Author Topic: Suggestions  (Read 6272 times)

bg2468

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Suggestions
« on: February 11, 2013, 10:20:43 AM »
Hello,

I am brand new to the forum and this is my first post.  I'm writing to see if anyone wanted to offer some advice. I am 27 with a decent income ($75,000), but have made some lingering mistakes. I have drasticully cut spending since then and come up with a plan of action, but there are a couple decisions that I'm unsure of. Financial details are as follows:

Debt
-Mortgage on duplex $153,000 @ 4.875% over 30 yrs. Originated at $159,000, FHA loan w 3.5% down currently paying PMI
-Car loan balance of $5,000 @ 6%.
-$38,000 remaining student loans all @ 5%

Assets
-Duplex purchased at $159,900 (live in half), put 8k tax credit towards renovation to rent out one unit to cover 120% of half the mortgage.
-Car valued conservatively at $9,000
-401k/pension $35,000
-Savings $20,000

My dilemna is that I am saving for an engagment ring and the remaining renovations required to rent out the other half of my duplex. Otherwise, the car loan would be gone. So my question to you is, should I dump about 10k into my duplex increasing the value to ~$185,000 allowing me to refinance to remove PMI and lower the rate to get it rented and cashflowing at ~$300/month? Or sell it without dumping money into it for a clean slate allowing me to focus sooner on other debt repayment? I saved before paying debt so I could get married, but I feel terrible because she is debt free with a healthy positive net worth. I've tried to clean up my finances as best as possible, but she said she doesn't care and wants to be married.

Again, any help is greatly appreciated.

sherr

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Re: Suggestions
« Reply #1 on: February 11, 2013, 11:27:49 AM »
I don't know if there's much advice that anyone here can give you, your problem seems to be deciding which route you would prefer.

If you and your (soon-to-be) fiancée are going to be moving somewhere else anyway then it might just be simpler to sell the duplex as-is and start fresh. On the other hand, if you two want to keep the duplex then it might be worthwhile to go ahead and get the other half rentable and get someone in there as quickly as possible.

If both you and she are ready to get engaged, then I would say that should take priority over purely financial matters. Being engaged (in my opinion) will add additional stability to your life that will help you both really think about what it is that you want to do about financial / living arrangements. I recommend discussing with your SO before making expensive decisions.

As far as refinancing the mortgage goes, that may be beneficial but it's not your biggest problem at the moment. PMI may be annoying and 4.875% is not a great interest rate by today's standards, but it's still lower than the interest on either of you other loans. If it were me, I would probably prioritize things as:

1) buy ring (note that this doesn't have to be terribly expensive. I got an extremely nice engagement ring for my wife at Diamonds Direct for ~$5,000).
2) finish renovations on duplex, get renter
3) pay off car loan
4) pay off student loans
5) pay additional principal on mortgage and consider refinancing when at 80% loan-to-value to get lower interest and no PMI.

#4 and #5 are pretty close in my opinion since the interest rates are so similar and it will take you a while to pay off $38k; who knows when mortgage interest rates are going to go back up. You may want to swap those two. Or any of them, it all depends on what your priorities / goals are.

RoseRelish

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Re: Suggestions
« Reply #2 on: February 11, 2013, 11:29:54 AM »
I agree with sherr. Buy the ring as a first concern. Then get some rental cash flowing and get rid of the car loan. Even sell the car and get a used one with the cash. Good luck on the pending engagement.

bg2468

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Re: Suggestions
« Reply #3 on: February 11, 2013, 12:19:53 PM »
Thanks guys. The main issue for me is determining whether or not to dump more money into my rental. If I had not done this backwards (invested before I paid down debt), then I would hang on to the property for sure. At the same time, I feel like I would be losing ground if I sold at this point. I've ran the numbers several times, but there are so many assumptions that it's tough to get a clear answer one way or another.

icefr

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Re: Suggestions
« Reply #4 on: February 11, 2013, 12:35:10 PM »
1) buy ring (note that this doesn't have to be terribly expensive. I got an extremely nice engagement ring for my wife at Diamonds Direct for ~$5,000).

$5,000???? Depends on how much your girlfriend likes diamonds, but I would not want to wear a $5,000 ring on my hand. Have you talked to her about what kind of rings she likes? Girls can be quite particular about jewellery.

sherr

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Re: Suggestions
« Reply #5 on: February 12, 2013, 06:37:35 AM »
1) buy ring (note that this doesn't have to be terribly expensive. I got an extremely nice engagement ring for my wife at Diamonds Direct for ~$5,000).
$5,000???? Depends on how much your girlfriend likes diamonds, but I would not want to wear a $5,000 ring on my hand. Have you talked to her about what kind of rings she likes? Girls can be quite particular about jewellery.

Yes, we had an extensive discussion on the type of ring and the look that she likes, although I was later informed that the one I got was a bit too flashy. However, note that:
1) This was my pre-MMM days
2) She is now my wife, so it's not like I can change my mind on which ring to get her. She can exchange it if she wants, but she doesn't want to.

We also try very hard not to be sucked into the culture of fear that can easily grip you if you let it. Some people regularly wear jewelry worth much more then that. I don't think it's very common for people to be mugged for their engagement rings. Of course, if you live in an area with much higher crime rates than we do then you may be fully justified in being worried. To each his own.

icefr

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Re: Suggestions
« Reply #6 on: February 12, 2013, 09:44:33 AM »
$5,000???? Depends on how much your girlfriend likes diamonds, but I would not want to wear a $5,000 ring on my hand. Have you talked to her about what kind of rings she likes? Girls can be quite particular about jewellery.

Yes, we had an extensive discussion on the type of ring and the look that she likes, although I was later informed that the one I got was a bit too flashy. However, note that:
1) This was my pre-MMM days
2) She is now my wife, so it's not like I can change my mind on which ring to get her. She can exchange it if she wants, but she doesn't want to.

We also try very hard not to be sucked into the culture of fear that can easily grip you if you let it. Some people regularly wear jewelry worth much more then that. I don't think it's very common for people to be mugged for their engagement rings. Of course, if you live in an area with much higher crime rates than we do then you may be fully justified in being worried. To each his own.

I'm sorry for my unthoughtful comment. It was directed at the OP, since he hasn't bought the ring yet. I definitely agree that returning/exchanging an engagement ring would be weird.

I'm not worried about being mugged for an engagement ring - I just don't like wearing jewellery and would prefer to only wear a wedding band.

sherr

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Re: Suggestions
« Reply #7 on: February 12, 2013, 10:38:38 AM »
I'm sorry for my unthoughtful comment. It was directed at the OP, since he hasn't bought the ring yet. I definitely agree that returning/exchanging an engagement ring would be weird.

No worries, I wasn't offended or anything. :)

mustachecat

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Re: Suggestions
« Reply #8 on: February 12, 2013, 02:12:11 PM »
I saved before paying debt so I could get married, but I feel terrible because she is debt free with a healthy positive net worth. I've tried to clean up my finances as best as possible, but she said she doesn't care and wants to be married.

Maybe this is a leap, but she doesn't sound like the kind of person who wants a big fancy ring. How much are you trying to save up?

I dislike most contemporary jewelry, so my fiance got me an estate ring (i.e., a "used" ring from an antique store). If your lady might be into that, let me know, and I'd be happy to point out some reputable dealers.

bg2468

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Re: Suggestions
« Reply #9 on: February 12, 2013, 02:56:00 PM »
Thanks for the comments, but we may be getting off track. I have hinted around without getting too awkward and came to an amount for the ring. I have the money set aside for that, but was hoping to get the duplex figured out. Basically, I need to determine if I should sell the duplex or finish the renovation and rent it out. If I hang on to it, I need to finish the renovation ($10,000) which would bring up the value allowing me to refinance, drop the PMI, lower the rate, and improve cash flow. At this stage, it would cashflow at least $300/mo...I could then use that surplus to help pay down student loans. Or, I could sell it and walk away with at least 5k, avoid having to put 10k into it, and have 15k available to pay down debt right now. I'm having trouble evaluating the rental to see if it is an "A" property worth the sacrafice. Any advice is appreciated. Thanks again!

Nords

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Re: Suggestions
« Reply #10 on: February 12, 2013, 10:17:03 PM »
My dilemna is that I am saving for an engagment ring...
Again, any help is greatly appreciated.
Speaking from the perspective of 26+ years of marriage (all of it to my first spouse), I hope you and your fiancée have had a long talk about that engagement ring.

Spouse and I bought a $4000 engagement ring for our 1986 marriage (well, I bought it for her before the wedding, out of my nuke bonus money).  If we had the chance to do it all again, we'd buy something from QVC's costume-jewelry line for a couple hundred bucks.  Looks just as good, wears just as well, and no worries about theft or assault.  Spouse hardly ever wears her diamond, and the sentiment behind it is far more valuable than its appraisal.

Diamond engagement rings were foisted by the industry on the unsuspecting American population in the 1920s when states started canceling their "breach of promise" laws, and back when women could plausibly be "ruined for life" by a broken engagement and lack of employment opportunities.  It sounds like she'll be financially fine without an engagement ring, and she may appreciate the redirection of the money toward your home improvements or toward years of date nights and babysitting.  Hell, at some points in our early parenting years I would've given the babysitter the diamond in exchange for our Friday or Saturday date night.

Last month my father, a widower, tried to bequeath Mom's diamond engagement ring and her diamond eternity ring on our college daughter.  I have no idea what these two pieces of jewelry would appraise for, let alone sell for, but it'd start at five figures.  Our daughter was horrified by the thought of the responsibility of caring for something that has no place in her lifestyle.  That may change someday when she hogties herself a fiancé of her own, but I doubt it.  Even worse, I'm pretty sure I can identify the family's designated responsible adult male who will be handling custodial duties for the next few decades.

Frankly I don't understand how diamonds hold their value-- they're the 21st-century equivalent of tulip bulbs.  DeBeers has lost control of the industry and material science R&D is probably going to figure it out within the next 25 years.  My instinct is to sell all of our family's diamonds, buy costume-jewelry replicas, and invest the difference in long-term care insurance or good dividend stocks.

NumberCruncher

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Re: Suggestions
« Reply #11 on: February 13, 2013, 06:20:24 AM »
Basically, I need to determine if I should sell the duplex or finish the renovation and rent it out. If I hang on to it, I need to finish the renovation ($10,000) which would bring up the value allowing me to refinance, drop the PMI, lower the rate, and improve cash flow. At this stage, it would cashflow at least $300/mo...I could then use that surplus to help pay down student loans. Or, I could sell it and walk away with at least 5k, avoid having to put 10k into it, and have 15k available to pay down debt right now. I'm having trouble evaluating the rental to see if it is an "A" property worth the sacrafice. Any advice is appreciated. Thanks again!

cashflow of $300 meaning after mortgage, taxes, and insurance, the rent you would get monthly would come to $300? Does this take into account maintenance and potential vacancies?

If you sell the duplex, walk away with 5k (and keep your 10k), you can get an automatic, risk-free 5-6% return on investment by paying off debt. Look at the kind of return you would get from that money by keeping the property as a rental (taking into account everything, not just mortgage, taxes, and insurance), and see how much sense it makes from that point compared to paying down debt.

On a side note, my husband and I didn't do engagement rings at all and we spent less than $100 on both our rings. An engagement ring (or a fancy ring at all) is a luxury, not a necessity for marriage.

bg2468

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Re: Suggestions
« Reply #12 on: February 13, 2013, 07:32:03 AM »
Conservative estimate of cash flow is $300 after PITI, PMI, monthly water/trash bill (I would pay), estimated 5% vacancy, and estimated 5% maintenance (building is solid, outside is all brick, roof put on 5 yrs ago, new a/c, furnaces, electric, vinyl windows). It seems to make sense to finish the renovation, refi, and get another renter in there. But, I am having trouble running the numbers. The tax credit I received when I bought it, the PMI (upfront & monthly) are complicating things. I am trying to view this as simply as possible, but I keep getting lost in the details. So, engagement ring aside, if anyone else would like to weigh in I appreciate it. Thank you for all of your comments so far.

bg2468

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Re: Suggestions
« Reply #13 on: February 13, 2013, 07:36:49 AM »
By the way, I just reread my post and didn't mean to dismiss the previous posts re the ring. I appreciate the insight on that topic as well and will certainly take another look at that decision. I view the duplex as more urgent because I could sell it or rent out my unit and as of May 1st and not have the tax credit recaptured. The tax credit was contingent on maintaining the house as a primary residence for three years, so in order to maximize its potential, I would like to have the place either ready to sell or ready to rent on May 1st. Thanks again for all of your input.