Author Topic: Reader Case Study - House, Debt and Waterfront  (Read 2403 times)

househell

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Reader Case Study - House, Debt and Waterfront
« on: September 05, 2014, 11:26:59 AM »
Hello All,

I've been a lurker-wannabe-mustachian for quite a while; I've always enjoyed reading the posts here, there are so many of you who have a better understanding of wealth then I do, and I'm hoping I can get some help with the situation we are currently in.

Myself and my husband currently have a home for sale, that has been on the market for 4 months. Previous to this time, I was obsessed with building a net-zero home, one that did not need oil, or any heating costs, and would run off solar panels. Our current home costs over 3000k a year to heat. It is not sustainable for us. I read a great deal about this topic, and felt compelled to look for a builder in the area that also knew what he was doing in this area. We found one, and signed a contract with him, to put him on retainer for a turn key net zero home. He aims to build us something for less then 300k.

But first, before he can start building we need to sell. And the house hasn't moved. To make matters worse, during this time I was also bargain hunting on land. There are some huge deals on land in this area (central Massachusetts) if your willing to live in the boonies. I managed to convince my employer in Boston to let me work from home 4 days a week, (after reading the advice on Mr. Money's blog about the true cost of commuting) and decided to look for some bargain waterfront land way out there.

Well, a bargain indeed did surface, and I knew that we needed to act fast. The lot was direct waterfront, 4 acres, and 40k. We convinced our builder to get it on contingency, so he did, and now he is doing due diligence on it while we wait to sell.

The problem is, we haven't sold.

My agent let me know the only way our house will sell is if we drop it so low that we would have to borrow to cover the agent's commission. The house is listed at 215k, and we think it would sell for 199 or so (what we owe on it is around 196).

And we are already in debt because of all this.

Right now we owe:

5k (on a cc) due by march (balance transfer to get some liquid capital in our bank account in case we need it for building the house, generally this is not what we normally do)

2.5k ( on cc ) due by oct 2015 (to pay for a fix on the house in order to get it to sell)

5k ( on cc) due by oct 2015 (a student loan)

We have a 10k lending club loan that is $300 a month. (to pay for retainer for builder)

After 9/14 mortgage payment we will owe 196,800 on the house.


We have:

As a family we make  114,500 a year, before taxes.
$7000 in savings
As of right now about a $1500 float in our checking
We also have about 30k in retirement.

We have one car that is underwater by about 7000k that has 4 years left (yes extremely stupid)
and another car that is about break even in value that has 4 years left (again stupid, I know)


So how do we get out of this situation? Rent the home? (it is 200 years old and is in constant need of upkeep, so we are scared of this option) Sell it at a loss? Give up on the waterfront, net-zero dream?

Thanks for all of your advice!



Cheddar Stacker

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Re: Reader Case Study - House, Debt and Waterfront
« Reply #1 on: September 05, 2014, 11:46:40 AM »
I'm just going to be blunt on this one because I think that's what you need right now. You are in a bind because you are making poor decisions. You are spending money before it makes any sense to do so in various areas. You are taking out large loans and paying interest when you have $7K sitting idle in cash.

Here's what I would do:
1) Stop spending money. You make too much of it to be in this position. You are clearly spending too much. I don't care what it's being spent on, it's just too high. Find ways to cut. Cancel Christmas, kill your grocery budget, immediately stop anything you don't absolutely need. You hair is on fire.

2) Work out a deal with the builder to suspend all activity. Don't buy land before you can afford it, another deal will come when you're ready. Don't have him do any more work until you're ready (hint: you're not ready).

3) Use all $7K savings to pay off the highest interest rate debt ASAP. Since the CC's all have due dates, I'll assume they are 0% interest, so that means paying off the lending club debt now.

4) Since you're now spending less money, use ALL extra funds to pay down all CC debts quickly before the promotional interest rates expire.

5) Once the CC debt is gone, start paying down your mortgage to a point where you are not underwater. Keep the house on the market, but don't listen to the agent about lowering the price. You can't afford to. Be patient. Someone might buy it at the price you need. If not, wait until the numbers make sense.

6) When you sell at a price that makes sense, have the builder move forward. Live with your parents for a month if you have to. Get a month-to-month lease in a studio apartment if you have to.

Welcome to the forum, and good luck!

househell

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Re: Reader Case Study - House, Debt and Waterfront
« Reply #2 on: September 05, 2014, 12:17:44 PM »
Thanks Cheddar, I need that kind of blunt response - and outside view on the situation.

Another Reader

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Re: Reader Case Study - House, Debt and Waterfront
« Reply #3 on: September 05, 2014, 01:41:59 PM »
If you can't "sustain" $3,000 in heating costs, how are you going to "sustain" a $300,000 house?  You cannot afford this house, at least not now. 

The fact that you only have $7,000 in savings on your income indicates you have a lot of room to reduce your spending and still lead a comfortable lifestyle.  Analyze your spending (Mint is helpful for this) and cut it substantially.  In your shoes, I would stay where I was, close to the jobs.  Pay off all the debt out of your newly found cash flow and leave the $7,000 for emergencies.  Start saving and investing once the debt is paid off. 

I believe Massachusetts has a number of energy upgrade programs with rebates and/or very low cost financing.  Look into cutting your energy use with these or DIY projects.  Drop the thermostat a couple of degrees.  That's a heck of a lot cheaper than moving to the boonies.

Take your house off the market.  Having it on the market at an above-market price is a waste of everyone's time.  Get out from under the land as gracefully as possible.  "Once in a lifetime" opportunities aren't.  Deals come along all the time.

former player

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Re: Reader Case Study - House, Debt and Waterfront
« Reply #4 on: September 05, 2014, 02:01:57 PM »
Is that direct waterfront land entirely free from flooding issues, taking into account weather extremes and climate change?

Regarding the house you are trying to sell, have you been getting viewings?  If not, you are asking too much.  If yes but viewers are not making offers, your house is not coming up to its billing.

Ignoring the house you own (on which you will be lucky to break even), you currently have net assets of about $9,000.  (30K retirement plus $8.5K savings and float, minus debts of $29.5K).  Which is less than one month's income.  That's pitiful.

Your complete inability to save on an annual income of $114.5K puts you at financial pre-school level: house building is definitely AP level.  Please start from the beginning, take up Mint or YNAB, and put off the house-building dream until you have a track record of financial understanding and responsibility.