Author Topic: opinion on my situation  (Read 4484 times)

happymama85

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opinion on my situation
« on: April 20, 2015, 10:01:58 AM »
Hello All,

I am a new Mustachian and am looking for some guidance/opinions. Both my husband and I currently work, but my goal is to stop working in 5 years. I am 30 years old and make $49,000-$55,000 depending on Overtime. We own our own house which includes a studio over our garage that we rent out for $650 a month. This makes our mortgage/taxes/insurance/HOA fees come to about $1,650. I am considering refinancing in my own name so my husband will have his credit freed up so we can downgrade our house in about 1 1/2 to 2 years and rent out our main home.

Is this worth the hassle? We would have to put about $19,000 to pay down our mortgage and for closing costs, but we would then pay about $1,100 per month with our studio rented. How do you all balance putting $ into 401K to retire early, put $ into Vanguard or another fund, and save enough $ for a nice down payment on a house to downgrade financially? Any advice would be greatly appreciated.


Calimandc

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Re: opinion on my situation
« Reply #1 on: April 20, 2015, 12:49:57 PM »
Instead of putting that 19K into the house to downsize, why not put it into the mortgage and pay it off sooner, while living in the house?  It's great that you can rent out the studio!  Especially since the timeframe is 1.5 years, it seems like a lot of churn for little return.


RexualChocolate

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Re: opinion on my situation
« Reply #2 on: April 20, 2015, 01:14:21 PM »
How much is your household income? It sounds like your mortgage payment is $2300 a month and you're netting the renter?

Unless you think you can get >1% of the house's value per month in rent, then it makes more sense to just divest it and invest the remainder. Don't be fooled by short term positive cashflow on a house.

aneel

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Re: opinion on my situation
« Reply #3 on: April 20, 2015, 01:27:42 PM »
In most states, "what's yours is mine" in a marriage.  If you're married, you and your husband's debts and incomes would both be considered in a mortgage application.

Dicey

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Re: opinion on my situation
« Reply #4 on: April 20, 2015, 01:28:16 PM »
Do you live in a community property state? If so, changing names may not make any difference. Consult a mortgage or tax professional.

happymama85

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Re: opinion on my situation
« Reply #5 on: April 20, 2015, 02:15:11 PM »
My husband and my income together is just at $100,000. My husband is not on board yet with the many changes that would need to take place to retire early but he is on board with me staying home to live a little slower. The grind of raising kids while working is too much.

As for the mortgage I am in the process and can just use my income, but I am having second thoughts about what we want to do. We ultimately want to downsize and I was considering renting both our studio and main house.

That would mean $19,000 to refinance, $650 rent from studio and $1,750 rent from main house (we rented main house while living with my mom). It would cost $1,700 to pay mortgage and all fees. $700 take away a month.
If we sell it we can take away $40,000 plus the $21,000 already saved up. We wanted to buy a smaller house under $200,000 but preferably $150,000.

RexualChocolate

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Re: opinion on my situation
« Reply #6 on: April 20, 2015, 02:19:52 PM »
What is the value of the main house? If its more than 240k I'd divest it.

I'm also not sure why a refi costs 19 grand?

thd7t

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Re: opinion on my situation
« Reply #7 on: April 20, 2015, 02:24:41 PM »
What is the value of the main house? If its more than 240k I'd divest it.

I'm also not sure why a refi costs 19 grand?
Probably $19k for closing and to payoff to 80% LTV

happymama85

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Re: opinion on my situation
« Reply #8 on: April 21, 2015, 08:06:21 AM »
The entire house value is $345,000 and the $19,000 is for closing costs and yes to get to the 80% LTV ratio.

I am looking into Betterment and Vanguard to see what happens with savings and add to it. Looks like we will sell our house in 2-3 years so I don't want to pay down this mortgage.

thd7t

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Re: opinion on my situation
« Reply #9 on: April 21, 2015, 08:37:36 AM »
What is your monthly PMI?  Is the loan FHA or conventional?  How long have you carried it?  It might be worth paying down to 78% LTV and eliminating PMI, which is probably costing more than it looks like.

RexualChocolate

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Re: opinion on my situation
« Reply #10 on: April 21, 2015, 10:00:05 AM »
The entire house value is $345,000 and the $19,000 is for closing costs and yes to get to the 80% LTV ratio.

I am looking into Betterment and Vanguard to see what happens with savings and add to it. Looks like we will sell our house in 2-3 years so I don't want to pay down this mortgage.

This investment is a stinker relative to alternatives.

For a standalone single family home to be worthwhile to rent, a good rule of thumb is 12% gross return on rent a year. At a market value of 345k, this means your break even amount is $3450/month

This does not come close to that metric. The depreciation of the house will over ride the short term positive cash flow at some point. One month of sitting empty and you're in the red for the year. One bad tenant that takes 5 months to evict and you're in the red for 5 years.

Renting out single family homes can work for some people, but historically you are way, way, way way way way better off dumping your money into VTSAX. I'd argue you have less risk as well.

happymama85

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Re: opinion on my situation
« Reply #11 on: April 24, 2015, 03:04:38 AM »
Thanks for the advice everyone. I do not have PMI on my loan and after calculations we are going to dump everything we can at the loan and plan to pay it off in 5-7 years. I am going to work 2 extra nights a month and make a few sacrifices but that financial freedom will be worth it.