Expert: Lori Frankfort - 12/22/2008

Question
Hello. My fiance and I live in Albuquerque, New Mexico. I am a newish attorney and in June of 2007 I purchased a condo in the North Valley -- a desirable area, close to downtown and the river, etc. -- for $167,500. I realize I purchased it right before the housing market burst and now it is probably worth much less. From recent sales in my area I am *hoping* it is worth about $160,000, but it could be worth only about $150,000. I didn't put any money down for it and I have only paid about $3,000 towards the principal. I also have mortgate insurance on it until I get 20% in equity.

My fiance and I plan to move in together soon. I think it would make little to no sense for me to try to sell my house right now in this market; plus, I can't sell it before the summer unless I want to take a tax hit for selling it in under two years. So, whatever we do probably involves me renting out my condo, which I am fine with.

My question is whether you think we should sell my fiance's house and buy a different house now that the market is so good for buyers, or whether we should just stay in his house and save up money towards a new house sometime in the future.  My fiance has a house near the North Valley which he bought about 7 years ago for $125,000. His development is desirable and he got in early; the market right there has grown without taking too much of a hit with the bad economy. We are guessing he could safely get about $200,000 for his house, although before everything crashed, he could have easily gotten $230,000 or more for it.  He has a good bit of equity built up in it because he put down 25% and he has been paying the mortgage for seven years.

There is a nice house -- his dream house -- which is for sale right now as part of a foreclosure in his same desirable development for only $209,000. We were thinking that he could sell his house for a little less than that and we could "upgrade" to the bigger, better, house for little more than what he is paying now (his mortgage is very cheap), what with the cheap price and the low interest rate right now.  Do you think this is a good idea? Or should we rent out my condo and live in his house and save up money towards a new house to buy together in the future, even though by that time the market may not be so buyer-friendly? We are formulating our plan and I would appreciate any input you could give me.

Answer
Obviously I'm not familiar with your market area because I'm in California, but this is my opinion.

If it were me, I would rent my condo until the market improves, as long as you can break even with the mortgage and tax expenses.  

As for his place, that's a tough one.  You'd obviously need to move on the foreclosure before his house is sold, therefore you'd be paying the mortgage on both places while waiting for his to sell.  If you have a pad of savings then you can do that, but if you don't then you risk not having enough money to pay both mortgages.  If you really want to make the leap to the new house, you should have a plan of how long you can afford to let the house sit empty before you rent it out - leaving you with 2 rental properties.  As long as you can break even on both of those then you're in good shape, but if you can't, then I wouldn't buy the foreclosure house.

If you decide to sell his, try to keep it furnished and feeling "homey".  You need all the advantages you can get right now.

Best,
Lori