Intro & Case Study - Housing

[BeckyinTX]

Hello All,
I’ve been gleaning wisdom and encouragement from your posts for a while and thought it was time to say hello and ask for some objective input on our situation and how best to not make a dumb decision.   Apologies in advance for the lengthy post. We are a single income family with 2 children out of the nest and 4 more yet to launch (1 young adult & 3 teens).  The potential to add more income is hopeful but cannot be counted on at the moment due to some health issues.

Retirement - We are 51 & 52 years old with combined retirement accounts currently at $50,000. 

Employer puts in 3% safe harbor contribution to 401k regardless of our contribution but there is no matching.

Income - Household income currently $70,000 with customary additional bonus of $3,500 and 3% raise. Work 5 minutes from home and good office/mgmt. environment so not really wanting to make a change.

Debt - zero consumer debt outside of mortgage (3.125 % fixed with 9 years to go at standard payment).

Transportation – 2001 Tahoe and 2005 Avalon, so if one dies we would probably get by with one car for a while.  Usually go several months without a repair expense and then incur something in the $500-$800 range.

Medical – current storm cloud and general downer - have everyone insured with high deductible plan/HSA ($5,000 individual/$10,000 family).  Premiums of $1,130 per month and paying for all actual expenses out of pocket after running through HSA for tax benefit.   Upcoming surgery next week with related $3,500 remaining deductible so planning to put the initial cost on 0% credit card and then cash flow through HSA contributions and emergency fund over next two months.

Emergency funds – currently a total of $4,100 with $1,600 earmarked as sinking fund for property taxes accruing for 2019 payment.  Could liquidate for upcoming surgery but thought better to spread out a bit to mitigate risk in case something else comes up.

House – the big question – 1,900 square foot standard 3 bedroom/2 bath home in northern suburb of Dallas-Ft Worth with crazy high home value appreciation and property taxes.  The house is 25 years old, and we are original owners.  We have a lot of equity, but it needs a lot of work due to deferred maintenance and repairs.  We are NOT DIY-type people at all and the house is feeling like a huge financial elephant that either needs to be fed or sold.  It is a hot seller’s market right now and very tempting to just vacate, but still have a lot of people to house.  Our current payment, tax, and insurance is $1,120 and a comparable rental (but in good condition) in the same school district would be $1,900 at minimum, so a huge increase.  Technically, this meets the rent/income qualifying ratio but would be TIGHT.  Likewise, the thought of cash flowing and living with repairs/upgrades seems overwhelming, but also scared to rack up a big home equity debt.  If we sold the house as is I think there would still be enough proceeds to fully fund our emergency fund, replace a vehicle, replace some needed household furnishings, and put the rest in 401k and HSA.

If we stay in the house the to-do looks like this:
•   Probable foundation repair
•   Probable mold remediation
•   Shower wall caved in in master bath so rebuild needed
•   Some cabinet doors/drawers broken or missing in kitchen and bathrooms so replace or repair
•   Refinish and re-seal of 2nd bathroom tub/shower or replace
•   Paint and re-texture all interior and ceilings (remove wallpaper in bathrooms)
•   Flooring needed all interior – tore out carpet 10 years ago and painted concrete slab
•   Replace formica counter tops
•   Replace stove – 20 years old and stopped working
•   Repair or replace dishwasher
•   Replace kitchen sink/disposal and repair plumbing leak
•   Repair damage from leak at hot water vent
•   Replace windows?

The list of positives looks like this:
•   Roof 10 years old and decent shape
•   Exterior Paint-  5 years old
•   Insulation and solar screens added 5 years ago
•   HVAC replaced 5 years ago
•   Toilets replaced 2 years ago
•   Ceiling fans and light fixtures replaced 2 years ago

So, if you’ve made it this far, what would be the best plan of action?  To spend money we really don’t have to maintain our asset or transition to a more expensive rental without the ownership headaches?  Or stay in the house leaving everything pretty much as is so not in debt?  In four years, our youngest will be out of high school and we’ll no longer be tied to the school district so could sell and move elsewhere or could rent in lower cost area.

Thanks so much for your help on this!

Becky

[SunnyDays]

Hmmm, seems like a lot of repairs are needed for not that old of a house.  You don't say how much equity you have - would it generate enough cash flow to help with the increased budget needed for renting?  Don't forget that there are also utility and insurance costs with renting.  I am always partial to home ownership, but that's because it suits my lifestyle.  Would your family be happy in a rental where you have less control over things (and if in a building, a general reduction of space, possibly?)  You could take the difference in your current housing costs and rental costs, and slowly tackle your house to-do list, starting with the most urgent.  If you tried to sell it in it's current shape, you might take a big loss.  As you have a few years until youngest child is gone, this might be the best option, since it allows you the time to fix up the house enough to get top dollar.  And even if the market is less hot at that time, a well-maintained house will sell faster than one in disrepair, which might also save you money.  You could get an appraisal from an agent (or 2, just to make sure they don't low-ball you) so you know what you could get under current market conditions.

[zolotiyeruki]

The bad news is that you WILL pay for the repairs to your house.  The good news is that you get to choose how to pay for them.  You have basically a few options:
1) Ignore the problems and lose boatloads of cash when you sell (or sooner if it gets catastrophic)
2) Pay lots of money now and hire someone to fix the problems (less expensive than option 1, but still a fair bit of money)
3) Fix the problems yourselves.  WAY cheaper than options 1 or 2, but it requires you to roll up your sleeves and get to work

It seem unwise to me to avoid the repairs because 1) you don't want to DIY and 2) you don't want to pay someone else.  This is deserving of a facepunch, which I hereby bestow upon you. :)

You're making $70k in a LCOL area, and don't have enough money for home repairs?  Something tells me your spending could use some work.  You're only spending $13440/year on your house, and you have no state income tax.  You have four dependents.  If I run some rough numbers, I come up with the following:
$70k income
$5k FICA
$4500 Federal Income tax (yay child tax credit!)
$14k PITI
-------------
$56,500  to cover food, clothing, cars, utilities, activities, entertainment, home repairs, etc.  That *should* be plenty.  Absent more details about your spending, I'll hold off on adding a second facepunch, but I suspect there's a lot of inefficiencies in your budget that need addressing.

[affordablehousing]

Just one vote for letting everything stay as it is. That seems like a lot to fail in a 25 year old house maybe you have 15 pet dogs:) Just kidding. But if you are already putting up with a caved in bathroom, a broken stove, and painted concrete for floors, why not just let it ride and keep living like that? At this point, it sounds like any home buyer would consider your house a "gut" job, and not really care about the things that are working, so I would vote, if it works for you, to just live in it as-is.

An example- a little bungalow near us that was in similar condition was sold for $260K. Three months later, is was on the market for $360K with perhaps the investor putting in $25K of work to it to replace the kitchen, bathroom, refinish the floors, and basically cover over everything. One could argue shame on the homeowner for not coming up with the $25K, driving to Home Depot and directing a handyman to just update things, but it does take some initiative, and maybe you'd rather just cut bait. In that case, the home seller was behind on payments and distressed, but if you can handle the payments, I would just let it ride, you've probably hit bottom in terms of how much the home condition has dragged values down.

[tyrannostache]

It sounds like your list of house "to-do" items contains both essentials (foundation, working stove, stop leaks, find out whether you're living with mold) and non-essentials (new windows, change wallpaper, repaint, new flooring). You can live with formica, some broken drawers, and ugly texture, but I'd bet that not having a working stove does a number on your budget!

Can you reprioritize so that list doesn't seem so daunting? Tackle one at a time.

[ShoulderThingThatGoesUp]

You have 6 people to house and the house is a tear-down. I worry it’s uninsurable, but if you can do a cash-out refinance with similar payments and fix the critical issues, will you be OK?