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| Thursday, February 21, 2008 |
| Sell the House and Invest the Profits? |
 Kiplinger Magazine's article: Sell the House and Invest the Profits? profiles John (56) and Michelle (46) Potocko of Clarksville, Md. who are asking the house selling question. They are debt free except for the mortgage on their current home which is worth about $800,000 - they have a $300,000 mortgage on it. Their array of IRAs, 401(k) plans and assorted stocks and mutual funds is worth about $500,000. Over the years, Michelle says, she and John "made a lot, lost a bunch, got some of it back, and now we're struggling again." She fears that their savings won't last long if she loses her job or if John loses his.
Many people are asking whether they should sell their home and pocket the tax-free gains of up to $500,000 before prices sink even further. Generally, advisers say you should think of your house as shelter rather than as an investment. But housing values have gone up for so long that, even with prices down, millions of families like the Potockos have half of their net worth, if not more, tied up in their home. It wouldn't be prudent to put half of your assets in a single stock. Should the same kind of thinking apply to your house? If they want to sell the big house and downsize and it makes financial sense for them to do so, they should go for it. However, I hope they are doing this for other reasons as well, not just because they are feeling a bit scared about their finances.Labels: Money Stories |
| posted by Boston Gal @ 8:35 AM *
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| 5 Comments: |
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Hi BG,
I referred to this sort of thing in my latest blog post:
http://www.erica.biz/2008/the-real-american-dream-hint-its-not-owning-a-house/
Renting instead of owning isn't back in vogue yet, but as the housing market continues to decline I suspect it will become so...
By the way, I like the news article posts, but I'd love to see more posts about you, too. :)
-Erica
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This is something I struggle with. We've been in our house for 16 years and it's paid off. I've kept up with our expenses over the years and my calculations shows that it has cost us about $2200 a month to live in our house over the years. This includes some major repairs like a new heat pump, roof, windows, water heater and various other projects.
The housing market where we live didn't really participate in the housing boom and therefore we haven't seen a crash either. But $2200 a month would put us in the nicest apartment complex in our area with a chunk of cash left over (probably close to a $1000 a month).
Sometimes I wonder if we wouldn't have been smarter to stay in an apartment and invest the money we've spent on the house. But at this point I'm not willing to make the break.
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Actually, if I recall correctly, profits from the sale of a house are not exactly tax free. The only time the profits are not taxed is if the profits of the sale of your home are invested into the purchase of a different home within 30 days.
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Your're about 10 years or so behing on your tax laws.
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Living not too far from this couple, I wonder if a change of house would really save them all that much. There wouldn't be much to choose from in the 300K range and depending on how they're used to living, they'll be kinda trapped with current home prices, stagnating as they are, making a switch to something smaller may only be a small cushion of funds from the sell of their home -- if they can even sell it at all.
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Hi BG,
I referred to this sort of thing in my latest blog post:
http://www.erica.biz/2008/the-real-american-dream-hint-its-not-owning-a-house/
Renting instead of owning isn't back in vogue yet, but as the housing market continues to decline I suspect it will become so...
By the way, I like the news article posts, but I'd love to see more posts about you, too. :)
-Erica