Author Topic: Third Opinion  (Read 4716 times)

Stashasaurus

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Third Opinion
« on: September 09, 2016, 09:38:23 AM »
Back in July a couple friend and my wife and I purchased a home with the intent to flip it for a quick $5k profit for each couple. Unfortunately, the property has not sold, details can be provided if interested, and we are thinking of reducing the list price to where we would take a guaranteed loss just to move it. To me this is not the end of the world part of the learning experience. At the end of August due to restructuring with the company, I was let go from my full time job. After the shock wore off I was really happy about it, in fact I was ecstatic to be out of there. As word spread that I had been let go, most of my coworkers have contacted me wishing me well, and shocked about what happened. One of the contractors offered me a skilled trades job while on the phone. This is a departure from my training, degree in mechanical engineering, but interests me non the less. So my questions for the mustache community:

1.   I am receiving severance from my full time job. I am looking to invest it instead of paying down the flip house debt.
        My reasoning is that I need to move the house now! So making it easier to hold does not make sense.
 
2.   Are there any Mustachians out there who have made the switch from manager to doer within the same company?
        I will have some separation as I would be working with contractor but eventually I would be seeing everyone I worked with
        again.

3.   This transition to a trade would see a pay cut for me of about 40% for the first year but then disappears when I become a 
        second year apprentice. Anyone else taken this kind of haircut?

My wife and I have talked about these changes and she has been very supportive, telling me to take my time and make the choices that are right for me. At this point I am just not sure and am looking for a third opinion.

TheAnonOne

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Re: Third Opinion
« Reply #1 on: September 09, 2016, 12:48:55 PM »
Can you get back into your industry at another company for a raise? I would try to go this route if I could.

Dicey

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Re: Third Opinion
« Reply #2 on: September 09, 2016, 12:55:29 PM »
Would the flip pencil out as a rental?

plog

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Re: Third Opinion
« Reply #3 on: September 09, 2016, 01:32:56 PM »
Quote
My reasoning is that I need to move the house now! So making it easier to hold does not make sense.

That's why I disabled all air bags in my car and cut out the seat belts.  I've never been a more cautious driver.

Don't further  compound your situation with mental games played on yourself.  Hold the money as cash and still get the house sold as best as you can. Then evaulaute how much you can into investments.  Since your reducing income by 40%, you should bump up your reserves to make sure you can make it that first year.

Axecleaver

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Re: Third Opinion
« Reply #4 on: September 09, 2016, 02:21:46 PM »
Take the job, you will have money coming in while you look for something else. Be sure that the severance pay is not contingent on you remaining unemployed, if you're going back to work for someone connected to your old job. If that's the case, keep looking for work until the severance runs out, then take the job. You need a mental adjustment; you're not taking a 40% pay cut if you're unemployed.

I worked as a database team lead/manager for a .com in 2000, making 125k a year. Company went tits up, I got three months severance in a lump sum on my last day of work, and spent the next year unemployed. At first I spent all my time looking for work, but didn't have much luck. After three months, I picked up day labor doing painting, construction site cleanup, and some other odd jobs for $12 an hour while interviewing for tech jobs. It was more than I was making unemployed.


Stashasaurus

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Re: Third Opinion
« Reply #5 on: September 09, 2016, 06:21:59 PM »
Thank you all for the replies.

TheAnonOne
This would be difficult as I worked for a steel maker and their is only one of those around my location. As planner/project manager there is a couple of leads I am following up on, mostly in the potash industry (another industry struggling right now).

Diane C
It would work as a rental, it just doesn't make sense as one. Total cost of the house including renovations is $310,000. We would be looking at gross rents of $2,000/month. Less property tax($270), mortgage ($1,050) and insurance ($100) is roughly $580 net rent. I calculate that to be a return of 2.2% Fairly large risk for that kind of return. Now there would be some principal pay down on the mortgage, but I would balance that with additional risks of no rent/damage to the property. Thoughts?

Plog
Point taken, just goes against the constant optimization that I am use to doing. The cash will give me flexibility. I am fairly confident we will be okay as our savings rate, when both my wife and I are employed, was around 50%. I still agree with your point, cash gives flexibility.

Axecleaver
The severance pay is not contingent on myself being unemployed. I can treat it as a last larger paycheque. Part of my hesitation is that I would work for a contractor at the same site as where I was employed. This means the same conditions that caused my department to restructure could effect the contractor. If this were to happen, it would most likely occur in December.I am going to find out more tomorrow, having a meeting with the foreman, to confirm what position he is looking for me to fill. I am hoping that it would be an apprentice spot but I don't know that for sure.

When you were applying for tech jobs while doing the labour gig, how did you show that on your resume? Did you pare it down to relevant experience or something else?

undercover

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Re: Third Opinion
« Reply #6 on: September 09, 2016, 06:30:12 PM »
Total cost of the house including renovations is $310,000. We would be looking at gross rents of $2,000/month.

$310k is market value + renos or down payment + renos? If the latter, you need to calculate your return based on that number rather than the market value. Also, you're missing maintenance.

Mattzlaff

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Re: Third Opinion
« Reply #7 on: September 09, 2016, 09:17:54 PM »
As far as moving from project lead to contractor you may find you enjoy working hands on better especially if you didn't like the job you had.

Trades jobs are really good to be in, in SK(and AB) area. If branching out and getting a ticket in a trade seems like something you would like I say go for it. If he sets you up with a labour job, they pay OK and will allow you to receive income(along with your severance) while you search for another job in mechanical engineering.

Is there an aversion to moving to AB? Mechanical engineers can find reliable work in most of the oil zones, Ft mac, Edmonton, Calgary, Ft Sask. If moving is something that interests you might try looking for work here.

I agree with you though on your joint venture house. Don't pay you severance into it.

Stashasaurus

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Re: Third Opinion
« Reply #8 on: September 10, 2016, 09:24:12 AM »
Thanks for the responses, i appreciate the honesty that comes from the forum.

Undercover

$310,000 was purchase price + renovations. So you are suggesting I should use the renovation ($10,000) plus down payment ($60,000) to calculate my return? I agree that I should include maintenance costs and principal pay down, so 1% of home value for maintenance $258/month and principal pay down of $350/month. This works out to be a 11.5% return. Is this what you suggested?

Mattzlaff
Trade job or labour job is win/win no matter what. I will have more info later this afternoon, and will let you guys know. Meeting the foreman shortly.

I have rather large aversion to moving to Alberta right now. Wife is a school teacher here, so we have one rock solid job and my extended family is based here. I am not saying I can't or won't just will try many more things here first.





tthree

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Re: Third Opinion
« Reply #9 on: September 10, 2016, 01:48:03 PM »
Sell the house.  Take a loss.  I wouldn't try to rent it.  Rental vacancies are definitely on the rising here.  I think getting $2000/month would be on the high end for a house worth around $300,000 (unless you could split into two units). 

Stashasaurus

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Re: Third Opinion
« Reply #10 on: September 10, 2016, 04:41:36 PM »
Update: The job on offer was an apprenticeship, I will be starting on Monday. I have talked to my partners on the house as well and they are not interested in becoming landlords. We will sell at a loss if required to exit this house.

Thank you all for the thoughts, lets see how this works out.

Axecleaver

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Re: Third Opinion
« Reply #11 on: September 10, 2016, 06:26:54 PM »
Solid choice. Good job!

I listed my unemployment as independent contracting, which was true, although I only scored about six weeks of consulting over that year. I had enough job history that nobody ever questioned it. If you do have gaps in your employment, interviews should probe that to see what you did. Have a response ready. It can be as simple as you spent time looking for the right project, and whatever you're interviewing for looks perfect to you.

Stashasaurus

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Re: Third Opinion
« Reply #12 on: November 22, 2016, 06:21:56 PM »
So dragging this thread up, because tonight we have two offers on the house. One at $304,000 and another to be revealed shortly. I really appreciated your help and you all deserve to know how it ends. Update to follow.

arebelspy

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Re: Third Opinion
« Reply #13 on: November 23, 2016, 04:09:20 AM »
Thanks for the update.  Crossing my fingers for you the sale goes through smoothly!

Lesson: build fat margins into your flip. The 70% rule for flips/rehabs is a rule for a reason.

How has the new job gone?
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Stashasaurus

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Re: Third Opinion
« Reply #14 on: November 24, 2016, 03:40:45 PM »
Thanks Mr. Spy. I have not done any plumbing yet, just industrial labour type work, but I am enjoying it. I even worked through a shutdown at a steel plant (10+ hours a day for a month) and enjoyed that.  I have not given up on an engineering job either, I have applied for 3 jobs since August, just not a lot of opportunities right now.

Update on the house: The second offer was at $305,000. While that was not exciting, offer one bumped up to $310,000 after being told another offer was on the table. Conditions close on 11/30/16 with possesion on 12/15/16. It would mean only one remaing mortgage payment. That would be awesome.

I will keep you all in the loop.

Stashasaurus

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Re: Third Opinion
« Reply #15 on: November 30, 2016, 09:06:43 PM »
So all but one condition was lifted today, house inspection. There are some minor plumbing issues that I will take care of. There is a potential major issue with the north wall. The only message from their realtor is that a local foundation company is coming to look at it first thing tomorrow morning. So the story continues for another day.


Cannot Wait!

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Re: Third Opinion
« Reply #16 on: November 30, 2016, 09:32:36 PM »
Eeeeek!  Good luck!

Stashasaurus

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Re: Third Opinion
« Reply #17 on: December 01, 2016, 05:18:53 PM »
So all but one condition was lifted today, house inspection. There are some minor plumbing issues that I will take care of. There is a potential major issue with the north wall. The only message from their realtor is that a local foundation company is coming to look at it first thing tomorrow morning. So the story continues for another day.

So the foundation company inspection went really well. The north wall has an issue but a relatively inexpensive fix as it was caught early. WOOOT, no pony wall! The buyers asked for nothing for this repair. They did ask for a remediation of one of the braces that I installed incorrectly. $650 or repair myself. I will be paying the $650 as getting the steel would cost around $200 and I need to get a welder to weld the beams together. For the tight timeline and relative low cost I will spend the money and be done with the house.

arebelspy

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Re: Third Opinion
« Reply #18 on: December 01, 2016, 06:36:10 PM »
I will be paying the $650 as getting the steel would cost around $200 and I need to get a welder to weld the beams together. For the tight timeline and relative low cost I will spend the money and be done with the house.

Good choice.  Credit them at closing, move on.

Crossing my fingers for you the closing goes smoothly, now that inspections/conditions are done!   :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.