Why Did We Sell Our Home?
In my last post I mentioned that my wife and I recently sold our primary residence. This action would appear to be in direct conflict to the statement I made in my last post concerning real estate. I stated that real estate is at the best value it has been in over a decade and that anyone interested should consider investing in income producing residential real estate for the long term. This begs the question: if today is a good time to purchase real estate, why would we sell our home?
My wife and I really liked our home in Annapolis, MD. Our house was small by today’s standards, but it was in a very good neighborhood and we had a nice waterview. We were also fortunate that because of some earlier real estate moves (described in detail in this recent post), we have been mortgage free for a decade. Many of our friends thought we were crazy to sell our home and who knows down the road we may agree with them. But everyone’s situation is different. Our situation was preceded by several significant one-time life events.
In the late fall of 2010 I had taken a leave-of-absence from my employer. I had planned to go back to work with my employer in some capacity sometime the following year. However, when your job is not your life and you take an extended period of time off, your view of the world changes somewhat. I was told by many people that, after 6 months of not working, I would be itching to get back to the office. That did not happen to me. And 18 months later it has still not happened. I did try to make an arrangement with my previous employer to work on a part-time consulting basis, but I was not successful in being able to do this. And, to be honest, I did not try very hard.
So the first major event that happened to us was in late 2011 I realized that I would not be going back to the corporate world and I was perfectly OK with this. By 2011 the earlier financial crisis had enabled us to increase our financial assets by 20%. This allowed me to feel comfortable enough that our assets could fund 30 years of retirement.
The next major event in our lives was that, during the winter of this year (2012), my mother-in-law, who had been ill, took a turn for the worse. We knew that she would soon pass away. She was the last of our four parents still living. When we received the diagnosis about my mother-in-law, my wife and I started thinking that perhaps in a few years we would be ready for a lifestyle change.
During the past year we would occasionally run into a neighborhood friend who was a real estate agent. We had told him that we were going to take our sailboat to the Bahamas this coming winter and that we would be renting our house in the fall (2012). We asked him to let us know if he ran across any interested renters.
As fate would have it, a couple months after we learned my mother-in-law was terminally ill, we were on vacation and we got an e-mail from our neighborhood real estate agent. He told us he may have someone who might be interested in buying our home. Would we be interested in selling it?
At first we said no. But this was because we had just gotten a recent property appraisal on our home to facilitate another financial move. This property appraisal was low enough that I did not see any purpose to showing and possibly selling our home before we were ready. But our realtor friend was insistent that the buyer really wanted to see our home. So we decided that there was no harm in letting the realtor show our house. We were on vacation and it would be no trouble for us.
When the realtor asked what price we had in mind, we gave him a price that was high enough to make it worthwhile for us to make an inconvenient move we were not anticipating. The price we put on our house was 35% higher than our recent appraisal we received from a lender. The realtor balked at this price saying it was too high and he doubted anyone would even come close to paying it. He told us, even if someone would pay our price, the property would not appraise high enough to allow a sale anyway. We knew all this, which is why we quickly forgot about this buyer and went back to our vacation. Besides we were not really interested in selling our home at this time anyway.
Two days later the realtor sent us an e-mail saying that the buyer liked our house, he would gladly pay our price, and he would be paying cash, so no lender appraisal was necessary. I immediately thought this was some kind of joke because we are in a market where no one pays a penny above an appraised price. But it was not a joke; the buyer had his reasons for wanting the property even at a higher than market value price.
My wife and I had thought we might sell the property in a few years, but we were not sure of this. Since I am of the opinion that real estate prices are not going to increase for several more years, my wife and I had to make a decision. What if we did want to sell our home in a couple years? Would we get this price again? Even if we did, would it be an all cash transaction that did not need an appraisal? My bet would be that this transaction would not come along again.
This is also where our thoughts about a possible future lifestyle change came into consideration. We loved our home, but it had a well manicured yard that took some time to care for. I knew we were nearing the end when last year for the first time, even though I was not working, we paid a lawn service to take care of our yard. Also our home was in a suburban neighborhood where you could not walk to anything. We wanted our next home to be in an area where we could walk to everything.
We also wanted to spend more time on our sailboat and do a little more travelling. That does not mean that you have to sell your home, we could rent it out temporarily as we were planning. But short term rentals are not very reliable, especially if you restrict the rental time frame as we would have to. Selling our home would definitely make being away easier.
So we accepted the buyers purchase offer and sold our house. We put all our personal possessions into storage. We are living in a furnished one bedroom apartment for this summer (2012) and in the fall we will be taking our sailboat to the Bahamas for the winter. (For anyone interested, we will be starting a blog later this summer documenting our sailing experiences). When we come back to Maryland next spring (2013), we do not know where we will live. We will decide that next spring.
Regardless of all the lifestyle decisions one may go through when deciding to sell your home, a transaction like this has major financial implications. Since we are retired, do not collect social security benefits, and have no employer pensions, this is especially true for us. And the financial considerations are not just that we got a higher than market price for the sale of our home. You must also decide how this affects your lifestyle.
Before I finish this post, let me remind you of my first rule of real estate investing, “Your home is not an investment.” Your home is certainly an asset just like your car or boat, but while you are living in your home, it is not an investment. The main reason is because your home does not generate any income; in fact your home eats income. This fact was central to the financial considerations in our home sale decision.
In my next post I will share with you our thoughts on our financial considerations regarding our home sale.
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