Author Topic: House Rich - Cash Poor  (Read 3857 times)

P Diddy from Madison

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House Rich - Cash Poor
« on: July 21, 2018, 04:33:36 PM »
So I am not doing badly at all, but I have an issue that puzzles me greatly.

I'm 49 and have a net worth of about $1.1 million. I make about $150 per year.

My current concern is that I have one kid who is starting his junior year of college and one starting her senior year of high school.

I can swing my son's tuition with cash on hand, but when my daughter starts, I just won't have enough available money to pay. (and the son is in a 5 year program, so there will be a 2 year overlap).

I have about $620 in equity in my house and about $500 in retirement plans.

It seems the necessary thing is to get some of the equity out of the house, which I'm planning to do. But I'm not really sure how to best do this.

Complicating factor: the family wants to move down the shore. I can buy a house in the $300,000 range down there, giving me an accessible 'stache of about $320. That's plenty to pay for college, but nowhere near my fi number.

And I really have no idea what I would do for a living down there!

Part of me says: Hey, you'll figure it out!

Part of me says: What are you nuts? Walk away from a 6 figure salary before you hit your fi number??

So I'm also thinking about: telling my family too bad, we're downsizing in situ until we hit the fi number. OR maybe, finding some cheap housing solution near my job and splitting my time. Neither of these are optimal of course. 

any thoughts greatly appreciated!
« Last Edit: July 22, 2018, 05:29:14 AM by P Diddy from Madison »

gpyros85

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Re: House Rich - Cash Poor
« Reply #1 on: July 21, 2018, 05:26:29 PM »
How much is this college and is your child working paying for a portion themselves? I went through college 100% self funded, donít know why this isnít the normal situation with many other families, builds character.

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #2 on: July 21, 2018, 05:36:40 PM »
Both are only $25k per year, all in.

My parents paid for me to go to state college. (both my parents worked two jobs to do so.) My wife's parents paid for her to go to state college. (and both of her parents worked to do so.)

I will pay for my kids to go to state college.

« Last Edit: July 21, 2018, 05:44:24 PM by P Diddy from Madison »

sokoloff

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Re: House Rich - Cash Poor
« Reply #3 on: July 21, 2018, 05:55:19 PM »
Weíre going to pay for undergrad as well, so Iím with you there, but thereís no reason IMO that canít take the form of loans that you intend to pay off, due to cash flow limitations.

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #4 on: July 21, 2018, 06:06:19 PM »
yeah, I could of course borrow against the equity in the house. I have a HELOC with a $100,000 limit that's open and available.

But I've worked pretty hard over the years to reduce my debt. I'm really not looking to add new debt as I enter my 50's. Especially when I have so much capital available to me.

So, I have thought about that option. I just don't care for it as much as downsizing.


rockeTree

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Re: House Rich - Cash Poor
« Reply #5 on: July 21, 2018, 07:07:46 PM »
Do you have a partner that can work? Kids are old enough, if you can cash flow $25 a year as is and put any raises/bonuses to it even part time would cover the gap.

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #6 on: July 21, 2018, 08:15:44 PM »
no, my wife can't work.

We always thought that if it came down to it at this point, she could go back to work. Unfortunately, she has developed over the last 2-3 years a severe disability so working is not going to happen with her.

and the thing is that it isn't at all that I don't have the means to pay for the kids' college. It's just that it is locked up in my house, 401k and IRAs.

sokoloff

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Re: House Rich - Cash Poor
« Reply #7 on: July 21, 2018, 08:23:52 PM »
With $620K in house equity, you should be able to get a HELOC to cover $250K+ of college if you desire.

Zamboni

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Re: House Rich - Cash Poor
« Reply #8 on: July 21, 2018, 10:07:01 PM »
A HELOC is just more debt.

Sounds like you should definitely downsize and cash out on the house. That solves your cash flow problem and also frees you up to look at smaller houses and a job down the shore without any time pressure and cash flow pressure. Tell your wife that this is a step in the direction of your long term plan of moving down the shore.

Find a nice place right where you are to rent in the meantime. Brand new luxury apartment complex with a pool? Why not!

I feel like people use the "I don't want to move twice" excuse and do things in the wrong order: trying to find another house (and put in a winning offer!) before selling the existing house. Often that just doesn't make sense and it can put people on the hook for two simultaneous mortgage payments which just makes the cash flow even worse.

Moving is not that big of a deal. Go on Angie's list and find a highly rated local moving company, and then call them and mention you saw them on Angie's list to get their best moving crew (all companies have good crews and relatively lousy crews.)

Please voice whatever objections you (or your family) has to this plan.

Mustache ride

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Re: House Rich - Cash Poor
« Reply #9 on: July 21, 2018, 10:08:02 PM »
can't your kids get interest free federal loans until they graduate and they you can pay it off all once once?

lhamo

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Re: House Rich - Cash Poor
« Reply #10 on: July 21, 2018, 10:59:08 PM »
Have you filled out the FAFSA, and if so, what is your annual EFC for your son?  It should be the same for two kids as for just your son since it is based on income/assets.  More costs means more likelihood of financial aid.

Are the kids planning to work at all, and if not, why not?  They will probably do better both academically and financially if they have some skin in the game.

What are your expenses like?  How much of a shortfall is there?  I would probably do some cash from parents, some cash from kids (pt and summer jobs), and loans to make up the difference if necessary. 

Villanelle

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Re: House Rich - Cash Poor
« Reply #11 on: July 22, 2018, 12:28:37 AM »
I would absolutely downsize in house in your current location until FIRE, then move if that makes sense.  This makes even more sense given that, from the sounds of it, you will be going from 4 people living in the house to 2, a majority of the time.   Downsize as much as you can stand.  The more you do so, likely the sooner you reach FIRE.

The other option would be buying that beach house now and renting it out (if the numbers make sense) and renting for you family in your current location until FIRE. 

MDM

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Re: House Rich - Cash Poor
« Reply #12 on: July 22, 2018, 03:05:03 AM »
...but when my daughter starts, I just won't have enough available money to pay. (and the son is in a 5 year program, so there will be a 2 year overlap).
Might be worth checking that.  If you still have a mortgage, it might indeed be tight, but at $150K gross it seems you could pay $48K/yr for college, fully fund a 401k and 2 Roth IRAs, and have ~$44K/yr left over for food, clothing, property tax, etc.  See calculations below. 

Some belt-tightening for a couple of years might be preferable to relocation...?

Paycheck frequency:AnnualAnnual
Paycheck ItemsEarner #1Earner #2Annual
Gross Salary/Wages
$150,000$0$150,000
401(k) / 403(b) / TSP / etc.$18,500$0$18,500
W-2 Box 1
$131,500$0$131,500
1040 AGI
$131,500
Other Specific Investment TypesAnnualAnnualAnnual
Roth IRA$5,500$5,500$11,000
Payroll TaxesAnnualAnnualAnnual
Social Security$7,961$0$7,961
Medicare$2,175$0$2,175
Income Taxes
Federal tax$12,0292018, MFJ, std., 2 dep$12,029
State+local tax$6,461WI state calc'n$6,461
Total income taxes$28,625$28,625
Monthly
Income before other expenses$7,656$91,875
Monthly Average ExpensesComments
College "Qualified Educational Expense"$4,000Input to Educ. credit$48,000
Miscellaneous$3,656$43,875
Non-mortgage total
$7,656$91,875
Total Expense
$7,656$91,875
Total to invest$0$0
Summary:
"Gross" income$12,500$150,000
Income taxes$2,385$28,625
After-tax income$10,115$121,375
IRA+401k/403b/TSP/457$2,000$458$29,500
Living expenses$7,656$91,875
After-tax investable$0$0

Filing Status21=S, 2=MFJ, 3=HOH
# Dependents2
# Children for EIC2
Adult #1Adult #2
Age4545
Full-time student?00
AGI$131,500
Std. Deduct.$24,000
Act. Deduct.$24,000
Exemption$0
Taxable$107,500
1040 Tax$15,529
Education credit$1,500
Non-refund. CTC$1,000
Tax after n-r credit$13,029
Education Credit$1,000
Net Tax$12,029
State tax$6,461WI
VersionV11.11

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #13 on: July 22, 2018, 05:43:09 AM »
@Zamboni  I like that plan. With one exception which might surprise you.

My current mortgage payment is only $1700 a month ($1698 to be exact). In my HCOL area, finding anything to rent for less than that is actually very difficult. I just saw a 3 br ranch renting for$2,500 a month two towns over (in a just ok neighborhood).

@MDM  Wow -- that's a lot of effort on my behalf. Thanks so much. When I ran the FAFSA myself, all we qualified for was loans. Maybe if I tighten the belt (a work in progress!!) we can get more into tax free accounts and improve that number.

@Villanelle  - thanks, that's pretty much the conclusion I'm coming to as well.

@lhamo - as I noted above I've run the fafsa application for a couple of times but only qualify for loans. The kids do work but as I noted to another, I'm not using their money to pay for college. My parents worked two jobs (each) to pay for my state college. My wife's parents sacrificed a lot to pay for hers. Both took the attitude that the money we make in our summer jobs is our starting out money. Considering I make 3x what my parents or in laws ever made, I'm not doing less for my kids than they did for me. (Even if I wanted to, the wife wouldn't tolerate that.)

I do have work to do on my expense side. I'm just not sure I can get to freeing up another $25k a year in time without downsizing the house.

former player

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Re: House Rich - Cash Poor
« Reply #14 on: July 22, 2018, 06:57:08 AM »
You say you can swing $25k a year out of income, and you've already done that for your son for 2 years, so that's a pretty solid calculation.  You've got another year of that, which should also be OK.

You've then got a two year overlap where costs go up to $50k a year.  Assuming a four year degree for your daughter, that will be followed by two more years of $25k a year.

So as long as you are proposing to continue working at current levels of income for the next four years, the only problem is that in years 2 and 3 from now you need to find a total of $50k.  Given your income, and that you are on the MMM forum, I would have thought that should be doable without incurring debt.  Do you have assets outside of your house and retirement fund?  Can you reduce expenditures?  You have some time to work this out.


If you really can't find $50k over the next three years, and don't want debt, then yes, sell your current house.  But you need to carry on working even after this period of paying for both kids, to fund the remainder of your daughter's college.  So stay put in your current location.  Whether to rent or buy depends on you and your wife's longer term plans.  But the fact that renting is more expensive than your mortgage is not the right calculation, because you are ignoring the imputed income from your $600k equity.  So don't make that your determining factor.

Also, with regard to moving "down the shore".  Who is it in your family that is keen on this?  Your kids have left home or will in the next year: any move should be for you and your wife not for anyone else.  And with your wife's disability there are serious considerations about a good long-term location for you both.

MDM

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Re: House Rich - Cash Poor
« Reply #15 on: July 22, 2018, 09:58:47 AM »
...that's a lot of effort on my behalf. Thanks so much. When I ran the FAFSA myself, all we qualified for was loans. Maybe if I tighten the belt (a work in progress!!) we can get more into tax free accounts and improve that number.
...
I do have work to do on my expense side. I'm just not sure I can get to freeing up another $25k a year in time without downsizing the house.
Perhaps not as much effort as you might think. ;)

See the case study spreadsheet if you would like to enter your own numbers.  That might be a convenient place for you to look at your overall cash flow, ignoring any FAFSA results.

lhamo

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Re: House Rich - Cash Poor
« Reply #16 on: July 22, 2018, 10:30:02 AM »
The kids do work but as I noted to another, I'm not using their money to pay for college. My parents worked two jobs (each) to pay for my state college. My wife's parents sacrificed a lot to pay for hers. Both took the attitude that the money we make in our summer jobs is our starting out money. Considering I make 3x what my parents or in laws ever made, I'm not doing less for my kids than they did for me. (Even if I wanted to, the wife wouldn't tolerate that.)

I do have work to do on my expense side. I'm just not sure I can get to freeing up another $25k a year in time without downsizing the house.

This seems ridiculously rigid to me.  As former player pointed out, you only really have a two-year cash flow issue.  Why not make a deal that the kids pay for a certain amount of their own expenses while you are in that crunch period and then, assuming they meet agreed-upon targets (maintain a certain GPA, graduate on time, etc), you will return the money to them when they launch (spreading it out over a year or two if needed as the cash flow situation allows.

It is admirable that you and your wife's parents sacrificed for you but is that really the message you want to send to your kids at this stage in their lives?  I think it would be better to admit to them that you had this desire to pay for their college but for whatever reason didn't plan things out well enough and now have a shortfall, so you need them to pitch in a bit but will reward them for their hard work and give them a boost by paying back their investment when they graduate.


P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #17 on: July 22, 2018, 11:53:57 AM »
The kids do work but as I noted to another, I'm not using their money to pay for college. My parents worked two jobs (each) to pay for my state college. My wife's parents sacrificed a lot to pay for hers. Both took the attitude that the money we make in our summer jobs is our starting out money. Considering I make 3x what my parents or in laws ever made, I'm not doing less for my kids than they did for me. (Even if I wanted to, the wife wouldn't tolerate that.)

I do have work to do on my expense side. I'm just not sure I can get to freeing up another $25k a year in time without downsizing the house.

This seems ridiculously rigid to me.  As former player pointed out, you only really have a two-year cash flow issue.  Why not make a deal that the kids pay for a certain amount of their own expenses while you are in that crunch period and then, assuming they meet agreed-upon targets (maintain a certain GPA, graduate on time, etc), you will return the money to them when they launch (spreading it out over a year or two if needed as the cash flow situation allows.

It is admirable that you and your wife's parents sacrificed for you but is that really the message you want to send to your kids at this stage in their lives?  I think it would be better to admit to them that you had this desire to pay for their college but for whatever reason didn't plan things out well enough and now have a shortfall, so you need them to pitch in a bit but will reward them for their hard work and give them a boost by paying back their investment when they graduate.

I like sending the message that your education is important and that your parents are willing to make sacrifices for it. That meant a lot to me. And the fact that I graduated college with some money to start out with meant a lot to me too, especially when I decided to go to grad school.

And the other reality you have to appreciate is that if my parents and in-laws found out my kids were paying for part of their own college, they'd open their own checkbooks. (And they would find out, that's how our family is.) And I'm not letting that happen.

I'm not asking my kids or parents or in laws to make sacrifices to I can retire early. I'll make sacrifices for that.

And like I said in the beginning this is not in any way a question of me no having the money. It's just a question of accessing it.
« Last Edit: July 22, 2018, 11:57:22 AM by P Diddy from Madison »

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #18 on: July 22, 2018, 12:13:32 PM »
 But the fact that renting is more expensive than your mortgage is not the right calculation, because you are ignoring the imputed income from your $600k equity.  So don't make that your determining factor.

Also, with regard to moving "down the shore".  Who is it in your family that is keen on this?  Your kids have left home or will in the next year: any move should be for you and your wife not for anyone else.  And with your wife's disability there are serious considerations about a good long-term location for you both.
[/quote]

That's a GREAT point. thanks. The $620 could generate about $25,000 a year in income, which is exactly the gap I need to close.

That might be the answer: sell and rent for 2-4 years and then move down the shore.

As to the second question, my family has spent a week at the same shore down every year for 20+ years. It's been the dream to move there for a long, long time. That has gotten me through a lot of crappy days at work!

But yes, her disability is a consideration. (As is the fact that both of our sets parents are aging rapidly all of a sudden. We might wind up being those people who go from caring for their kids to caring for their parents. One thing at a time though.)

Hirondelle

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Re: House Rich - Cash Poor
« Reply #19 on: July 22, 2018, 12:28:00 PM »
The kids do work but as I noted to another, I'm not using their money to pay for college. My parents worked two jobs (each) to pay for my state college. My wife's parents sacrificed a lot to pay for hers. Both took the attitude that the money we make in our summer jobs is our starting out money. Considering I make 3x what my parents or in laws ever made, I'm not doing less for my kids than they did for me. (Even if I wanted to, the wife wouldn't tolerate that.)

I do have work to do on my expense side. I'm just not sure I can get to freeing up another $25k a year in time without downsizing the house.

This seems ridiculously rigid to me.  As former player pointed out, you only really have a two-year cash flow issue.  Why not make a deal that the kids pay for a certain amount of their own expenses while you are in that crunch period and then, assuming they meet agreed-upon targets (maintain a certain GPA, graduate on time, etc), you will return the money to them when they launch (spreading it out over a year or two if needed as the cash flow situation allows.

It is admirable that you and your wife's parents sacrificed for you but is that really the message you want to send to your kids at this stage in their lives?  I think it would be better to admit to them that you had this desire to pay for their college but for whatever reason didn't plan things out well enough and now have a shortfall, so you need them to pitch in a bit but will reward them for their hard work and give them a boost by paying back their investment when they graduate.

I like sending the message that your education is important and that your parents are willing to make sacrifices for it. That meant a lot to me. And the fact that I graduated college with some money to start out with meant a lot to me too, especially when I decided to go to grad school.

And the other reality you have to appreciate is that if my parents and in-laws found out my kids were paying for part of their own college, they'd open their own checkbooks. (And they would find out, that's how our family is.) And I'm not letting that happen.

I'm not asking my kids or parents or in laws to make sacrifices to I can retire early. I'll make sacrifices for that.

And like I said in the beginning this is not in any way a question of me no having the money. It's just a question of accessing it.

If you read Ihamo's post accurately, she's just suggesting you to let your kids chime in untilyou can pay it off on your cashflow later on. Often students can take out loans on which no interest is charged until they finish school, so if you put some money in CDs you could even make money on this (which I'd done this in my student times as interest rates were still around 3-4%). What is so bad about asking your kids to pitch in $10k for two years which you'll pay back to them during the first two years after graduation? If you could tighten up the budget just a little you could even reduce the amount.

Plus I assume they are at least applying for potential scholarships and live frugally to also lessen the burden on you? When I studied my parents were very willing to help, but I refused to let them pay my rent as I wanted to be independent and it was my own choice to switch unis and move out. I see how you're saying that you want to pay it forward by paying your kids college, but do they want that? What if your kid wants to go to a more expensive college than the one you're planning for? What if they want to study a semester abroad? Would you cover all of these things or do you have the fixed 25k budget and they have to come up with additional expenses if they choose to go more fancy?
« Last Edit: July 22, 2018, 01:05:41 PM by Hirondelle »

itchyfeet

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Re: House Rich - Cash Poor
« Reply #20 on: July 22, 2018, 12:59:43 PM »
If it was me Iíd take the simple solution.

Keep your job, keep your house, trim what expenses that can be trimmed for the 2 years, and borrow on your HELOC the difference. As soon as your daughter graduates double down even harder on the savings and make the final push to your number. You never know, during the next 4 years your house could appreciate more than stocks.

After they graduate, I trust your kids will pay board 😁

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #21 on: July 22, 2018, 01:29:34 PM »
The kids do work but as I noted to another, I'm not using their money to pay for college. My parents worked two jobs (each) to pay for my state college. My wife's parents sacrificed a lot to pay for hers. Both took the attitude that the money we make in our summer jobs is our starting out money. Considering I make 3x what my parents or in laws ever made, I'm not doing less for my kids than they did for me. (Even if I wanted to, the wife wouldn't tolerate that.)

I do have work to do on my expense side. I'm just not sure I can get to freeing up another $25k a year in time without downsizing the house.

This seems ridiculously rigid to me.  As former player pointed out, you only really have a two-year cash flow issue.  Why not make a deal that the kids pay for a certain amount of their own expenses while you are in that crunch period and then, assuming they meet agreed-upon targets (maintain a certain GPA, graduate on time, etc), you will return the money to them when they launch (spreading it out over a year or two if needed as the cash flow situation allows.

It is admirable that you and your wife's parents sacrificed for you but is that really the message you want to send to your kids at this stage in their lives?  I think it would be better to admit to them that you had this desire to pay for their college but for whatever reason didn't plan things out well enough and now have a shortfall, so you need them to pitch in a bit but will reward them for their hard work and give them a boost by paying back their investment when they graduate.

I like sending the message that your education is important and that your parents are willing to make sacrifices for it. That meant a lot to me. And the fact that I graduated college with some money to start out with meant a lot to me too, especially when I decided to go to grad school.

And the other reality you have to appreciate is that if my parents and in-laws found out my kids were paying for part of their own college, they'd open their own checkbooks. (And they would find out, that's how our family is.) And I'm not letting that happen.

I'm not asking my kids or parents or in laws to make sacrifices to I can retire early. I'll make sacrifices for that.

And like I said in the beginning this is not in any way a question of me no having the money. It's just a question of accessing it.

If you read Ihamo's post accurately, she's just suggesting you to let your kids chime in untilyou can pay it off on your cashflow later on. Often students can take out loans on which no interest is charged until they finish school, so if you put some money in CDs you could even make money on this (which I'd done this in my student times as interest rates were still around 3-4%). What is so bad about asking your kids to pitch in $10k for two years which you'll pay back to them during the first two years after graduation? If you could tighten up the budget just a little you could even reduce the amount.

Plus I assume they are at least applying for potential scholarships and live frugally to also lessen the burden on you? When I studied my parents were very willing to help, but I refused to let them pay my rent as I wanted to be independent and it was my own choice to switch unis and move out. I see how you're saying that you want to pay it forward by paying your kids college, but do they want that? What if your kid wants to go to a more expensive college than the one you're planning for? What if they want to study a semester abroad? Would you cover all of these things or do you have the fixed 25k budget and they have to come up with additional expenses if they choose to go more fancy?

those are good questions. My son's 25k tuition is after some very generous scholarships. He goes to a state college but pays out of state tuition and it is still less than our instate option and is the perfect school for his avocation.

My daughter is extremely focused. She's going state all the way. And yes, she might get some scholarships. There aren't a ton of options that aren't need based at our state college because the general approach is that the reasonable tuition is the scholarship.

The arrangement we've had with the kids since they were quite young is we'll get you through a BA, and then you're pretty much on your own. (We'll never actually cut them off of course, but I don't think that's a concern.)

They are both quite independent and I don't see them boomeranging on us at all. They have plans.

what shouldn't get lost in this is that I'm the wealthiest person in this equation. I have to say that I'm surprised at the number of people saying that a dude with a $1.1 million net worth and a $150k salary  should be figuring out how to get some money from his kids!
 

lhamo

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Re: House Rich - Cash Poor
« Reply #22 on: July 22, 2018, 01:42:56 PM »
I guess it just seems a bit odd to me that, given your strong feelings about paying for their entire education, you didn't plan things a bit better.  Especially at that salary level.  Many of us here contributed to the cost of our own education and see that as a positive thing.  And have seen the negatives of kids who get a full ride from parents and don't appreciate it/take full advantage of it.  It sounds like your kids are responsible and driven, and that's great.  But a bit more open discussion with them about finances and planning, both for college and for the long term, might be beneficial for all of you.  I am also troubled by a family dynamic where others would swoop in financially, assuming that you somehow can't afford college, rather than letting you and your kids handle it as you see fit. 

Anyway, hope you find a solution that works for you, even if it isnt the one I would choose for my family.

Hirondelle

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Re: House Rich - Cash Poor
« Reply #23 on: July 22, 2018, 01:50:51 PM »
Nobody is asking you to get money from your kids. There's just many differences in how people look at college costs. In your family it's normal that parents are responsible, in some there's a mixture as people like their kids to have "skin in the game" or because they just can't afford it all or because they saved for in-state but kiddo decides to go private and so on. We all come from different backgrounds and have different perspectives, which is fun as it generates some mild chaos in our brains that results in new ways to look at things!

In your case it's a cash flow problem so I still don't understand why you can't fanthom having your kids take out loans that will be interest free for 2 years and then you pay them back as soon as they finish college, while the other options are you getting in debt through a HELOC that's accruing interest or significantly downsizing for the purpose of freeing 25k/year (not a bad option as it is - but wouldn't do that just for college-purposes). If you'd like to tighten up expenses (always a good thing!) I guess we'd all be happy to look into a full case study to see if we can find a few $$$ for you.

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #24 on: July 22, 2018, 08:07:52 PM »
Nobody is asking you to get money from your kids.



Actually, about half the people here are talking about having my kids pay.


P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #25 on: July 22, 2018, 08:10:14 PM »
I guess it just seems a bit odd to me that, given your strong feelings about paying for their entire education, you didn't plan things a bit better.  Especially at that salary level.  Many of us here contributed to the cost of our own education and see that as a positive thing.  And have seen the negatives of kids who get a full ride from parents and don't appreciate it/take full advantage of it.  It sounds like your kids are responsible and driven, and that's great.  But a bit more open discussion with them about finances and planning, both for college and for the long term, might be beneficial for all of you.  I am also troubled by a family dynamic where others would swoop in financially, assuming that you somehow can't afford college, rather than letting you and your kids handle it as you see fit. 

Anyway, hope you find a solution that works for you, even if it isnt the one I would choose for my family.

well, don't trouble yourself. I don't think you understand my family at all. we help our kids and our kids appreciate it. not your problem.

Zamboni

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Re: House Rich - Cash Poor
« Reply #26 on: July 22, 2018, 08:29:10 PM »
I'm not surprised that rents are higher than your mortgage. That's true where I live as well. But, besides the interest income on the invested money, you are also forgetting that rentals don't have any maintenance costs. I suspect if you read the MMM article about rent vs own and then do your own calculations, you'll see downsizing now is a win.

I am fully supportive of OP's firm desire not to put tuition burden on his kids.

Many of the posters here are waxing poetic about how character building it was to work through college, but today college students simply can't earn enough money to make any reasonable dent in the cost of their education. I could back in the day, and probably you could, too, but those days seem to be over at most big 4-year institutions.

Instead, the pressure to work too many hours often causes undue stress on students and results in poor grades. I'm a college professor, used to work at a big state school, and I saw it all of the time: Students not learning what they are going to school to learn because they are working too many hours. Sometimes they had to repeat classes, or they hadn't learned enough to do well in the next course in the sequence.

10 hours a week of work or volunteering or sports should be the absolute max with a full time college student load. Remember, they are in classes with other students who are not working, and some of those other students are actually quite serious and not goofing off at all.

Going to school, if you are doing it right, is a full time job. In fact, it is a 50-60 hours a week job if you are challenging yourself and doing all of the assigned work to maximize what you learn. Go to school as your job, volunteer some in the local community, get some exercise, go to church if that is important to you, and try to get enough sleep . . . that's a full week.

I am going to pay for my own kids to get through college. Period. No amount of "but it would be better for them to work" is going to change my mind. The only working I did that was useful was internships in the field I was studying and tutoring (and these generally pay better, but these jobs are also nearly impossible for freshmen to get.) Even the tutoring was only beneficial when it was just a few hours per week. Delivering pizza and cashiering at Au Bon Pain and folding clothes at the Gap . . . none of these helped me.

The odds at this point seem very high that my kids will end up with athletic scholarships (which is functionally working during school.) I will still emphasize to them that they should only go that route because they enjoy playing . . . otherwise just don't play, or play intramurals or on the club team, concentrate on studies, learn as much as you can, and be a normal student. Get the highest grades that lead to the highest paying jobs or best graduate schools. Profit. YMMV.

MDM

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Re: House Rich - Cash Poor
« Reply #27 on: July 22, 2018, 08:44:28 PM »
PDfM, are you willing to share your annual expenses so people can comment on what you might reasonably cut (if possible) to allow two years of two kids' college costs using only your $150K/yr income?

rockeTree

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House Rich - Cash Poor
« Reply #28 on: July 23, 2018, 05:13:08 AM »
Sorry double post, wasn’t showing in Tapatalk.
« Last Edit: July 23, 2018, 06:11:52 AM by rockeTree »

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #29 on: July 23, 2018, 05:26:50 AM »
PDfM, are you willing to share your annual expenses so people can comment on what you might reasonably cut (if possible) to allow two years of two kids' college costs using only your $150K/yr income?

willing yes. but not really able at this point. still gathering intel on that.

I know a few cuts I can make. But there are some others where I'm less certain and would appreciate input.

(My term life and disability policies seem expensive. But insurance always seems expensive until you need it. right?)




P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #30 on: July 23, 2018, 05:33:23 AM »
I'm not surprised that rents are higher than your mortgage. That's true where I live as well. But, besides the interest income on the invested money, you are also forgetting that rentals don't have any maintenance costs. I suspect if you read the MMM article about rent vs own and then do your own calculations, you'll see downsizing now is a win.

I am fully supportive of OP's firm desire not to put tuition burden on his kids.

Many of the posters here are waxing poetic about how character building it was to work through college, but today college students simply can't earn enough money to make any reasonable dent in the cost of their education. I could back in the day, and probably you could, too, but those days seem to be over at most big 4-year institutions.

Instead, the pressure to work too many hours often causes undue stress on students and results in poor grades. I'm a college professor, used to work at a big state school, and I saw it all of the time: Students not learning what they are going to school to learn because they are working too many hours. Sometimes they had to repeat classes, or they hadn't learned enough to do well in the next course in the sequence.

10 hours a week of work or volunteering or sports should be the absolute max with a full time college student load. Remember, they are in classes with other students who are not working, and some of those other students are actually quite serious and not goofing off at all.

Going to school, if you are doing it right, is a full time job. In fact, it is a 50-60 hours a week job if you are challenging yourself and doing all of the assigned work to maximize what you learn. Go to school as your job, volunteer some in the local community, get some exercise, go to church if that is important to you, and try to get enough sleep . . . that's a full week.

I am going to pay for my own kids to get through college. Period. No amount of "but it would be better for them to work" is going to change my mind. The only working I did that was useful was internships in the field I was studying and tutoring (and these generally pay better, but these jobs are also nearly impossible for freshmen to get.) Even the tutoring was only beneficial when it was just a few hours per week. Delivering pizza and cashiering at Au Bon Pain and folding clothes at the Gap . . . none of these helped me.

The odds at this point seem very high that my kids will end up with athletic scholarships (which is functionally working during school.) I will still emphasize to them that they should only go that route because they enjoy playing . . . otherwise just don't play, or play intramurals or on the club team, concentrate on studies, learn as much as you can, and be a normal student. Get the highest grades that lead to the highest paying jobs or best graduate schools. Profit. YMMV.

thumbs up.

My son works 10 hours a week in the lab at college, and volunteers in a different lab as well. He is president of the school's honor society and president of the academic club in his department. He is also a member of an academic club generally reserved for grad students.

He interned this summer and last in his field and (mostly) paid his way on the internship. (We paid for the plane tickets).

He has made the deans list with distinction every semester and is on track to graduate a semester early.

He's doing great. He does not need another burden on him.

My daughter works 10 hours a week at the library and raises seeing eye dogs for the blind as a volunteer. She's also a big sister.

She's also in the top 10% of her class and should have enough AP credits to take a semester (or two) off of her time at college.

They both also have about $16k in savings. I want them to have that available to them when they graduate.

And again, this post is not in the SLIGHTEST about me being able to afford their college. I have that. I just don't have it liquid. that's the issue here.

rockeTree

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Re: House Rich - Cash Poor
« Reply #31 on: July 23, 2018, 06:08:30 AM »
You seem very concerned that someone might be saying you can’t afford it- obviously you have the wealth, you just can’t access it without making changes. Folks are brainstorming on what changes might suit your needs best is all.

You need an extra 16kish per year over the next three years if you start now. If you do the case study even if you don’t share it you can likely get a couple hundred a month there- it tends to be clarifying. If you have any hobby related stuff you won’t need when you move you could sell it. In extremis you could cut back your savings a couple hundred a month for three years too, though I’d use a HELOC first since the rate likely beats your marginal tax rate. But you worry about debt and I get that.

You have a big nice house in a high rent area and the kids aren’t going to be around as much in this period - can you rent out part of it? Depends on your layout but might be less inconvenient than moving twice, especially if the burden of the move will fall hard on your disabled spouse.

reeshau

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Re: House Rich - Cash Poor
« Reply #32 on: July 23, 2018, 07:58:12 AM »
Coming into the discussion after quite a lot of conversation, just to throw out this bit of heresy, since a lot of options have been proposed and rejected:

Your case study says your wealth is tied up in your house and retirement funds.  There has been a lot of discussion about unlocking some of the house, and how to do that.  But what about the retirement side?  If you are maxing out your 401k and doing a Roth on it (somehow, you got to this big number, right?) then simply suspend your retirement contributions during this period.  The stock market is at historically high P/E's, you don't want to take on more debt, and you already have "enough" (in percentage terms) in retirement anyway:  your pinch might be to get some nimble money, rather than maximized tax benefits.

Of course, you lose out on any employer match, as well as appreciation.  But if you are looking to retire "soon," anyway, then the appreciation won't make much difference to your trajectory.  With this option, you avoid the debt of HELOC / student loans, and you don't force the already-large decision to move into timing dictated by the unrelated factor of college timing.

This wouldn't be my own choice, of course, but it strikes me that this has, so far, been a sacred cow or assumed to be hands off in this discussion.  But I think, in this case, it may better address the concerns of the OP's finances and priorities.

asiljoy

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Re: House Rich - Cash Poor
« Reply #33 on: July 23, 2018, 08:12:10 AM »
It's been awhile, but undergrad loans used to be super cheap interest-wise and you could defer payments for them for the time the student was at least getting part-time credits; for your son, that'd be up to 5.5 years with the 6 month grace period. Still might be the best option to get the loans starting with your son, pay what you can keeping the interest costs down, and give your self time to save what you need/come up with a better plan.

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #34 on: July 23, 2018, 03:54:11 PM »
Coming into the discussion after quite a lot of conversation, just to throw out this bit of heresy, since a lot of options have been proposed and rejected:

Your case study says your wealth is tied up in your house and retirement funds.  There has been a lot of discussion about unlocking some of the house, and how to do that.  But what about the retirement side?  If you are maxing out your 401k and doing a Roth on it (somehow, you got to this big number, right?) then simply suspend your retirement contributions during this period.  The stock market is at historically high P/E's, you don't want to take on more debt, and you already have "enough" (in percentage terms) in retirement anyway:  your pinch might be to get some nimble money, rather than maximized tax benefits.

Of course, you lose out on any employer match, as well as appreciation.  But if you are looking to retire "soon," anyway, then the appreciation won't make much difference to your trajectory.  With this option, you avoid the debt of HELOC / student loans, and you don't force the already-large decision to move into timing dictated by the unrelated factor of college timing.

This wouldn't be my own choice, of course, but it strikes me that this has, so far, been a sacred cow or assumed to be hands off in this discussion.  But I think, in this case, it may better address the concerns of the OP's finances and priorities.

GREAT insight. I really had not considered it at all -- and I'm not sure that's how to go, but it that is worth looking into. thanks.


P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #35 on: July 23, 2018, 03:56:56 PM »
You seem very concerned that someone might be saying you canít afford it- obviously you have the wealth, you just canít access it without making changes. Folks are brainstorming on what changes might suit your needs best is all.

You need an extra 16kish per year over the next three years if you start now. If you do the case study even if you donít share it you can likely get a couple hundred a month there- it tends to be clarifying. If you have any hobby related stuff you wonít need when you move you could sell it. In extremis you could cut back your savings a couple hundred a month for three years too, though Iíd use a HELOC first since the rate likely beats your marginal tax rate. But you worry about debt and I get that.

You have a big nice house in a high rent area and the kids arenít going to be around as much in this period - can you rent out part of it? Depends on your layout but might be less inconvenient than moving twice, especially if the burden of the move will fall hard on your disabled spouse.

Another great suggestion. I have thought about that.

who ever rented it would necessarily be in our space at least to some extent. with the right renter -- sure!

if something falls in my lap on that front I'd jump at it --  a cousin relocating and looking for a place, etc.

Not sure how to go about finding a stranger to do that though. . . I'm sure there's a website for that. You inspired me to google that. thanks.


CrustyBadger

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Re: House Rich - Cash Poor
« Reply #36 on: July 23, 2018, 05:59:09 PM »
Pdiddy, would your daughter consider taking a "gap year"?   A lot of students I know (including very highly motivated/good scholars) are doing that nowadays.  They work very hard all through high school, get into their preferred school, then take a gap year and work, earn some money, and basically recuperate from the high pressure academic high school year.

This would mean only one year of overlap with her older brother.  She could earn some money, take out a loan, and you could also have one more year to save up the cash.

affordablehousing

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Re: House Rich - Cash Poor
« Reply #37 on: July 24, 2018, 03:04:27 PM »
OP, I think your kids will really appreciate your taking the burden of college off of them. It gives them the freedom to decide to do what they want, and to be MMM followers, or not. I do think you're trying to "will" this into being an easier situation. College, even at state schools, is expensive, especially two kids at once. I would not remortgage your house, nor borrow from retirement, and instead try to find the cheapest loans you can find. If your kids can't get scholarships, efficient borrowing is the next best bet.

Other than that, it sounds like this has brought up some life anxiety. What do you preference- early retirement, house location, kids not taking on any school debt. Assuming you don't want to inconvenience anyone, just take out the debt, keep working, and if anything maybe you can figure out how to make more money to accelerate retirement.

Villanelle

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Re: House Rich - Cash Poor
« Reply #38 on: July 25, 2018, 07:41:56 AM »
You seem very concerned that someone might be saying you canít afford it- obviously you have the wealth, you just canít access it without making changes. Folks are brainstorming on what changes might suit your needs best is all.

You need an extra 16kish per year over the next three years if you start now. If you do the case study even if you donít share it you can likely get a couple hundred a month there- it tends to be clarifying. If you have any hobby related stuff you wonít need when you move you could sell it. In extremis you could cut back your savings a couple hundred a month for three years too, though Iíd use a HELOC first since the rate likely beats your marginal tax rate. But you worry about debt and I get that.

You have a big nice house in a high rent area and the kids arenít going to be around as much in this period - can you rent out part of it? Depends on your layout but might be less inconvenient than moving twice, especially if the burden of the move will fall hard on your disabled spouse.

Another great suggestion. I have thought about that.

who ever rented it would necessarily be in our space at least to some extent. with the right renter -- sure!

if something falls in my lap on that front I'd jump at it --  a cousin relocating and looking for a place, etc.

Not sure how to go about finding a stranger to do that though. . . I'm sure there's a website for that. You inspired me to google that. thanks.

There are programs the bring over school-aged kids from China to attend American private schools.  My BIL did this, having a Chinese girl live with them for a school year.  IIRC, they got $800 per month (but had to provide room and board, as well as basic parenting, so this may not appeal to you if the idea of having a 10 year old child again doesn't appeal to you).  Similarly, there are programs for international college students, helping them find housing.  Generally, you'd be committing to a school year, though details are going to vary.  But that means it's only about 9 months, so even if you find it unappealing, it's not a super long term commitment. Assuming you live near any universities, you could contact their international students programs to see if they have something like this. 

Bicycle_B

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Re: House Rich - Cash Poor
« Reply #39 on: July 25, 2018, 03:04:17 PM »
OP, based on your own comments, your vision of retirement doesn't include owning your current house. Really, you just own it because it was useful in the past.

I support the sell it, rent in town until you leave, and buy what you want later plan. This will give you flexibility. If you have the scenario in real life where it turns out that buying the $300k shore house makes sense in a few years, you can do that. If your parental care issues make you choose a different option, you'll be ready for that. Life has already told you that the old era is ending and an uncertain new one is coming. The one thing you know you need to do is sell the old house. So sell it. 

You don't want to be stuck with multiple decisions and hassles at the exact moment your parents really need you. Get the sale done. Your rent in town will be a much smaller commitment. What you need going forward is max flexibility, minimum hassle.

PS. I recently spent 2.5 years as a guardian of a parent in their final years, then some time resolving estate details, soon (let us hope) to be completed. Get ready.
« Last Edit: July 25, 2018, 03:07:10 PM by Bicycle_B »

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #40 on: July 26, 2018, 04:57:07 AM »
OP, I think your kids will really appreciate your taking the burden of college off of them. It gives them the freedom to decide to do what they want, and to be MMM followers, or not. I do think you're trying to "will" this into being an easier situation. College, even at state schools, is expensive, especially two kids at once. I would not remortgage your house, nor borrow from retirement, and instead try to find the cheapest loans you can find. If your kids can't get scholarships, efficient borrowing is the next best bet.

Other than that, it sounds like this has brought up some life anxiety. What do you preference- early retirement, house location, kids not taking on any school debt. Assuming you don't want to inconvenience anyone, just take out the debt, keep working, and if anything maybe you can figure out how to make more money to accelerate retirement.

You're right this is causing some low grade, first world problems, level anxiety.

I don't like having so much of my net worth tied up in a non-income producing asset -- especially when I need more income.

I also don't "love" my job, and am a little restless and eager for some new challenges. Thus the lure of the shore is calling to me.


P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #41 on: July 26, 2018, 04:58:54 AM »
OP, based on your own comments, your vision of retirement doesn't include owning your current house. Really, you just own it because it was useful in the past.

I support the sell it, rent in town until you leave, and buy what you want later plan. This will give you flexibility. If you have the scenario in real life where it turns out that buying the $300k shore house makes sense in a few years, you can do that. If your parental care issues make you choose a different option, you'll be ready for that. Life has already told you that the old era is ending and an uncertain new one is coming. The one thing you know you need to do is sell the old house. So sell it. 

You don't want to be stuck with multiple decisions and hassles at the exact moment your parents really need you. Get the sale done. Your rent in town will be a much smaller commitment. What you need going forward is max flexibility, minimum hassle.

PS. I recently spent 2.5 years as a guardian of a parent in their final years, then some time resolving estate details, soon (let us hope) to be completed. Get ready.

yeah, the one thing at a time approach has been dawning on me. renting makes some sense. I could even spend a few months with the in laws while looking not ideal, but an option.

thanks.

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #42 on: July 26, 2018, 05:01:25 AM »
Pdiddy, would your daughter consider taking a "gap year"?   A lot of students I know (including very highly motivated/good scholars) are doing that nowadays.  They work very hard all through high school, get into their preferred school, then take a gap year and work, earn some money, and basically recuperate from the high pressure academic high school year.

This would mean only one year of overlap with her older brother.  She could earn some money, take out a loan, and you could also have one more year to save up the cash.
That is an interesting question. I'll talk to her about that.

I think at first she would reject it, feeling like she doesn't want to be the only one of her friends not going off to college. But maybe when she thinks about some of the options that could create for her, she might consider it.

I'll have to approach the topic obliquely. "Are any of your friends talking about a gap year? If you did one, what would you do?"

thanks for the insight. that would not have occurred to me.

Villanelle

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Re: House Rich - Cash Poor
« Reply #43 on: July 26, 2018, 06:53:19 AM »
Pdiddy, would your daughter consider taking a "gap year"?   A lot of students I know (including very highly motivated/good scholars) are doing that nowadays.  They work very hard all through high school, get into their preferred school, then take a gap year and work, earn some money, and basically recuperate from the high pressure academic high school year.

This would mean only one year of overlap with her older brother.  She could earn some money, take out a loan, and you could also have one more year to save up the cash.
That is an interesting question. I'll talk to her about that.

I think at first she would reject it, feeling like she doesn't want to be the only one of her friends not going off to college. But maybe when she thinks about some of the options that could create for her, she might consider it.

I'll have to approach the topic obliquely. "Are any of your friends talking about a gap year? If you did one, what would you do?"

thanks for the insight. that would not have occurred to me.

Even a gap half year gets rid of 1/4 of your cash flow problem.  I'd still sell the house--a house you know you don't intend to keep and that is largely responsible for the stress you say you feel over having so much of your net worth tied up in one thing--but this could be in conjunction with that.  Just deferring to a Spring semester start only puts her one semester later.  And if might even make financial sense for you to dangle some sort of incentive--a cheap ticket to Europe (she funds the rest of the travel) if she finds a friend to go with her for 3-4 weeks, or matching 1/2 of what she earns working during that time (up to a cap), or whatever you think her currency might be.  A gap year is a great solution, and if she isn't on board with that, a gap semester might be one more piece of this puzzle for you.

DoNorth

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Re: House Rich - Cash Poor
« Reply #44 on: July 26, 2018, 07:42:02 AM »
OP, based on your own comments, your vision of retirement doesn't include owning your current house. Really, you just own it because it was useful in the past.

I support the sell it, rent in town until you leave, and buy what you want later plan. This will give you flexibility. If you have the scenario in real life where it turns out that buying the $300k shore house makes sense in a few years, you can do that. If your parental care issues make you choose a different option, you'll be ready for that. Life has already told you that the old era is ending and an uncertain new one is coming. The one thing you know you need to do is sell the old house. So sell it. 

You don't want to be stuck with multiple decisions and hassles at the exact moment your parents really need you. Get the sale done. Your rent in town will be a much smaller commitment. What you need going forward is max flexibility, minimum hassle.

PS. I recently spent 2.5 years as a guardian of a parent in their final years, then some time resolving estate details, soon (let us hope) to be completed. Get ready.


Highly recommend what you're pursuing.  I moved to the lake, built a house.  After doing white collar work for awhile, swinging a hammer for a couple of years on my own project was just what I needed.  Even my worst day insulating my non-heated house in the middle of a northern Michigan winter still beat sitting in an office all day.  yeah, the one thing at a time approach has been dawning on me. renting makes some sense. I could even spend a few months with the in laws while looking not ideal, but an option.

thanks.

P Diddy from Madison

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Re: House Rich - Cash Poor
« Reply #45 on: July 26, 2018, 01:49:19 PM »
You seem very concerned that someone might be saying you canít afford it- obviously you have the wealth, you just canít access it without making changes. Folks are brainstorming on what changes might suit your needs best is all.

You need an extra 16kish per year over the next three years if you start now. If you do the case study even if you donít share it you can likely get a couple hundred a month there- it tends to be clarifying. If you have any hobby related stuff you wonít need when you move you could sell it. In extremis you could cut back your savings a couple hundred a month for three years too, though Iíd use a HELOC first since the rate likely beats your marginal tax rate. But you worry about debt and I get that.

You have a big nice house in a high rent area and the kids arenít going to be around as much in this period - can you rent out part of it? Depends on your layout but might be less inconvenient than moving twice, especially if the burden of the move will fall hard on your disabled spouse.

Another great suggestion. I have thought about that.

who ever rented it would necessarily be in our space at least to some extent. with the right renter -- sure!

if something falls in my lap on that front I'd jump at it --  a cousin relocating and looking for a place, etc.

Not sure how to go about finding a stranger to do that though. . . I'm sure there's a website for that. You inspired me to google that. thanks.

There are programs the bring over school-aged kids from China to attend American private schools.  My BIL did this, having a Chinese girl live with them for a school year.  IIRC, they got $800 per month (but had to provide room and board, as well as basic parenting, so this may not appeal to you if the idea of having a 10 year old child again doesn't appeal to you).  Similarly, there are programs for international college students, helping them find housing.  Generally, you'd be committing to a school year, though details are going to vary.  But that means it's only about 9 months, so even if you find it unappealing, it's not a super long term commitment. Assuming you live near any universities, you could contact their international students programs to see if they have something like this.

Another great idea!

I live in a town with 2 colleges. With the kids off at school, my wife might actually appreciate the company. And with her disability, it would be nice to have someone around a bit more when I'm at work.

Really good thinking.

FireHiker

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Re: House Rich - Cash Poor
« Reply #46 on: July 26, 2018, 02:58:47 PM »
It's been awhile, but undergrad loans used to be super cheap interest-wise and you could defer payments for them for the time the student was at least getting part-time credits; for your son, that'd be up to 5.5 years with the 6 month grace period. Still might be the best option to get the loans starting with your son, pay what you can keeping the interest costs down, and give your self time to save what you need/come up with a better plan.

I've been thinking about this ever since Sol mentioned it in the other college thread. If it's a matter of cash flow when two kids are in school at once, doing the interest-deferred loan for the overlap and then just paying it off in the two years afterwards (since you know you can cashflow one at a time) seems like a really good option. I don't know how difficult it is to qualify for an interest-deferred loan, but it's definitely worth researching. It might be better than a HELOC because interest wouldn't accrue until graduation so hopefully you could pay it off quickly when the time comes.

I'm in a similar position to you, OP, where I plan to pay in-state undergrad for all three of my kids (although, my motivation is because I got NO help from my parents and I don't want to do that to my kids). My oldest has one more year of high school, and we'll cash flow his schooling as he goes. There are 9 years between him and #2, but #2 and #3 will have two years of overlap. Our tentative plan is indeed to sell the house, downsize somewhere cheaper, and pay for college for #2 and #3 with the excess from selling the house when the time comes, since we SHOULD be FI by then.

Anyway, I don't have any suggestions beyond what others have already shared, but definitely check into deferred-interest loans. That wasn't something I'd even considered until Sol mentioned it, and it may be a reasonable way to cover gap when you have two in school at once. Good luck.