you would pay for a new 2500sf home today.

[IrisHope]

I would sell if I needed the money and buy a bigger house somewhere else.

[~queen~]

Irishope - I edited the original post to include the sizes.
Sorry bout that!

[Sonicstef]

Stay. Over the long term, the houses will continue to appreciate. In 50 years, I can use the gains to supplement a fabulous retirement :D

[IrisHope]

I don't think 1mil can get you to retire these days.

[~queen~]

I am referring to leaving the workforce. I would think with our age groups that could mean being a SAHM, working PT, volunteering, etc.

I do think for me though, it would be doable. Between my DH and I and our SS alone (if it will still exist at that time) it is enough to keep us in our current home with a few trips a year without touching the 401. So for me, I would probably sell and downsize to something smaller and become a SAHM.

[jennylou]

I think it depends on many factors. Are you in an area that will continue to increase in value? There's also the bubble to think about. Are you in an area that you want to be in? Could you sell, move to another house that will still fit your needs and be able to say, get a 15 year mortgage for the same mortgage you have now?

[artist]

I think a lot of it might depend on things like my age, stage in life, how/if it would affect our careers (ie: if one/both of has were very established and happy with our careers and those careers had to be in that particular area), if we had children in schools in that neighborhood, etc.

But I voted to sell it and buy something smaller. You mentioned many of those homes are really big and I know I could live comfortably in a home much smaller then what you described. Then again, it wouldn't necessarily be a bad thing to stay in the big house and let it increase even more in value. However, downsizing with the ability to purchase the next house in cash would certainly provide a lot of freedom as well as a nice nest egg of money.

[~queen~]

I thought this would have more controversy. It created quite a topic in my office - I guess cause we live in the area.

However, for those of you who said you would stay, how would you handle the increased escrow - which I anticipate must be significant due to taxes and insurance? Imagine your payments increasing by $500 to 700 /mo, how would that change your answers?

[PLNUBRIDE]

This is a very interesting question. I recently moved from a VERY hot real estate market and although my condo just about doubled in value in 3 short years...that didn't help me much since everything else around me also increased in value at about the same rate (so all my gained equity would have just allowed me to buy something equivalent to what I already had...assuming I didn't want to increase my mortgage payment). The only way I would condiser selling at home with such a large amount of equity (given my current stage...26, married 3 years, no where near retirement, and a baby on the way) would be to downsize and pay cash for the new purchase (or close to it). Selling the home but having to dump all the gained equity into a new purchase pretty much negates the "new found wealth" so to speak. On the other hand, if it was a home I could raise a family in and see myself in for years....I might just stay; after all real estate will always gain value over the long haul.

ABout the increased mortgage. I am not sure about other states, but in CA the tax base is based on te purchase price of the home.....so no mattter how high the market value is, the taxes remain the same (they go up slightly...like .1-.2% every year maybe if there are bonds). In an area where the tax base is based on the market value, hum...that is something I never had to consider. Although I wouldn't think buying another home would help you escape the taxes...since you would probably be buyins something that is in the price range of the original home....plus, it could also go up in value, thus the rising taxes will always be an issue.

Great topic....:)

[Tanya]

If it were me and DH, we would definitely sell and move out of that area, but I know that's not possible for a lot of people. If I had to stay for a while to figure out job situations, I'd get an apartment. Get out while the gettins' good, you know? But we don't have kids, so I'm sure my answer would change. Plus, I've never been one to have to live in one area. My parents moved halfway across the world when they were in their mid-20s and never went back. They don't expect me to stick around just because they're there (hypothetically).

[DallasLady]

I think it totally depends on your area. Here in Dallas, if I had a million dollars in equity, I would sell, and then pay cash for a 300K home (which would still be a great home here) and invest the rest.

[maggieb]

It totally depends on the market in your area. Here in DC I would borrow against the house and invest the money since our market is nowhere near topping out, IMO. We're in kind of a similar situation. Our house has tripled in value over the past 4 years and we have borrowed A LOT against the house and currently have it invested, but are planning on eventually using it to renovate our house.

You mentioned that there are 5 houses in your neighborhood on the market right now. Do you think they're going to sell quickly? If not, then I would most certainly not sell. If you are in a hot market that will continue to rise, then I believe the best thing for you to do would be to invest your home equity.

[villanelle75]

Since we can't move to a different, cheaper area due to Dh's job, it really wouldn't do us much good. We might consider downgrading to a slightly smaller home, however, and purchasign a second small rental property. I'm in CA, where property taxes are based on purchase price. I assume that is in large part because of the skyrocketing prices here. If we had to pay based on each year's market value, our already outrageous taxes could easily double every year or two!

[Cr8nme]

I am from MD where many in my family are real estate agents...Although that area is certainly not one of the highest markets it is getting higher than what a lo0t of people can afford... I know many people who are now topped out of the market. Also believ it or nto the market is slowing down...IMO I would sell and move but if moving isn't an option and you feel you have too much space as it is then buy a medium sized house or even a house that is a good size but needs renovations and fix it up! If it were me I would move though.

[savannahgrl]

I asked my husband this who is a real estate investor/developer and ofcourse he said to sell and use the money to invest.

Whatever you decide, it is certainly a great situation to be in!

[SingleWhiteFemale]

I'd probably stay for several more years. But, I'm quite young and I intend to stay in the area for a long time, so there would be no reason I wouldn't stay for the long haul and wait for more appreciation--even if the market takes a dip now, I wouldn't be in a position to actually worry.

Out of curiosity, what city in Maryland are you talking about?

[Asha]

i would sell it and buy a smallish apt building and rent it out. i'd totally pimp out one of the apts in the building as my own.

[lml41981]

If I had been in the home for 2 years, I'd sell so that I'd only have to pay capital gains taxes on the amount that is over $250,000 (or $500,000 if you're married) in equity.

[LeighW]

We have close to $1 million in equity in our house. We're staying put. We like living where we do, and it would cost all of our equity to buy a comparable house in a similar neighborhood.

If we needed the cash, we would take some of the equity out now.

Our house is nice, but not lavish by any means. It is all location, location, location (close-in neighborhood to a large metro area, great public schools).

Here, real estate taxes are based on market value, and yes, we are choking on ours.

[dian_love]

where is this...dag I missed out on a great deal....how fast are the houses moving now?