Author Topic: Stuck in a vicious cycle  (Read 8142 times)

EEK!

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Stuck in a vicious cycle
« on: November 15, 2012, 11:20:54 AM »
I feel stuck. I used to be so much better at managing my money back when I was dirt poor than I am now that I have an average income.  I've been following along with MMM for a while now and thought I'd throw my situation out there to solicit some ideas from others. I'm very impatient to get out of debt but I just seem to keep digging myself a deeper and deeper hole. A little over a year ago I took the plunge and bought my own house. It's turned out to be a real money drain!

Okay *deep breath*.

Here are the numbers:

Income:   
Take home pay = $2,800.00
Rental Income (from roommates) = $450.00    
Rental income varies between $450 and $900; I rent two rooms out but haven't been able to keep people there very consistently. A couple times I've also hosted exchange students and even though you aren't supposed to profit off those I always had some money left over after paying their expenses.

Total    monthly income = $3,250.00    (a little more when I can keep a second roommate there but in the end the only income that I can truly count on is my $2,800 monthly from my salary)   

Monthly bills:                
Mortgage= $1,164.00, $162,000.00 balance @ 4.875%.
This includes PMI payment of $62/mo; have about 12 percent equity based on Zillow "Zestimate" or 9 percent based on my original appraisal. Once I get to 20 percent of the original appraisal the PMI goes away. I do make extra payments since I split it into biweekly rather than monthly.

Home improvement loan = $200.00, $20,000.00 @ 4%   Most of this is to try to decrease my heating, but also to get off of oil.

My previous heating bills were about $300 per month. Don't know what they will look like now that I'm on electric and am well insulated.  I can probably get them to take this down about $50 now that my final bill is in (it was less than the estimate).

Home improvement loan= $85.00 $1,500.00 @ 9% Almost paid off, been aggressively putting as much as I can toward it.

Student loan = $400.00, $80,000.00 balance @ 4.85% Currently on forbearance so I can have money left over for food, etc.

Cell = $75.00 - Thought about paying the early termination and going with Google Voice and prepaid

Garbage= $25.00    

Water/Sewer = $65.00 (This is the mininum payment regarless of if I use any)

Internet (a must have for renters) = $55.00          

Netflix = $8.00 (this and going to free meetup.com groups are really my only sources of entertainment)   

Pest control = $85.00 (Thought about getitng rid of. There were termites when I first moved in.)

Car Lease = $260.00 (2.5 years remaining, no option to transfer or terminate)

Gas = $50.00          

Car Insurance = $80.00          

House Repairs and maintenance = $500.00 This is an average over the last year. Hopefully I'm all caught up on repairs and maintenance for a while.

Electric = $40.00 was running about $40 a month. Will go up now that I'm using electric heat (ductless heat pump plus radiant heaters in rooms)

Total bills =  $3,092.00    

As you can see most of my expenses are related to the house in some way (as is some of my income). My total bills almost equal my total income leaving little left over for food, etc. (I've solved this by first using up all my savings and then putting student loans on forbearance but that is not sustainable). Even leasing the car was related to the house. I moved from the city to the suburbs in order to be able to buy a place of my own but they cancelled all buses near place a few months later so I felt stuck so I broke down and got a vehicle. Probably shouldn't have gone with leasing a new car, but it's too late for that now since the lease terms don't let me terminate or transfer.

I have moments where I think about giving up the house and going back to renting but now the total house debt including those improvement loans is more than I could sell it or rent it for after expenses and transaction costs (what was I thinking!?). I had a property management company look at it and they said I could get maybe $1,000 a month after their fees, that's less than the mortgage (plus I already have some income from renting rooms that would offset that).  Also, since I made the transition from renter to owner, rents have gone up so much locally that I'm looking at $1,200 for a studio apartment should I move.  There are some places I’d qualify for “low income” housing that would run about $800 in the suburbs to $1,200 in the city (closer to my work). If I do give up home ownership I could also rent a room in a rooming house for about $600 a month.

Oh, as for my personal situation, I am a 40 year old single guy who would like to NOT be single but I don't feel like I can afford to date (who the heck wants to date someone who is a financial burden and/or a cheapskate?).  I have a master’s degree in community development and environmental science bachelors plus about 6 years’ experience in economic development (I graduated about 6 years ago).  I don’t have particular marketable skills beyond the basics (good with computers, office type stuff, research skills, some basic gardening skills). Absolutely NOT very handy with tools.  Wish I was so I could be more independent with house repairs.

Any thoughts are appreciated.

Jack

  • Magnum Stache
  • ******
  • Posts: 4726
  • Location: Atlanta, GA
Re: Stuck in a vicious cycle
« Reply #1 on: November 15, 2012, 11:47:26 AM »
  • How big is your house, and how is it configured? Is there any opportunity to, for example, move yourself down to the basement and rent out the entire main floor for (significantly) greater than $900?

    By the way, why would you have to pay more to rent ($1200 for a studio in the suburbs, or $600 for a room) than your tenants would be paying to rent from you ($1000 + property management fees for them to rent your whole 3-bedroom house, or $450 to rent a room)? Either your property is sub-standard or you need to jack up your rates.
  • Watch what the pest control guy does next time he comes around (or research it on the Internet), then cancel it and do it yourself.
  • Could you make more money if you found a job in environmental science instead of economic development? (And would you want to make the switch? -- If not, I understand; I could be a software developer but right now I'm a civil engineer instead.)
  • What do you mean, "the [car] lease terms don't let me terminate or transfer?" If you quit paying and hand them the keys, how painful would they be able to make it for you?
« Last Edit: November 15, 2012, 11:50:14 AM by Jack »

Zaga

  • Magnum Stache
  • ******
  • Posts: 2730
  • Age: 41
  • Location: North of Pittsburgh, PA
    • A Wall of Hats
Re: Stuck in a vicious cycle
« Reply #2 on: November 15, 2012, 12:13:03 PM »
My opinion is your house is eating you alive.  You pay 42% of your guaranteed take home pay to just your mortgage (52% if you include your home improvement loans)!  No wonder you are feeling the pinch!  It's harsh, but I'd recommend selling that house so you can have a life again.

AJ

  • Pencil Stache
  • ****
  • Posts: 906
  • Age: 37
  • Location: Oregon
Re: Stuck in a vicious cycle
« Reply #3 on: November 15, 2012, 12:35:22 PM »
My opinion is your house is eating you alive.  You pay 42% of your guaranteed take home pay to just your mortgage (52% if you include your home improvement loans)!  No wonder you are feeling the pinch!  It's harsh, but I'd recommend selling that house so you can have a life again.

Yes, this. That is way too much house for your income, especially if you are paying other people to maintain it for you. You need to either significantly decrease your housing costs (as in, be the guy renting a room for $450) or significantly increase your income. Know that if you sell the house, the home improvement loans will follow you (I assume since you have PMI that you don't have equity to borrow against).

As for dating, financial savvy is important but it isn't everything. Being hot and healthy and confident and interesting can outweigh past mistakes. Dating doesn't have to be expensive. The last date I went on cost me $9. Met for drinks, he bought the first round, I bought the second, and I never asked his income. The big turn off is someone who sucks at money and doesn't want to learn - or blames "the man" for his mistakes. If you know what you did wrong, have a plan to fix it, and are aggressively pursuing that plan, that can demonstrate humility and ambition.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5218
Re: Stuck in a vicious cycle
« Reply #4 on: November 15, 2012, 12:36:07 PM »
What's your gross pay?  Are you having the correct amount withheld now that you are a homeowner?  What's going into retirement?  Are you getting paid health insurance?

What are your job prospects?  Can you expect promotions at your current employer?  How soon?  Are there better paying opportunities in your field?  Could you find some side work to help you dig out of the hole?

What type of loan do you have on the house?  Are you eligible for a refinance?

The house is definitely burdensome as currently structured.  The student loans are the elephant in the room.  Some changes are in order, but more information is needed before I would say what I would do in your shoes.

Captain and Mrs Slow

  • Bristles
  • ***
  • Posts: 414
  • Age: 60
  • Location: Munich Germany
Re: Stuck in a vicious cycle
« Reply #5 on: November 15, 2012, 02:11:51 PM »
I agree it's your house that is killing you!!!!

1. If you walked away today, i.e. sold at market value how much would you still be in debt?

2. What are rents in a commute free zone (i.e. you sell the car walk bike to work)?

3. How would your financial situation change if you were to become the room mate instead of the landlord?

Yes all of those options suck big time but as or as MMM likes to say, . It is a HUGE, FLAMING EMERGENCY!!! I personally don't see how long term you can avoid bankruptcy, better to take the bull by the horn while you can!!!
Do keep us posted too many people ask for help and then never follow up
« Last Edit: November 15, 2012, 02:26:40 PM by Captain and Mrs Slow »

mm1970

  • Walrus Stache
  • *******
  • Posts: 8704
Re: Stuck in a vicious cycle
« Reply #6 on: November 17, 2012, 06:29:54 PM »
The house is killing you.  Why you would buy a house when you have $80,000 in college debt (OMG!) I don't know. Water under the bridge though. 

Off or kinda-on topic, is there a "rule of thumb" on how much to borrow for a college education?  Like, when you buy a house, keep the cost at 28% of your income type-thing? 

Example: average salary with this degree after 5 years is X, so don't borrow more than X times Y. 

Just wondering.

NestEggChick (formerly PFgal)

  • Stubble
  • **
  • Posts: 238
  • Location: Boston-ish, MA
    • Nest Egg Chick
Re: Stuck in a vicious cycle
« Reply #7 on: November 17, 2012, 07:38:45 PM »
You know your expenses are a problem.  If you aren't going to sell the house, then you need more income.  See if there's something you can do to earn some extra cash.  Maybe get some seasonal work?  Maybe give computer lessons to people who don't know how to use a word processor?  See what you can come up with.  Also, for the months when you can't rent out a room, maybe https://www.airbnb.com/ or something like it would work.  I don't know of people who've been the landlords through this, but I know people who have rented rooms while on vacation and it sounds fantastic.  You could rent out short term or long term and earn extra cash this way.  My guess is that you could even charge higher rates, and possibly make out better with something like this.

Good luck!

kdms

  • Stubble
  • **
  • Posts: 178
  • Location: Ottawa, Canada
Re: Stuck in a vicious cycle
« Reply #8 on: November 18, 2012, 04:47:14 AM »
I have a master’s degree in community development and environmental science bachelors plus about 6 years’ experience in economic development (I graduated about 6 years ago).  I don’t have particular marketable skills beyond the basics (good with computers, office type stuff, research skills, some basic gardening skills). Absolutely NOT very handy with tools.  Wish I was so I could be more independent with house repairs.


No comments on the house....others have said it already.  I'm going to say DON'T SELL YOURSELF SHORT.  If you're considering moving around in the job market in order to increase your income, go find someone objective to asses YOU -- not just your resume -- and help you rebuild yourself on paper to get those lucrative interviews.  A masters degree and a bachelors in environmental science which took a lot of time, patience and assorted skills to achieve?  And you don't have any marketable skills?  ;) 

5 years ago I was making less than you -- and because someone helped me see past what I did and showed me I was actually doing, I've doubled my income and come a long way from being a lowly marine radio operator, with no marketable land-based skills.... :)

PJ

  • Handlebar Stache
  • *****
  • Posts: 1427
  • Age: 50
  • Location: Toronto, Canada
Re: Stuck in a vicious cycle
« Reply #9 on: November 18, 2012, 01:30:26 PM »
I'm going to say DON'T SELL YOURSELF SHORT.  If you're considering moving around in the job market in order to increase your income, go find someone objective to asses YOU -- not just your resume -- and help you rebuild yourself on paper to get those lucrative interviews.  A masters degree and a bachelors in environmental science which took a lot of time, patience and assorted skills to achieve?  And you don't have any marketable skills?  ;) 
 
 
I just wanted to second this ...

catmustache

  • Stubble
  • **
  • Posts: 139
  • I jumped out of a plane once. So there's that.
Re: Stuck in a vicious cycle
« Reply #10 on: January 25, 2013, 09:24:43 AM »
Coming late to this, but have you thought about renting your house out completely, like for $1,500,  and moving somewhere cheaper? I realize that may not be an option, but if you can find individual roommates, there might be a family out there willing to pay more.

StarswirlTheMustached

  • Bristles
  • ***
  • Posts: 475
Re: Stuck in a vicious cycle
« Reply #11 on: January 25, 2013, 05:17:30 PM »
I'm going to say DON'T SELL YOURSELF SHORT.  If you're considering moving around in the job market in order to increase your income, go find someone objective to asses YOU -- not just your resume -- and help you rebuild yourself on paper to get those lucrative interviews.  A masters degree and a bachelors in environmental science which took a lot of time, patience and assorted skills to achieve?  And you don't have any marketable skills?  ;) 
 
 
I just wanted to second this ...

Insomuch as I feel EXACTLY the same way about my B/MSc combo, we are probably wrong. I am actually considering investing in some kind of career planning guru to help me bang up the resume and give me some confidence.
...okay. I'm actually doing another degree. But I'll probably need the help after, anyway.

EEK!

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: Stuck in a vicious cycle
« Reply #12 on: February 17, 2013, 10:11:29 AM »
Sorry for the late reply. I really appreciate everyone's comments and meant to follow up. I did write a long winded response to all your questions but ended up losing the text before saving it and in the moment didn't feel like rewriting it.  Anyway, a lot has happened and I am in the process of reconfiguring my living situation to something with a lot more breathing room.

Here's the update:

I found someone to buy the house and made a handsome profit! Done. I was really lucky in that I bought at the "bottom" and sold as prices here started going back up. This was my first time buying property and I've learned a lot.

Now I'm looking for a room/apartment and looking forward to freedom from a mortgage. Though the rental market has been CRAZY here the last couple years, it is starting to stabilize as people have started shopping for homes again rather than renting (plus developers are flooding the market right now with new supply).

So now my total situation is much simpler:

28 months left on non transferable/non cancel-able car lease (annoying that I leased the car due mainly to the house location ... after they cancelled bus service there ... but it is what it is). Total left to pay = about $7k to go. I was carless in the city for the previous 11 years and probably will go that way again when the lease is up.

$70k in student loans.

$10k in the bank.

Income = $43k (gross... the amount in my original post is net monthly after 401k, taxes, etc)

No other debt or monthly bills (switched to prepaid wireless and got rid of everything else)... of course I may have some utilities once I find a new place.

Freedom to job hunt wherever and locate myself close to work again. Last month I did almost get an offer that would have been a 25% raise in an area with much lower cost of living (in follow up they said the only reason I didn't was I wasn't already a local!).

One of the challenges working in Downtown Seattle is price of accommodations in the city, which can be double the cost of places in the suburbs. When I bought my house that's why I had to subject myself to an hour bus commute every day... "drive until you qualify" is the real estate mantra here. As for my next place, a lot of cheaper "micro" apartments have gone up around the city (think dorms for adults) the last couple years. They include all utilities in rent too. I may look into that.

So anyway, I shot the hostage and got a relatively clean slate.
« Last Edit: February 17, 2013, 10:37:09 AM by EEK! »

unplugged

  • Stubble
  • **
  • Posts: 136
Re: Stuck in a vicious cycle
« Reply #13 on: February 17, 2013, 10:33:18 AM »
Great update and good job! I wanted to add to the others and tell you not to sell yourself short. Also, if your on this site, your smart not a cheapskate!

Matt K

  • Bristles
  • ***
  • Posts: 332
  • Location: Canada
    • Krull Photography
Re: Stuck in a vicious cycle
« Reply #14 on: February 17, 2013, 11:15:36 AM »
I found someone to buy the house and made a handsome profit! Done. I was really lucky in that I bought at the "bottom" and sold as prices here started going back up. This was my first time buying property and I've learned a lot.
...
So anyway, I shot the hostage and got a relatively clean slate.
That took balls, good on you!

jnik

  • Stubble
  • **
  • Posts: 149
Re: Stuck in a vicious cycle
« Reply #15 on: February 18, 2013, 07:44:32 AM »
Off or kinda-on topic, is there a "rule of thumb" on how much to borrow for a college education?  Like, when you buy a house, keep the cost at 28% of your income type-thing?
No more than first year's salary in total loans over the degree, which is a far cry from what most people do these days but that's sort of the point: a primarily debt-financed degree is a huge drain.

Paul der Krake

  • Walrus Stache
  • *******
  • Posts: 5312
  • Age: 13
  • Location: UTC-10:00
Re: Stuck in a vicious cycle
« Reply #16 on: February 18, 2013, 02:51:48 PM »
If you are anywhere near a university, I would strongly recommend advertising your room availability in departments that have graduate programs.  Typically graduate students are on a budget, but are more mature/stable than most undergraduates.  Ph.D. candidates in history or philosophy or any field where the program takes a long time to complete and financial aid is limited are going to be looking for low-cost housing, and will probably stay around for a long time if they like the environment.  Given your background and interests, you would also do well to advertise in departments that have economic development or environment related programs. 
This is generally good advice, but I'm going to go ahead and add that no matter what you do, DO vet candidates thoroughly. I made the mistake of corresponding solely via email with a PhD student because he was from out of state and the experience was a complete disaster and it got to the point where I dreaded coming back home from work. I thought that questioning the legitimacy of a PhD student to be paranoia. Never again. I like to think of myself as easy going and rather tolerant, but NOTHING in our correspondence could indicated how much of a lunatic that guy was. Meet people in person, and never rush into a decision especially if you have the slightest doubt about someone. Aim for shy female grad student.