Sell or stay?

[groove251]

Hey guys,

I'm new here and wanted to say hi and I have a question for ya. I'm really wanting to get rid of my mortgage and can actually do it. I have two scenarios and am struggling with which to do.

I owe $269k on my house in Portland OR. Due to an incoming herd of tech and hipsters, my house is now worth around $850k. It's in a very high demand area. Walkable to everything and right in the middle of town. It's honestly the best location around and houses here typically sell in a day with multiple offers and way over asking price.

Scenario 1:
Even though my yard is small, we could build a smalll ADU (house) in our backyard and rent it for around $1700-$2000 which would cover my mortgage. To do that, I'd have to borrow the cost of the build which is $110k. So my overall mortgage would go up to around $1900 per month, but I'd be making that back in rent. So we could basically live here with the income it would provide. It would destroy what little backyard I do have and it would require me to go into a little more debt to do it (good debt?). I do have a son and wife and we all like it here. I don't have a job that ties me to the city in any way, so no commuting for us either way.

Scenario 2:
Sell it for full value and move to a smaller town about 50 min. outside portland. McMinnville is a cool little town and I could buy a house outright and have about $150k left over which could be invested, etc. We could even buy a duplex in cash and make some rent money there too.

I'd love to hear what you think. We love the area where we live, but it's expensive and I don't want to keep paying for it. Do I stay and ride the wave to even more equity in Portland by building the ADU? Or do I cash out and head to McMinneville?

I'd love to hear any thoughts on it. : )

Cheers,
Lee

[soccerluvof4]

"I'd love to hear what you think. We love the area where we live, but it's expensive and I don't want to keep paying for it. Do I stay and ride the wave to even more equity in Portland by building the ADU? Or do I cash out and head to McMinneville? "

You dont know if its still going to appreciate or not. Cash out at what sounds like a peak , get mortgage free and move to a lower cost of living area if you can imho. And based on the paragraph in your own words. Its what i did as well.

[caracarn]

I would second the opinion of the first responder.

Being able to remove the mortgage expense is a big deal, especially in an area like yours.  There is never a guarantee that things will keep going up (see 2008-).  This would impact your rental income as well, while your mortgage remains the same.  If this was your "forever home" it might be an investment that made sense, but there is nothing that indicates that in your post.  The fact that you have looked for  (and found) other areas you love seems to show your belief that moving is going to happen at some time.  I am always for taking the sure thing in this case versus hoping things keep moving in the right direction over something you have no control over.

[Old Man Mase]

Building the house in the backyard sounds like it might be profitable but is probably unnecessary.   If you think you and your family will be equally/more happy elsewhere then it might be time to cash out and make the move.  It doesn't sound like anything is tying you all down, and if FI is thd goal, capturing all that equity could really speed up the process.

[MerryMcQ]

I went to Linfield, in McMinnville, and I adored the town. Lots of great hiking and camping, beach was 45 minutes away, beautiful wine country, cute downtown, loads of free entertainment at the college...

I don't know what the school system is like there. It is probably very different from Portland Public school district. Also, not much if an economy out there, as compared to Portland.

Rentals seemed like they were pretty geared towards the college set, which means a duplex may be a good idea or may be a pain. That is likely colored by my experience as a college student, though. I saw what college kids did to a rental. :)

[AZDude]

How would the move affect your employment? Do you work remotely? What does your family think?

I would sell and move if it would not cause some sort of godawful commuting situation.

[groove251]

Luckily all my work is from clients outside my area. I'm a children's book illustrator (www.leewhiteillustration.com) and all my clients are in NY. I used to be tied to Portland because I taught illustration at the college, but I quit that and built an online school (www.svslearn.com) which is doing well.

My wife works for me, so we can literally move anywhere. : )

I agree that renting to college kids is a bad idea. But even as a duplex I could write off the whole second side of the house as a business expense if I put my studio over there and worked in it.

[frugaliknowit]

I would definitely NOT build the rental.  More overhead and risk on top of (guessing) high tax bill.  If you had the cash and were committed to holding 10+ years, maybe.

[SeanMC]

Sell and cash out.

Then rent a place in McMinnville until you are sure what you want to buy (sing family house, duplex, etc.) and that you want to stay there.

[2Birds1Stone]

Sell ASAP and cash out. You won the lottery :)

[groove251]

Thanks everyone. I really like hearing your advice! : )

[Lulee]

Lee, first bravo!  That is one beautiful site you have.  Your illustrations are gorgeous and it loads so quickly it took my breath away (in my last job, I spent nearly a decade performance testing our web apps and to see that speed over my crappy connection to the nearby Library’s free guest account was stunning)!!!  I look forward to checking out your school as well.

You sound ready to move on so I would second all the others who say it’s time to sell.  I especially liked the idea of having a property where the business could “rent” a portion.  It gives you the ability to have a clear separation between your work and personal lives and helps financially without all the normal issues having a tenant next door can possibly bring.  Unless, of course, you two are already used to being landlords and so are confident that you’ll find the work involved worth the income stream from renting to tenants.

[TheAnonOne]

Alternate Option

Sell the house for the full 850 or more, and invest it all. Buy the next house with a mortgage, let the dividends pay the bills.

(You'll get around 20-22k from the VTSAX in dividends alone)

[FrugalFan]

I agree with the others about cashing out now if you think you would be happy in the new location. Your illustrations are  gorgeous! We've read one of the books you have illustrated before and I will be on the lookout for others.

[groove251]

Thanks guys! I'm so glad you like the work I'm doing! I have 24 published books so there are a bunch out there. Three more coming out this year too. : )

I am leaning towards selling and you guys are definitely helping solidify that. I love the home, but I've had to take many illustration jobs that I wouldn't have if I didn't need the money. I keep telling my students "the higher your ideals, the lower your overhead" as a mantra when leaving college. My wife and I are pretty thrifty (no car payments or debt other than the mortgage). But dang, that morgage is a big one! Add in the $5800 in property tax and it makes things much harder!

[Thinkum]

I love your illustrations! Nicely put together site as well, kudos!

As to your conundrum, I would not count on those crazy RE prices sticking around, even if they do. I would sell, but only after doing a full evaluation of how life would be in the new place. Like does the new town have all the same stores you frequent, are the schools good (if that is needed), are the property taxes excessive, etc. Being mortgage free is just that, freeing. It dramatically lowers your overhead costs and thus makes it less necessary to make a high amount of money. However, before buying in any new area, make sure to rent for at least a year and really get to know it. Then after you know what's what, if you like it, you will know exactly where you'd rather live.

Good luck!

[FrugalFan]

Is there an easy way to find a list of your books? I've been Googling but haven't been able to find all of them I think.

[skuzuker28]

I'm in the "sell and move" camp as well.  I just read an article recently, can't remember the publication, about assessors reassessing properties with ADUs, resulting in much higher property tax bills than initially anticipated.

[aFrugalFather]

Scenario 3?  Rent out the house and tour the world?

[Catastrophysicist]

Scenario 3?  Rent out the house and tour the world?

Ha! We live in Portland, and are experiencing a very similar scenario, and this is our plan! I absolutely do not thinking Portland housing prices have peaked yet. We live in NE Portland, and houses are selling under the same conditions--on the market for a day, selling for sometimes 100K above asking. There are two sales on our block pending right now under these circumstances. If I were you, I'd just keep an eye on the market for a little longer. If you decide to sell, definitely wait until mid-summer! People are suckers to sell mid-winter. In any case, take a look at the predicted population growth models. The shit is bananas. People aren't going to stop moving here anytime soon.

[groove251]

Yep, we are in the hollywood area (grant park) and it's just crazy. In the summer it's going to be even crazier! I would never sell a house in portland in the winter. The summers are so nice and we have a great big beautiful front porch with a swing.  It will be an easy sell for sure. The portland area is just growing like mad and I agree that the peak hasn't been hit yet (not even close). My realtor said prices will be 1 mil + in 2-3 years. We are already seeing those prices in our neighborhood. That is why the ADU even came into consideration.

We met with a builder this morning and he said the ADU could be done for $120k and be beautiful. I'd lose a ton of my backyard though. I'm leaning towards selling still. Probably July. Here's the house if you want to see it: http://www.zillow.com/homes/2128-NE-40th-ave,-portland-or_rb/

Catastrophysicist, you are planning to move to McMinnville as well? Or are you heading somewhere else? Are you thinking of selling this summer?

[Catastrophysicist]

Catastrophysicist, you are planning to move to McMinnville as well? Or are you heading somewhere else? Are you thinking of selling this summer?

Sorry, didn't mean to be confusing-- I meant that we were planning to make our house a rental, and travel off of the income as suggested by aFrugalFather in 'Scenario 3'.

We live close to Concordia, and while the prices of the houses up here aren't quite in line with the ones in your area, the increase in value percentages tend to be the same. Our house is a 1,100 sq/ft ranch that we bought for 180K 3 years ago. Similar (read: the exact same) houses are selling around the block from us at 300k+. We are still hammering away on personal debt, but once we hit net zero in about a years time, we're thinking that we are going to try and pay off our house in maybe an additional 3 to 4 years. After that we would hypothetically like to save and invest as much money as humanly possible for an additional 3 to 4 years, turn our house into a rental, and living off of the rental money, slow-travel full-time with our kids indefinitely. 'Our' house is currently renting in the area for around 2000/month, which is pure insanity to us.

Your home is gorgeous, and I would imagine that you'd have no trouble selling. However, I do think that you'd have trouble renting it out if you were to ever considered a dream-scenario similar to ours. I've heard that the city is really gouging ppl that are building ADU all of a sudden-- specifically by raising property taxes on builders by such an enormous percent that it sounds like it should be illegal. Check this out: https://accessorydwellings.org/2015/10/22/the-death-of-detached-adus-in-portland-and-what-to-do-about-it/  I also think that the Portland Mercury or WW did a cover article on them recently?

But to your point about selling-- the houses in our area are regularly selling for between 50-100k above the 'zestimate', so it follows that you could possibly cash out by up to 850k or more by summer. That is an effing fantastic return on investment no matter how you look at it. My personal, no real expertise, just living here opinion, though, is to wait it out a little longer.

[groove251]

Thanks for the info! We actually rented our house out last year for a bit. $3000 a month! That's $1500 more than we pay in mortgage, so it stands to reason that we could rent it out and almost live off the income somewhere else. Most houses seem to rent for around $1700ish in the areas we want to live.

Either way, looks like you and I got into the portland housing market at the right time. That's for sure! : )

Note: I talked to the city last week about the property tax issue and it looks like that has been worked out. The problem was they were assessing the whole property when someone put a new adu on it. This is beyond ridiculous of course and people jumped all over it. The city now reassesses the actual land the new adu is on (not the entire lot) and the improvements of having a new structure there. Average tax increase should be around $1600. That will be in next years tax codes in the books. It's not there yet because it was all just decided.

 One question, how would you travel based on rental income? If you rented your house out for $2000 and didn't have any bills, that seems like a good start. But travel is so expensive. Where could you stay that would be cheap enough to have $2k cover all your travel expenses, lodging, and food. I assume you wouldn't be working at that time so $2k seems like it wouldn't be enough. You would home school your kids? I'd LOVE to do that, so let me know your tricks if you got 'em!

[DebtFreeBy25]

I'm going to echo the other posters who suggest you sell and buy another lower cost home. One post that I haven't seen mentioned yet: adding the ADU may impact your house's value if you were to sell in the future. More specifically it's going to change who you'd be marketing to from family's to investors.

Another consideration, do you want to be a land lord? If I remember correctly, Portland's rental laws heavily favor the renter, so you may not want to find yourself on the other end of those protections. Netting $150k and living mortgage-free on the other hand is a great deal any way you look at it.

PS- After reading some of the other posts, I had to check out your work. I was surprised to discover that I've previously encountered your work in the wild. (I'm child-free, but I'm almost positive I've seen some of these characters before.) Your illustrations are really engaging!

[norabird]

Sell and move and congrats!

[Cassie]

Sell and move. This is a great opportunity for you guys to be debt free.

[ohmylookatthat]

Is your child established in school yet or still young?  Might be more difficult to move if he's already in high school?

[groove251]

My son is 5 years old and is starting kindergarten in the fall. So it's fairly easy to move right now. I guess it's easier than when he is older and has established friends, etc.

I'm still on the fence about the whole thing. I really like our location right now, but financially its silly to have all this equity and still be paying a mortgage. Just have to figure out where to go that's cheap enough and still fun to be. The quality of schools in outer suburbs is kinda tough. The public school here in Portland is rated a 10/10. A lot of the ones in the outskirts of portland are around 5/10 ratings. I don't want to sacrifice my son's education for anything. There has to be some good areas for schools. I just have to find them.

Have any of you made similar moves that I am considering. Basically moving from a bustling city to a more suburban type house because it's cheaper?

Thanks for the kind words about my work! I really appreciate it. I'm just finishing up another book this week that comes out next year. I have two that just came out last month too. I should have that list on the website soon! : )

[thedayisbrave]

I'm with the others... sell :)

[norabird]

Hm, your first post seemed much less rooted to your location than your current one. What do you know about the area you're looking to move to? Can you do a trial run by airbnbing a place there? You could rent out your portland house at the same time so it wouldn't be a loss. I live in Brooklyn and the condo my parents bought has appreciated by 300k supposedly, but I wouldn't want to move away, so I know there are other factors. It's just a question of your current priorities.

[yodella]

Your art is beautiful! It reminds me of Chagall. I love it all.

[former player]

There's a lot of people saying "sell", but you and your family like where you live, it's got all the amenities in a walkable area, it's got a great school.  I'm not getting any idea that you need to sell for financial reasons, or that you would be thinking of selling if the value had not shot up.  So really, the purpose of moving would be financial optimisation?  Sometimes people on this forum forget that MMM is not just about financial optimisation: it's also about living a good life without trashing the planet.

It seems to me that as a family you are all pretty settled and happy and have no personal reason to move.   Somewhere cheaper would probably be less satisfactory: that's why it's cheaper.  So if you also have no pressing financial reason to move, I'd suggest staying put.  Someone has to live in these nice houses in nice areas: why not you and your family?