Author Topic: Torn by new house decision  (Read 4883 times)

Alim Nassor

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Torn by new house decision
« on: March 16, 2015, 07:27:54 AM »
Hi all, new here.   We just recently (very recently) achieved total debt free status.   We did this by a combination of an inheritance and selling our beautiful home in the country and moving to a small fixer upper in town..  My wife, and I, if truth be told, are experiencing a bit of remorse over our home decision, it's small, crowded by neighboring homes, old, noisy and just overall not what we really picture ourselves in.  The remodeling so far has turned out well, but it's just not us.

Recently, an older home that my wife has always loved came on the market, it's a big old rambling one story Austin Stone home.   The price is a steal because it has some foundation issues and related masonry and carpentry work that needs to be done.  We can pick it up for under 50 dollars a square foot.   I can do all but the foundation repair.

We both love the house, but I am still getting used to, and loving, being debt free.   The thing is, we could rent our little fixer upper that we bought and cover the mortgage, taxes and insurance payment on the new house almost completely.    So, we may not be debt free, but we will have our first rental property!.   Utilities would cost more, of course, but not a killer amount more.

I'm torn.  What would fellow mustacheans do?

theadvicist

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Re: Torn by new house decision
« Reply #1 on: March 16, 2015, 07:31:05 AM »
Everyone approaches this one differently.

My home is very important to me, because it is where I spend most of my time (and hopefully one day soon all my time!). I could be mortgage free already if I lived somewhere I didn't want to live.

You are not happy there, and a house you really want is going for cheap because of some issues you have the skills and wherewithal to fix. No way I'd stay somewhere I'm unhappy with when that is on the table.

But, it's just me. How much do you dislike where you are?


Alim Nassor

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Re: Torn by new house decision
« Reply #2 on: March 16, 2015, 07:39:51 AM »
"But, it's just me. How much do you dislike where you are? "

I'm not a fan, but I could make it work.  My wife truly hates it.

One of things giving me pause is my desire to retire in the next 5 years or so, and being debt free was a big part of that.  I guess I'm struggling with an equation that seeks to balance whether debt free is the same as having the one debt you have paid for by another asset.   So far I haven't convinced myself that the 2 are equal. 






theadvicist

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Re: Torn by new house decision
« Reply #3 on: March 16, 2015, 07:42:53 AM »
Your wife's happiness presumably pays into your happiness as well, don't forget.

If the asset offsets the debt I would definitely do it. In actual fact, you won't be any worse of (am I right in thinking this? Your net worth will remain the same, you've just taken on debt and gained an asset?), but you will end up living somewhere you both prefer. Honestly, if that is the case I can't think why you wouldn't do it. Yes, debt free is nice, but look at the hard numbers and see if that nice feeling of no debt is worth living somewhere you don't want to live for no actual increase in net worth.

capitalguy

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Re: Torn by new house decision
« Reply #4 on: March 16, 2015, 07:46:59 AM »
Sounds like you already know the answer to your question. What's the point of living in your current house if you could merely "make it work" and your wife hates it? I'd rather being carrying mortgage debt and live in a house I love than live in a place I don't like. In fact, I'd rather be swimming in credit card debt in addition to the mortgage and live in a house I love than live in a place I hate! My point is, if you're anything like me, having the right house for you is one of the most important factors in life.

ShoulderThingThatGoesUp

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Re: Torn by new house decision
« Reply #5 on: March 16, 2015, 07:52:41 AM »
I've owned two houses, and in both I was not happy about it a few months in. Then, I got over it. It's a big life change and it won't have 100% of the positives you envisioned.

It sounds like you might not like fixer uppers, so a different fixer upper might not be the solution you're looking for. Additionally, foundation issues will undo a lot of your fixes, and foundation work often has to be redone. My sister has completed two rounds of foundation work on her rancher in under five years. All her door frames are cracked, all her drywall is cracked, and none of her doors close.

Finally, it's scary to me for tax reasons to live in a fixer-upper for under two years. If you live in it for two years, make big improvements, and sell it, you don't pay any federal tax on the gains under $250k.

That said, hating your house isn't good. One way or another, you need to fix that.

Alim Nassor

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Re: Torn by new house decision
« Reply #6 on: March 16, 2015, 07:56:06 AM »
Your wife's happiness presumably pays into your happiness as well, don't forget.

If the asset offsets the debt I would definitely do it. In actual fact, you won't be any worse of (am I right in thinking this? Your net worth will remain the same, you've just taken on debt and gained an asset?), but you will end up living somewhere you both prefer. Honestly, if that is the case I can't think why you wouldn't do it. Yes, debt free is nice, but look at the hard numbers and see if that nice feeling of no debt is worth living somewhere you don't want to live for no actual increase in net worth.


Actually, our net worth would go up, since the house is worth almost double what we will pay for it, not counting repairs.

theadvicist

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Re: Torn by new house decision
« Reply #7 on: March 16, 2015, 08:10:24 AM »
So what aren't you telling us?

Your net worth will go up, you will prefer it, your wife will prefer it.

Is the only stumbling block *truly* that you want to remain completely debt free? Or are you, in your heart of hearts, unsure of the maths, or unsure that you are capable of doing the work to repair the house? Worried about the foundation issues?

Another Reader

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Re: Torn by new house decision
« Reply #8 on: March 16, 2015, 08:30:10 AM »
Have you ever owned rentals?  What's the math you have done to show the net rental income will be enough to make the payments on the new house?

Experienced landlords use the 50 percent rule of thumb.  If your current house will rent for $1,500, you can expect over time to net half of the gross rent, or $750, to apply to the new mortgage.  Taxes, insurance, repairs and maintenance, capital improvements, plus vacancy and collection losses must all be factored in.  Will you manage the property yourself?  There's an allowance for property management in the 50 percent rule.   Do you want to screen tenants, write leases and evict non-payers?  That's all part of the management job.  Do the math correctly and see how much of the expenses of the new house the rental will really pay.

Alim Nassor

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Re: Torn by new house decision
« Reply #9 on: March 16, 2015, 08:41:15 AM »
So what aren't you telling us?

Your net worth will go up, you will prefer it, your wife will prefer it.

Is the only stumbling block *truly* that you want to remain completely debt free? Or are you, in your heart of hearts, unsure of the maths, or unsure that you are capable of doing the work to repair the house? Worried about the foundation issues?

Well, there's always uncertainty.   Having the rent house go empty for a few months, not having done stonemasonry before, except for cultured stone, etc.   But we are capable of paying the mortgage without the rental income, and I've never found anything craft related I couldn't do.

I'm going to have the foundation work quoted before the option runs out.  I figure 5k.   One end of the house has dropped maybe 2 inches.

I think it IS mostly finally, for the first time in my adult life being completely debt free.

Alim Nassor

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Re: Torn by new house decision
« Reply #10 on: March 16, 2015, 08:48:36 AM »
Have you ever owned rentals?  What's the math you have done to show the net rental income will be enough to make the payments on the new house?

Experienced landlords use the 50 percent rule of thumb.  If your current house will rent for $1,500, you can expect over time to net half of the gross rent, or $750, to apply to the new mortgage.  Taxes, insurance, repairs and maintenance, capital improvements, plus vacancy and collection losses must all be factored in.  Will you manage the property yourself?  There's an allowance for property management in the 50 percent rule.   Do you want to screen tenants, write leases and evict non-payers?  That's all part of the management job.  Do the math correctly and see how much of the expenses of the new house the rental will really pay.

Never owned a rental but I have friends that do, and do it well.     This is a small town and it's a small house.  Should be able to rent it for 750 a month and demand here is strong.  I will manage it myself.   All of the systems in the house and the roof are new or in good repair.   The new house is not extravagantly priced either, my mortgage payment, including taxes and insurance should be less than 950.  I'd estimate the delta to be about 450-500 bucks in additional expense for the new house.


SunshineGirl

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Re: Torn by new house decision
« Reply #11 on: March 16, 2015, 10:50:15 AM »
I completely understand your dilemma. Being debt-free, it's a huge psychological hurdle to consider taking on debt. Being willing to opens up lots of possibilities, while refusing to do so rules out several options in life. I struggle with this regularly, as we paid off our mortgage about ten years ago on a house that we'd like to do some fairly pricey remodeling to. Thus far, we've done it piecemeal and paid cash, and I don't know if that was the right decision or not. I suppose it has been for us, although I think we ARE going to take on debt to finish up the things we want to do. However, it'll be a smaller amount of debt that we could pay off if we wanted to.

So, no advice, just commiseration. Good "problem" to have, though, right?

In your situation, knowing the house would increase so much in value, it seems like a decent business decision.

DoNorth

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Re: Torn by new house decision
« Reply #12 on: March 16, 2015, 11:01:53 AM »
Pick up the other place and be happier.  The credit markets make this choice so easy.  Yes, you are bringing on some additional debt and the burden of being a landlord, but a well renovated home should have very few problems in the first several years.  Having the debt becomes transparent because one deposit comes in from a tenant and another goes out to the mortgage company (I've had a rental for 6 years now and I barely notice it except at tax time).

You can lock in your new house at 4% or less in comparison to just 8 years ago when rates were almost double....a lot of people have become so acclimated to the low interest rate environment that they forget what a steal it is even with minor fluctuations.  go for it.

Alim Nassor

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Re: Torn by new house decision
« Reply #13 on: March 16, 2015, 12:15:51 PM »
Thanks ALL!!!!!

Alim Nassor

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Re: Torn by new house decision
« Reply #14 on: March 26, 2015, 08:29:20 AM »
So, we passed on this particular house.   Inspector found way too many issues that I didn't want to deal with.  But thanks for all the opinions, I don't fear upgrading my living situation quite so much now.