Case Study/ Work Related Advice Needed

[BigBank]

Hello all,

I am a long time information seeker/gather from the forums, but first time poster. I value the advice given here so I decided to try and get some on my own unique situation/dilemma.

Background

I am 24 and recently purchased my first home (Townhouse) in December 2013. It is brand new and just completed last October. I was able to get a first time homebuyer assistance program through the city where they gave me a loan for $40k at 0% for the life of the loan (a silent second) and I had to put down 5% which was $12,200. The total purchase price was $244k and my initial loan amount was $191,800.
The caveat is that if you sell within the first 15 years I have to give the city back the full $40k at closing if the value has stayed or gone up, if I stay 15 years or longer then I only have to give them back 21% of that or $8,400. The townhouse was recently appraised at $290k.

I was working for a large financial institution at the time and I have since left and started a new position with a new company in a different field (stock ticker SHW). My salary is $44,000/yr with potential bonuses of $7-13k. I have been training to be an asst. manager 10 minutes from my home and now they offered me a choice between 2 stores to be an asst. in which is 2 and half hrs away and the other is 5 hrs away. Either one would be a great opportunity because it would put me on the fast track to becoming a store manager within 8-12 months where my salary would be between $60-70k with bonus potential to make it $85-95k total.

In order to take either position I would have to move which would mean needing to rent out my current place and renting an apartment out there. My girlfriend pays $800 towards the mortgage and is willing to move with me, but the problem is I am deep in trying to pay down debt right now.

Income

$2,220 every mth take home from paychecks after 401k,taxes, healthcare
$800 from gf for rent
=$3,020 per mth

$2,220 total of 2 extra paychecks each year take home

=38,460 take home per year

Debt

Credit Cards
$3507.80 at 0% until 1/1/15
$7,210 at 0% until 2/1/15
$5009.35 at 0% until 3/1/15
$3054.95 at 0% until 5/1/15
$11,175 at 0% until 8/1/15

=$29,957.1 I know, I know bring on the face punches :(

Student Loans
$2,366.97 at 6.55%
$10,489.31 at 5.99%
$3,513.85 at 5.35%
$4,300.61 at 4.25%
$4306.72 at 3.15%

=$24,977.46

Mortgage
$190,016.47 on a 30yr fixed at 4.75%

Assets

Retirement Accounts
$15,132 Rollover Ira from last job
$4,148.32 Roth Ira started this year $1,426 to max for 2014 and using as emergency fund
$2,134.09 Current 401k with 25% going into each check

=$21,415.30 total in retirement accounts

Home
$290,000 appraised value

Budget

$1,466.01 for mortgage includes PITI and Hoa
$129.09 to student loan at 5.99%
$30 for electric
$15 for Home Gas
$15 for Water
$70 for cell phone
$125 Verizon Fios (Face punch please)
$440 for Car gas/Groceries/Toiletries/Entertainment
$725 going to finish maxing out roth for this year and debt repayment

My current plan is to max out 2014 roth ira, then pay off the student loan at 6.55%, and any remaining money for the year will go towards the student loan at 5.99%. I figure I should pay the student loans off first as I have plenty of available credit to keep doing balance transfers of the credit cards into oblivion and I only pay 3% when I do it. All the while I pay the minimum on the credit cards until I knock out the student loans and then the credit cards would become my focus.  I also would like to retire early around age 45 which is why my goal is to also max roth ira each year going forward and contribute as much as my employer allows to 401k.

My question is should I move for the possible faster career advancement and try to rent out my home given my debt situation and the fact that I may only be able to get around $1300 in net rent based on the area? I also have the ability to stay in my current area but would take significantly longer (2-3 years) to promote to same position that could only take 8-12 mths by moving and also any other advice or tips for the rest of my finances.

Thank you all !

[MDM]

In order to take either position I would have to move which would mean needing to rent out my current place....

Quick question: is it that you can't sell the current place, or you don't want to sell...?

[BigBank]

In order to take either position I would have to move which would mean needing to rent out my current place....

Quick question: is it that you can't sell the current place, or you don't want to sell...?

It is a little bit of both. I don't think I can sell and completely recoup all sunken costs like the downpayment and the reason my credit cards are so high (flooring, fridge, window coverings, etc). I also saw myself using this place as a hedge against rent prices going up and planned to stay until I had at least 2 kids as it is a 2bd 2.5bath.

[MDM]

Interesting case BigBank.

Appears your plan is feasible (see attached spreadsheet for a "second pair of eyes" look) - even before getting rid of FIOS, etc.

Also appears there are non-financial considerations (e.g. "stay until...at least 2 kids", but current relationship = "gf") that may be beyond the MMM forum scope. ;)

If you can get assessed value for the town house, you would net $46K, correct?  Seems that would cover your CC debt and a big chunk of the SL debt.  Combine that with ~$36K/yr pay increase and it "seems obvious" that you should sell and move.  But I probably don't know "the rest of the story".

[Zoot Allures]

BigBank,

Congrats on the new job opportunities.

I have to say, the impression I get from your post is that a young guy with significant debt got seduced by the allure of homeownership and got way ahead of himself. I realize you just bought the place, but you may want to seriously consider selling it so that you can move to your new town without the hassle and expense of managing a rental property--especially since you don't even expect to cover your mortgage payment with the rental income.

And remember: living below your means is the mustachian way. That includes choosing a living space that meets your current needs, not your imagined future needs.

Also, while it's admirable that you opened a Roth IRA, if I were in your position I would concentrate on getting rid of most of your student loan and CC debt before contributing to the Roth. The same goes for your company 401(k). Contribute just enough to get the company match (if any), and then throw everything else at your debt. Your CC debt might be at 0%, but make no mistake, the fees you pay on balance transfers are adding up. It's not a good idea to keep floating these large CC balances so that you can fund your investment vehicles. You have plenty of time to invest (and enjoy decades of compounding growth) later. Now is the time to get rid of your debt.

[BigBank]

@MDM

Thanks for taking the time to plug the numbers into the spreadsheet. I will definitely use that for reference. I remembered from the terms of the agreement that who ever buys this place within the first 45 years would have to meet income guidelines to be able to get the same city assistance that I received.

Meaning if only 1 person is living here max they could make gross per year is $46k, 2 people is $53k, 3 people $62, etc. The guidelines are really silly and restrictive IMO. Thanks.

@Spine

Yes, you are definitely right that I have gotten in a little too deep and am going to have to take some measures to fix it. Will look into using my Roth contribution money for this year toward my student loans. Thanks.

[frugaliknowit]

I would dump the home since you've got the equity, assuming your appraisal is correct.  It would be too much of a hassle to rent out, especially considering you are leveraged to the hilt.

[cpa cat]

Sell the house and pursue the career opportunities. Take this as a lesson not to rush into homeownership again.

It's usually a mistake to make decisions based on recouping sunk costs. Make the best financial decision with the facts that you're facing today. The money you spent yesterday shouldn't really factor in.

[Numbers Man]

BigBank - Sell the house, you net over $20k-$30k when it's all said and done. Move to make the bigger bucks. That's a really good jump in income potential. And stop buying shit and pay off those credit cards. The student loans are what they are. I wouldn't worry too much about accelerating payoffs on those loans. You can make much more by investing in your 401(k) with appreciation on the assets along with matching and profit sharing if applicable instead of paying off the student loans.