Here we are, Retirement Phase 1 is not complete and we’re well into Retirement Phase 2!
We have a contract to purchase a 2nd home which will become our retirement home. It is large enough to host weekend family get-togethers, yet small enough for the two of us. It is in a community of dense housing, but has a southern exposure on our moderate sized yard. The house is roughly 2500 sq ft, but represents a 70% reduction in real estate taxes. Over time taxes on our current home would eat us alive.
To say that housing has recovered from 2008 is a miss-statement. Housing is booming in the San Francisco Bay Area. Most homes will see multiple offers if they are well located and well priced. In the area we’ve been looking, house prices are increasing about $20,000 a month more or less and a house will sell in about 7 days with multiple offers. This is very good news for owners who saw their equity drop to into negative hundreds of thousands of dollars. Those with ARM mortgages and negative equity had no way to refinance. If they have been able to hold onto their homes, they will be able to refinance or sell.
Short sales are common in this market. People who could not hold on to their homes are forced into a short sale or worse, a foreclosure. For buyers, there are good deals to be had; but (and this is a big but) the lender(s) must be willing to take a loss by selling at a reduced price. If a short sale is listed at $340K (typical in “this” area today), and a buyer offers $395 or $420. The bank can tentatively accept the offer. During the 2-3 months the bank is processing paperwork, the house value will increase, perhaps by $80K. The bank then can come back to the buyer demanding more money. If the new price is still a short sale, the process resets and the lender could counter offer in another 2-3 months! In some cases the short sale will go through without a hitch, but in many cases the price is adjusted upwards, the sale lost, and the house goes into foreclosure.
We chose not to go the short sale route; it is too unpredictable. I’m not saying that a conventional house purchase is predictable, just significantly less risky than a short sale. It’s a time/money trade-off. If you have the time, a short sale could be worth the risk.
In any event and for many tens of thousands of dollars more than I had expected, we are entering Phase 2 of our retirement plan.
Next, Phase 3….