Strategy 71 of 107 · new for the five-year plan
Sell in a high-cost area and buy for cash somewhere less expensive
What it is
If work or family no longer ties you to a high-cost area, compare what your equity would buy elsewhere.
Steps
- If work or family no longer ties you to a high-cost area, compare what your equity would buy elsewhere.
- Sell; up to $250,000 of gain ($500,000 married) can be excluded if you owned and lived in the home 2 of the last 5 years.
- Buy the next home outright, or with a small loan you can clear quickly.
Repeat: Once.
Measure: Equity after sale costs against the price of the next home.
Try it in the calculator Enter its amount in "One-time amount to principal". Add a payoff goal of 5 years to see what is still needed.
Risks
- Selling and buying can cost 6% to 10% of the price.
- Prices, jobs and family ties in the new area.
- Property taxes and insurance can be higher in some cheaper states.
Who it fits
Married couples, Grandmas and grandpas (62 and over), Higher earners, Single, Average household, Higher net worth, with assets
Needs
Could move out or relocate for a few years
How predictable
Depends on markets or variable rates
A worked example (hypothetical, not guaranteed)
Picture a hypothetical household (married couples). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.
They follow the steps: if work or family no longer ties you to a high-cost area, compare what your equity would buy elsewhere.
Suppose it brings a one-time $100,000 on principal. The loan would be paid off in 13 years 1 month instead of 30 years, saving about $285,309 in interest. To finish in five years, they would still need about $2,017 a month more from other strategies. That is why the five-year sequences stack several at once.
The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.
Sequences that use it
- Two live-in flips, then no mortgage: Two sales two years apart, each gain excluded up to the limit, the last purchase made for cash or close to it.
Sources and more information
Where to get help
Related strategies
- 72. Live-in improve and sell, every two years, tax-free gain each time
- 73. Sell a rental property and pay off the home
- 74. Sell all or part of a business
- 67. Move idle savings above the emergency fund to principal
- 75. Sell vested employer shares you already own
- 76. Surrender a policy you no longer need, for its surrender value