I’m not ready to sell my house and move. How can I get money for the down payment? I don’t have the 10%-20% I need, sitting in cash.
First, you don’t need 10%-20% for a primary residence, and you are correct – you would need that much for a second or investment home. There are several solutions to this obstacle, if you aren’t ready to sell your primary residence yet.
- Even though you’re not ready to sell your primary residence, you may be able to pull equity out of it and use that money now, before you sell your home. You can do this by getting a Home Equity Line of Credit (HELOC) on your primary residence. This may be the fastest, easiest, and least expensive option for financing your second home/rental property in Wilmington/Wrightsville Beach. I’m happy to run some numbers for you to see if this option makes sense for you.
- If you have a significant amount of money invested in the stock and bond markets, there may be a portion that could be sold without recognizing significant capital gains. This depends on your portfolio and what you’re invested in. Check with your financial advisor and ask if there is anything that could be sold that aligns with your tax risk strategies.
- Check your 401K or other retirement plan to determine how much you can borrow against it, what the implications are, and how much it costs. This is a strategy that can be used carefully, under the guidance of your financial advisor, particularly if you know you are going to sell your primary residence or something else, and be able to repay the loan against your retirement plan in a relatively short period of time.
- If your timeline is one year or less, you may be able to use a bridge loan. This is a loan you take out short-term to purchase your new home, with the intent of selling your current home within the year and repaying this bridge loan.
- Use a personal loan. You may be able to get a personal loan from your bank or credit card company to cover the difference in the down payment. You may need to have this personal loan in place before applying for your new mortgage on your new home, and be able to qualify from a debt to income perspective, with both loan payments. This is something to discuss with your lender ahead of time.
I can’t afford the monthly payment on my current home and a new home in Wilmington/Wrightsville Beach.
Maybe you’re 5-10 years away from retirement. Maybe you have kids in college you’re supporting. Maybe you have parents who need your help financially as well. Maybe you’ve been in your home for 15 years and you need a new roof, or a new HVAC, or updates to the kitchen and bathrooms and floors. It’s a lot – I get it. How can you possibly consider getting another house that’s not even that close by, to pay for and manage?
If this is what you really want, it’s your plan for the future, or your dream, well then let’s figure it out! You very well may be able to make it happen. Here are some ideas about how:
- Buy a home here now, whether or not it’s your ideal retirement home, that sustains itself from a financial perspective. When I say sustains itself, I mean you can collect enough in rents to pay all of the associated expenses, including maintenance and capital expenditures, without going negative over the course of a year. At the very least, you break even. If you’re putting more than 20% down, you can find that here in Wilmington and Wrightsville Beach. If you’re putting down 20% or less, you may be able to find that, there are just fewer options. This may or may not mean you buy something that isn’t your ideal retirement home and is more of an investment. If you need help with running numbers, I’m happy to do that for you. At least you get into the market here this way, and you have an asset that is growing with our market.
- What if you’re comfortable spending $1,500 per month, for example, but not the full amount it costs to own your second home? Consder buying a home that you can legally rent short-term (for periods of less than 30 days, e.g., weekly rentals). You can use the rental income to offset your costs. There is a great market for short-term rentals in Wilmington and Wrightsville Beach, and not just at the beach. There are some local rules, but nothing prohibits short-term rentals other than the HOA governing the community. Many condo and townhome HOAs do not permit short-term rentals, and some do (I own one so ask me if you have questions). If you’re curious about this option, I can help you find the right home and run the numbers for you. This is a really great option for people, because it gives your some income, with the tax benefits of owning real estate, and it gives you a place to stay when you visit, before you are ready to move here permanently.
- Do you have a child in school and UNCW? Consider buying a home for them to live in, with three or four bedrooms that can be rented to their friends. You’re paying for their housing anyway. You might as well put that money into an asset instead of paying rent. Then when they graduate, you can renovate and live in it, or sell it and buy what you want!
Property values have gotten too high in the past couple years. I’m going to wait for them to come back down before I buy.
I’d be more concerned with the opposite happening, which I believe is more likely based on current trends. That is, the market continuing to rise over the next decade, and pricing you out completely. COVID changed the way people live and work, allowing many people to work from any location. This has led to a nationwide trend of people leaving cities and more expensive areas in colder climates, and moving to the sun belt and more affordable areas. That includes Wilmington and Wrightsville Beach, NC, and that trend is expected to continue over the next decade. In addition, Wilmignton has extremely low housing inventory, with little land left to build. Until demand decreases and/or supply increases, we do not expect property values to decline significantly.
Could property values decline? Yes, of course, there are never any guarantees. I lived through the housing market crash of 2008 and learned that lesson the hard way. But, if you have the house you want, and you can afford it – so what? I’m not suggesting you over leverage and get into a position that is uncomfortable financially, or worse. If you buy right for you, and you don’t plan on selling in the next five years, the short-term ups and downs in value that MIGHT occur, shouldnt’ really matter very much to you. Over time, the value of real estate has always increased. Again, it’s not guaranteed that will continue, but it is reasonable to expect home values to go up for the long-term.
Interest rates are too high. I’m going to wait for them to come back down.
“Too high” is relative. The 2.5%-3.5% reates we saw in the last couple years were a gift that we will likely never see again in our lifetimes, and we are now seeing the downside of those low rates – high inflation. They couldn’t last. A 6% – 7% mortgage rate is not that bad. Rates have been more than twice that in my lifetime. The key is to see what you can afford based on today’s rates, and stay within that price range.
There have been so many peopole I talked to in the past couple years who were not buying, even though they wanted to, because they were waiting for the frenzy and increasing home values to stop. Two years later, neither has stopped, an now mortgage rates have doubled, making homes even less affordable than they were when these folks were waiting for things to improve. You can’t control the market or interest rates. What you can do, is buy smart, when the time is right for you. Don’t over leverage. Buy something you can afford, that is in alignment with your overall financial goals. If rates go down in the future, great – you can refinance then and get a lower rate.
Okay, I see the benefits of buying now, and renting at least part-time. But how can I manage that from a distance, with all of my other responsibilities? I don’t even know where to start.
Whenever I am running numbers for people to see if a property would work for them, I factor in property management fees, and I help my clients get set up with whatever type of property management they need (long-term, traditional short-term vacation rentals, and AirBnb/VRBO). I have local relationships with several property managers who can help you as much or as little as you want, including completely setting up a new short-term rental from vacant to fully furnished with check-in snacks! They can manage the whole process, get your home marketed, and send you the proceeds each month. And I am always here to help and be your Wilmington connection.
Buying a home from a distance when you’re not sure how to manage it or how to pay for it, can feel overwhelming. My primary purpose is to help you decide whether or not that’s what you want and is best for you, and if it is, to remove the barriers keeping you from getting it done.
Hi, I'm Kim Crouch, and I help people who want to live in Wilmington near Wrightsville Beach, and aren't quite ready to move yet, figure out how to buy their NC coastal home now.
1001 Millitary Cutoff Rd Suite 101
Wilmington, NC 28403
schedule your free consultation