Hey all! This is my first post, but I've been following the forums here and MMM articles for years now. I am having a financial dilemma that I would love others input on. In a nutshell, I am "house hacking" (others are helping pay my mortgage), and as of tomorrow when I sell my very expensive (mistake) car, I will have enough - barely - to pay it off. I am considering doing this. Here are some more specific #'s. If anyone wants to chime in I'd love to hear it!
I am a teacher making 38,000/yr, but my contract for next year is not renewed. Unemployed as of July.
Own a house with about 45k equity, and I owe 128,000. I have on a 15 year note at 3.25%. I bought it last fall. I am currently “house hacking” it. After roommates pay rent and I pay bills, I end up paying about 350/month on it.
Separately, I have been tracking all expenses for about 2 years, and know that my monthly spending WITHOUT rent is about $900. (I am selling my car tomorrow to try just biking, so I think this number will go down, but I’m staying conservative).
So, my total living requirements are 1250 currently (900+350 rent). OR if I could get my house paid off, I would have $0 living expense AND make around 550/month from surplus rent after all expenses.
Here is my question. I currently have about 108,000 liquid dollars (some in bank accounts, some in the market). I am selling my car tomorrow for 27,800 (it was a stupid purchase… I’m finally taking steps to fix it). So my total liquid cash after tomorrow is 135,800. I could theoretically pay the house off, have about 8k leftover, and move into a low cost lifestyle where I have no rent and have ~500 passive income per month. I would need another 400/month (to get to my 900 number), which would be pretty easy to get.
This situation really appeals to me philosophically. No debt, simple lifestyle, and only need to make 100 bucks a week to make ends meet.
HOWEVER, I also ran the scenario where I DON’T pay the house off and keep all my money (except for an emergency fund) in the stock market. Here, I would simply withdraw 900 each month to, theoretically, have the same lifestyle as the house paid off scenario. In this case, I assumed I’d only be making about 5% in the stock market, but would end up with about 30,000 left over after 15 years when the house was paid off.
So, in both scenarios after 15 years I own the house outright, but in one where I drawdown from my portfolio I end up with 30k leftover. Mathematically, not paying the house off is 30k better over 15 years. That said, I must admit the idea of having the place paid off, especially if I can’t find another meaningful job for a while, is very appealing. If it really came down to it, I could adopt Early Retirement Extreme’s budget and be fully independent just on my rental income.
What do you guys think? Hold out for the scenario that’s better on paper (not paying house off)? The other thing that makes me uncomfortable with that is it is all based on long term historical averages for the stock market, which I am applying to a 15 year period. I feel like that’s scarier than trusting that I will always have a roommate in a desirable mountain town.
Am I approaching this the right way? Any other calculations I should run? What would you guys do? Thank you!!!!
