Author Topic: Should I downsize, stay put, or some other option...  (Read 798 times)

Inspector Clouseau

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Should I downsize, stay put, or some other option...
« on: March 09, 2018, 04:11:58 PM »
I posted this on an old blog post but soon realized there was a whole forum where I could ask for advice.

I happened across this blog about 2 years ago and found it immensely refreshing. It got me taking a closer look, a much closer look, at all my spending and overall life decisions. I paid off student loans, got rid of cable, sold my car, cancelled my house cleaning, started going to Costco, et cetera...

Most of these decisions were easy. This on isn't. I would love to get some feedback/advice from fellow Mustachians.

Should I sell my house and buy a smaller one? Both my wife and I have hour long commutes (each way), tech jobs, in San Francisco. We both want to switch careers and work locally. We bought a major major fixer upper and I have been fixing it up for 4 years, hence the increase in value (that plus the insane market). We aren't really sure what to do, but we are thinking that it might be a good idea to sell our big house, even with the low property taxes and low interest rate, and downsize. But it's only a savings of $500 per month, and we actually could put a studio in and make $1200 or more in our current house. We've discussed it so much that we're just confused at this point. Would love some sound advice.

Current loan: $480,000
Current property taxes: $7000
Current interest rate: 3.75%
Total mortgage (including property taxes and insurance)= $2980
Estimated current home value: $1,300,000
Current home: 5 bedroom, 4 bath, with attached room that could be converted to studio apt. Double lot. Private road. Very private, on country road, serene. In the trees.

OR

Proposed load: $250,000
Proposed property taxes: $14,000
Current interest rate: 4.75%
Total mortgage (including property taxes and insurance)= $2400
New purchase price: $950,000
Potential new home: 3 bedroom, 2 batch, regular house in a subdivision

Is it worth it? Doubling my property taxes and getting into a loan with a higher interest rate seems like I could be making a bad move.

Lastly, we think about moving out of the area all of the time. We could pocket that $700,000, own a house outright in another state, and get to hang out with our 2 and 4 year olds, ride our bikes more often, et cetera.. We have no debt and a nice nest egg.  The issue is that we are from the area, have family nearby, aging parents, and a community. It feels like home and we feel very conflicted about leaving it.

Any thoughts/advice would be appreciated.
« Last Edit: March 09, 2018, 04:30:38 PM by Inspector Clouseau »

ejmyrow

  • 5 O'Clock Shadow
  • *
  • Posts: 48
Re: Should I downsize, stay put, or some other option...
« Reply #1 on: March 09, 2018, 10:19:08 PM »
Dear Inspector,
My fiance and I are working on this answer together!

First blunt thought - you have 2 people living in a 5 bedroom house!?@!
Idea: Build the studio (smaller but gorgeous - like a tiny home with the most beautiful materials), move into the studio yourselves, rent out the 5 bedroom, and retire now!

I can tell you love the forest and the "subdivision" doesn't inspire. Find a way to have the Forest - if not this forest, another awesome one.

One other thought - hanging out with 2 and 4 year old sounds fabulous. I would maximize that!

Fiance: If you move into the smaller house, you'll save $6,960 annually (difference in mortgage). This nearly $7000 is post-tax dollars. If you are getting taxed at 15%, it's $8,000, if you're taxed at 25% it's $8,700. If you are paying $7,000 more in property taxes, you're only saving $1000 or $1,700. However, are property taxes deductible? If they are, this could account for more savings. Bigger home also means more electricity, more heating bill, more furniture, larger carbon footprint...  I agree your best option is to build the studio and move into the back studio! If you can rent the 5 bedroom house for $3000 per month, you can contribute $36,000 annually into a retirement account (401k, 403b,457, IRA etc). Since that $36,000 is pre-tax, it will give you an extra 15 or 25% depending on your tax bracket. Run the #s and see how many years that could shave off from your FI plan! Could it be worth it to live in a smaller space if it means a decade less of work?



 

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: Should I downsize, stay put, or some other option...
« Reply #2 on: March 10, 2018, 04:53:09 AM »
I think it makes a lot of financial sense to leave California right now, but if you have family there it still might not be the right move.

Inspector Clouseau

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: Should I downsize, stay put, or some other option...
« Reply #3 on: March 11, 2018, 11:30:21 AM »
Thank you for responding. We bought the huge house only because it was so cheap and in such distress that it was a great deal. Now that we've fixed it up I seems obvious we should downsize. But with the current rates and the property tax the value of selling/buying isn't quite as clear to us. From a pure numbers standpoint I think it's clear that selling and buying a smaller house makes the most sense, even with the property tax gain and the higher interest rates. Lowering your mortgage and chopping your mortgage in 1/2 is obviously a great benefit. The value of quiet, wooded, large lot, versus a regular subdivision house has to be included somewhere in that picture.