The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Libera on April 25, 2016, 04:11:03 PM
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Hello,
I have been reading here for a few months, but I am still feeling a bit lost on where to start... Hoping someone will he able to give me some advice.
We're in our early thirties, just moved from CA to WA. We have a house in CA that we were looking into selling, but according to realtor we can't sell it for what we paid for it in 2007...
Should we try to rent it?
I have a 401k from previous job that I am rolling into a Vanguard IRA, about 4k I think.
I am enrolled into a new 401k with new job, they match 6% and I am currently contributing 10% into VIIIX.
Have about $20k in debt to pay off... No creditcard debt.
Gross income $55000, of which 10% automatically gets deposited into a savings account.
Spouse makes about $30k which we will hopefully pay off our debt.
We would like to buy land/house up here, are currently living with the inlaws.
So I guess I just need some advice as to how best use our money... Obviously need to pay off debt first, then a place to live, but then? And how much to save while working on those?
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I don't know anything about being a landlord or homeowner, so I can't advise you about the CA house.
An emergency fund comes after and a little concurrent with accruing your down payment. This is 6-12 months of expenses including the new mortgage payment. I'd say, once you have 3 mo worth saved up, you can go ahead with the house purchase.
It's hard to say how much you should save without knowing your expenses, interest rate on your debt, other assets, etc., but people here aim for 50% of their pay. If your goal is to be Financially Independent/Retire Early (FIRE), too, then 50%. You might consider posting a case study for this community to review.
It looks like you put 10% into a savings account, 10% into your 401K, and you get 6% from your employer. That's 26% for you. You'd need another 24%, plus half your spouse's pay as well, to make it to 50%.
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Not enough info to advise in many ways.
How stable are your careers in WA? How long do you plan on staying? What lessons have you learned from being underwater on a house you purchased 8 years ago? What are your goals? interest rates on debt? etc etc.....
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Writing out a full case study will help a lot: http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/ (http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/)
I'm not a real estate sort, so I can't advise there.
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What is the expected rental return? What are your holding costs?
If rent is greater than interest (paying down principle is forced savings and doesn't count in the equation IMO)+ other holding costs I would be inclined to keep it as it is a cash flow producing asset which will increase your ability to save for FIRE.
Other things to consider;
- How much equity you currently have, or is it negative after the fall in price? What would you net after the costs associated with selling.
- What is the opportunity cost of holding this property? Could the cash work harder for you elsewhere?
- Is the market expected to be depressed long term?
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I don't know anything about being a landlord or homeowner, so I can't advise you about the CA house.
An emergency fund comes after and a little concurrent with accruing your down payment. This is 6-12 months of expenses including the new mortgage payment. I'd say, once you have 3 mo worth saved up, you can go ahead with the house purchase.
It's hard to say how much you should save without knowing your expenses, interest rate on your debt, other assets, etc., but people here aim for 50% of their pay. If your goal is to be Financially Independent/Retire Early (FIRE), too, then 50%. You might consider posting a case study for this community to review.
It looks like you put 10% into a savings account, 10% into your 401K, and you get 6% from your employer. That's 26% for you. You'd need another 24%, plus half your spouse's pay as well, to make it to 50%.
Thank you for your reply!
I forgot to mention that we qualify for a VA loan, so won't have to worry about saving up a downpayment :) The biggest thing that is keeping us from buying a house right now is mostly a low credit score... I applied for a credit card and it has already jumped like 70 points! I want to get a good rate so will wait until it is at least 720 or so?
Hoping to use all of spouse's income for savings once debt is paid down, so I think we will be pretty close to 50%!
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Not enough info to advise in many ways.
How stable are your careers in WA? How long do you plan on staying? What lessons have you learned from being underwater on a house you purchased 8 years ago? What are your goals? interest rates on debt? etc etc.....
I just signed a 2 year contract, luckily I'm in a field that has lots of job opportunities, and I signed on with a company that has multiple locations and the option of lateral transfer.
We plan to stay forever, we would like to find a place where we will be able to stay for a very long time.
As far as what we have learned... Don't buy at the height of the market if you ever plan on moving! Also, part of the reason we are underwater, is that we used a city grant for the purchase. City "gave" us $50k, which is interest free and can keep as long as we want, but upon sale of the house they want it back. However, if the house would sell for less than remainder of mortgage+$50k, we only have to pay them back whatever is left after primary lender is paid off. If that makes sense...
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What is the expected rental return? What are your holding costs?
If rent is greater than interest (paying down principle is forced savings and doesn't count in the equation IMO)+ other holding costs I would be inclined to keep it as it is a cash flow producing asset which will increase your ability to save for FIRE.
Other things to consider;
- How much equity you currently have, or is it negative after the fall in price? What would you net after the costs associated with selling.
- What is the opportunity cost of holding this property? Could the cash work harder for you elsewhere?
- Is the market expected to be depressed long term?
I will try to do the case study when I get on a computer, am typing from my phone right now.
Expected rent in the area is between $900 and $1200, our mortgage payment is $700, of which close to $500 is interest. We have $86000 left on the mortgage at 5.125%, but comps in the area are low which makes expected resale value only about $125000. But then there is the $50k grant that would need to be returned upon sale, so no equity, really.
Hope that answers some of the questions!
Thanks everyone for your help, I appreciate it :)
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You have a lot going on and the CA property is something I do not know about.
In the meantime, get out of debt and start building your savings.
NDQ