Author Topic: $100,000 or $700/month  (Read 938 times)

nkt0

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$100,000 or $700/month
« on: October 09, 2018, 06:16:19 AM »
Help me figure this out. I know it's a common question, but i'd like some advice on my specific situation.

We are considering moving (for a variety of reasons not relevant to this exercise). If we sell our current house, we'd cash out about $100,000 in equity. We could rent in our new location for a cost similar to our current PITI and put that equity to work in a different way. However, if we stay put, we'll continue to have that equity "locked up" in our house, but we will also be "gaining" ~$700/month in additional equity from our mortgage payments (at the low cost of 3.5% interest).

(I don't think buying a new house is feasible in the new location given the housing market and rising interest rates)

I mostly think staying put is financially beneficial for us, but convince me otherwise!

BuildingmyFIRE

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Re: $100,000 or $700/month
« Reply #1 on: October 09, 2018, 10:10:47 AM »
I'm no expert, but I am in a similar but different situation (move, or renovate existing house, and therefore keep 3.5% current mortgage).

At the recent Bogleheads meeting, Jack Bogle stated that he doubted we'd see growth in securities that averaged more than 4% after inflation over the next several years.  I would not use the last ten years of performance as a bench mark for the next decade. 

My suggestion to you would be to stay.

jlcnuke

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Re: $100,000 or $700/month
« Reply #2 on: October 10, 2018, 07:05:14 AM »
You're also not taking into consideration the cost to sell your home. That will be thousands of dollars gone for sure. If you don't "need" to move, and it isn't a massive financial help to move (i.e. go from commuting to walking to work for the same monthly cost of housing, thus dropping other budget costs significantly) etc, I'd stay put, pay off the house eventually, and enjoy the lower cost of living of having a paid off home.

nkt0

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Re: $100,000 or $700/month
« Reply #3 on: October 10, 2018, 07:10:32 AM »
You're also not taking into consideration the cost to sell your home. That will be thousands of dollars gone for sure. If you don't "need" to move, and it isn't a massive financial help to move (i.e. go from commuting to walking to work for the same monthly cost of housing, thus dropping other budget costs significantly) etc, I'd stay put, pay off the house eventually, and enjoy the lower cost of living of having a paid off home.

I simplified the numbers. The $100k is after closing costs, moving costs, etc. The move is for reasons other than financial benefit; i'm just trying to get a better understanding of our tradeoffs as we consider all our options. I wasn't sure if there was something i was missing from the finance side. I know some people prefer a bird in the hand rather than two in the bush.

electriceagle

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Re: $100,000 or $700/month
« Reply #4 on: October 10, 2018, 07:58:24 AM »
I don't think that you're comparing the right two numbers.

If you sell, you get $100,000.
If you keep the property, you pay interest, taxes, insurance and maintenance.

What will you do with the property if you keep it? Will you rent it out? Do you have an idea of how much it would rent for / want to be a long-distance landlord? Or are you simply looking to ensure your ability to return to your current area if this move doesn't make you happier?

nkt0

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Re: $100,000 or $700/month
« Reply #5 on: October 10, 2018, 08:39:18 AM »
What will you do with the property if you keep it? Will you rent it out? Do you have an idea of how much it would rent for / want to be a long-distance landlord? Or are you simply looking to ensure your ability to return to your current area if this move doesn't make you happier?

Sorry if i was unclear. The options we're considering are: move and sell or stay and keep. If we move, we will most likely be renting in our new location. My current understanding is that given all the market dynamics, etc, staying is more financially advantageous due to our low interest rate and the general benefits of homeownership. But i wanted to see if the community had any differing opinions where selling might not be as bad as i think—particularly putting the equity we've built up to other more productive uses.

AMandM

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Re: $100,000 or $700/month
« Reply #6 on: October 10, 2018, 10:25:24 AM »
Look at it this way:  If you stay, you spend X per month on PITI and get $700 per month in increased equity (which is not taxed as income, unless later when you sell it exceeds the cap on home sales).  If you move, you spend the same X per month on rent and get Y income per month from investing your $100k.  You win if Y > 700.  Do you think your $100k will produce more than $8400 a year after taxes?

Retire-Canada

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Re: $100,000 or $700/month
« Reply #7 on: October 10, 2018, 10:39:46 AM »
Home equity can also decrease so it's not a risk free option vs. the stock market.

nkt0

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Re: $100,000 or $700/month
« Reply #8 on: October 10, 2018, 11:07:03 AM »
Look at it this way:  If you stay, you spend X per month on PITI and get $700 per month in increased equity (which is not taxed as income, unless later when you sell it exceeds the cap on home sales).  If you move, you spend the same X per month on rent and get Y income per month from investing your $100k.  You win if Y > 700.  Do you think your $100k will produce more than $8400 a year after taxes?

Thanks for that analysis. I like this mode of thinking. It's even more complicated because if i want a complete picture, i need to factor in maintenance and other costs of homeownership. Plus the equity we put into the house long-term is only unlocked if we move into cheaper housing at some point in the future. On the other hand, once our current house is paid for (17 years from now :)), our housing costs drop by ~$1200/month, so that's another factor. Ugh. This makes my head hurt. :D

4alpacas

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Re: $100,000 or $700/month
« Reply #9 on: October 10, 2018, 11:52:55 AM »
This makes my head hurt. :D
If you're not up for making your own spreadsheet, you can mess around on the Rent vs. Buy calculator. The calculator won't give a full picture of your situation, but it will provide the additional costs of renting or buying. 

nkt0

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Re: $100,000 or $700/month
« Reply #10 on: October 10, 2018, 12:12:10 PM »
If you're not up for making your own spreadsheet, you can mess around on the Rent vs. Buy calculator. The calculator won't give a full picture of your situation, but it will provide the additional costs of renting or buying.

Thanks. Yeah, this calculator illustrates how much of this decision relies on the assumption about investment return. Basically, if i assume lower values of investment return, it makes holding the house look good. If i assume higher values, selling and leverage the equity differently starts to look more inviting.

Given this uncertainty, i guess i won't be able to easily put a value or range on the "cost" of selling and resettling, but at least i gave it a try!