Author Topic: What to do about our living situation  (Read 4879 times)

garion

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What to do about our living situation
« on: March 17, 2016, 01:50:29 PM »
Hello mustachians,

My husband and I are currently renting a house that we absolutely hate. The only things we like about it are location (reasonably close to work and walkable to a few things, in a not-so-walkable area), cost ($975/month, which is way below market), and the fact that it's a single-family house with a fenced in backyard for the dogs. However, we hate the layout, it is falling apart and the landlady doesn't really respond to maintenance requests, and I have some suspicions that there are mold issues. We really want to leave, but our options for leaving seem limited. Last summer, we attempted to find another place to rent and it did not go well. To rent a house nicer than our current one, we would be looking at about $1600/month or higher.

Other relevant information: We have been focusing on paying back my student loans aggressively. I graduated in 2011 with over 80k in loans and have them beaten back to just under 30k. My husband owns a house in the suburbs that we recently invested 10k into and are working on selling. If it sells for listing we should net about 20k from the sale. Other than that, we have about $10k in a savings account. We earn a combined $125k right now, but that should be increasing to closer to $150k shortly. We are not currently interested in retiring early. We have no kids but plan to in 2-3 more years. Other than the mortgage (which will be paid off when we sell the house) and my student loans, we have no debt. We have 2 dogs and a cat, which have contributed to our renting woes.

These are the options I currently see:

Option 1: Stay put until we pay off my loans and we save up a 20% down payment to buy a house
Pros: Most frugal option. We could pay off my loans quickly (probably within 6 months after we sell the house).
Cons: This could take a few more years and meanwhile we are stuck in a house with problems. Our rent situation is month to month, so we could be forced to come up with a plan B within a month if our landlady decides to sell.

Option 2: Rent a more expensive house (about $1600/month)
Pros: Could put off buying a house while still feeling more comfortable. We could potentially get out of our current place quickly.
Cons: Huge increase in rent. Would slow progress towards goals of paying off my loans and buying our own house. Also there is no guarantee that we could even find a good place to rent in the current market. A lot of places just collect app fees from everyone before deciding (seriously!).

Option 3: Buy our own place as soon as we can (estimate about 250-400k, probably would take about 6 months to save up to a 10% down payment)
Pros: We wouldn't have to worry about rent increases. We would be building equity in a house. Houses in our area seem to be gaining value quickly.
Cons: This would delay paying off my loans. The housing market might be inflated, in which case we could lose money. A 10% down payment might not be ideal. We would have all of the costs that are associated with home ownership.

I know that Option 1 makes the most sense from a financial perspective, but if we REALLY want to leave our house, which of the other two options would be less bad in our situation?

notactiveanymore

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Re: What to do about our living situation
« Reply #1 on: March 17, 2016, 01:59:00 PM »
Is there a reason you're renting when you own another home?

garion

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Re: What to do about our living situation
« Reply #2 on: March 17, 2016, 02:00:52 PM »
Is there a reason you're renting when you own another home?

My husband's house is far away from where we both work (would be an hour+ each way for both of us). We were renting it out to cover the mortgage until recently, and now it is listed for sale.

notactiveanymore

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Re: What to do about our living situation
« Reply #3 on: March 17, 2016, 02:40:37 PM »
Is there a reason you're renting when you own another home?

My husband's house is far away from where we both work (would be an hour+ each way for both of us). We were renting it out to cover the mortgage until recently, and now it is listed for sale.

Gotcha! Well I'd definitely pursue option 1. Assuming the house gets sold soon, you say you could pay off the loans in 6 months then you say later you could save for a 10% down payment in 6 months. So could you live with the not ideal rental for 12 more months?

For me, what's more important than putting down 20% on the house is having emergency savings in place and ensuring you can maintain a good savings rate in addition to the PITI cost. I wouldn't personally buy before having 6 months bare-bones living expenses (factoring in new mortgage payments) in the bank.

The other thing you might be able to do is negotiate with the landlady for compensation through reduced rent for necessary improvements you make.
« Last Edit: March 17, 2016, 02:42:57 PM by theotherelise »

garion

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Re: What to do about our living situation
« Reply #4 on: March 17, 2016, 02:50:27 PM »
Is there a reason you're renting when you own another home?

My husband's house is far away from where we both work (would be an hour+ each way for both of us). We were renting it out to cover the mortgage until recently, and now it is listed for sale.

Gotcha! Well I'd definitely pursue option 1. Assuming the house gets sold soon, you say you could pay off the loans in 6 months then you say later you could save for a 10% down payment in 6 months. So could you live with the not ideal rental for 12 more months?

For me, what's more important than putting down 20% on the house is having emergency savings in place and ensuring you can maintain a good savings rate in addition to the PITI cost. I wouldn't personally buy before having 6 months bare-bones living expenses (factoring in new mortgage payments) in the bank.

The other thing you might be able to do is negotiate with the landlady for compensation through reduced rent for necessary improvements you make.

Negotiating with the landlady is a good idea, thanks!

I should clarify, we could have a down payment in 6 months if we use the proceeds from the sale for that, and I could pay off my student loans in 6 months (or sooner) if we use the proceeds from the sale for that. So it would take longer than a year to do both. I haven't flushed those number through entirely yet though, and there are a lot of unknowns (sale price, how much we would actually have to pay for a house, pay raises, etc), but I suppose I should slow down and not rush into buying a house!

Catbert

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Re: What to do about our living situation
« Reply #5 on: March 17, 2016, 02:55:00 PM »
I would do option 1 for as long as you can stand it!  Then go to option 3 assuming you'd be getting a place you'd stay in for the long run.

I suspect that your landlady isn't going to give you a further break on the rent to make improvements.   It sounds like she's owned the house for quite awhile and would rather have low rent and no outlay for maintenance.  I'd guess that she won't sell the house while you're a tenant unless something happens to necessitate it (e.g., moves to assisted living, divorce, kids inherit).

Personally, I wouldn't worry about mold unless someone is experiencing symptoms.  Most mold is harmless. 

garion

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Re: What to do about our living situation
« Reply #6 on: March 17, 2016, 03:00:06 PM »
I would do option 1 for as long as you can stand it!  Then go to option 3 assuming you'd be getting a place you'd stay in for the long run.

I suspect that your landlady isn't going to give you a further break on the rent to make improvements.   It sounds like she's owned the house for quite awhile and would rather have low rent and no outlay for maintenance.  I'd guess that she won't sell the house while you're a tenant unless something happens to necessitate it (e.g., moves to assisted living, divorce, kids inherit).

Personally, I wouldn't worry about mold unless someone is experiencing symptoms.  Most mold is harmless.

We have also been trying to keep a low profile to avoid her realizing that she should be charging more for rent or having us sign a lease. But we have called in a couple of issues (a leak in the ceiling that was mostly for her benefit, because my husband was upset that his tenant never told him about one, and the sliding glass door that does not stay on its track) and she hasn't followed up on them.

tweezers

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Re: What to do about our living situation
« Reply #7 on: March 17, 2016, 03:06:01 PM »
If there is nothing you could do to improve your rental to make it more livable (i.e. paint, inexpensive fixes/improvements, even if they are not reimbursed) I would explore Option 3.  I've lived in shitty, falling apart houses and its so demoralizing having to leave work and go home to a place you hate.  You make good money and could quickly save up a down payment (and apply the proceeds from the sale of your other home).  If you mentioned the interest rate on your student loans I missed it, but its worth running the numbers on buying.  A $300K mortgage at today's interest rates (~3.75%) would give you a payment of ~$1400.  More than your current rent, but less than renting something better, and if it makes your time at home way happier..... 

notactiveanymore

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Re: What to do about our living situation
« Reply #8 on: March 17, 2016, 03:06:52 PM »
Is there a reason you're renting when you own another home?

My husband's house is far away from where we both work (would be an hour+ each way for both of us). We were renting it out to cover the mortgage until recently, and now it is listed for sale.

Gotcha! Well I'd definitely pursue option 1. Assuming the house gets sold soon, you say you could pay off the loans in 6 months then you say later you could save for a 10% down payment in 6 months. So could you live with the not ideal rental for 12 more months?

For me, what's more important than putting down 20% on the house is having emergency savings in place and ensuring you can maintain a good savings rate in addition to the PITI cost. I wouldn't personally buy before having 6 months bare-bones living expenses (factoring in new mortgage payments) in the bank.

The other thing you might be able to do is negotiate with the landlady for compensation through reduced rent for necessary improvements you make.

Negotiating with the landlady is a good idea, thanks!

I should clarify, we could have a down payment in 6 months if we use the proceeds from the sale for that, and I could pay off my student loans in 6 months (or sooner) if we use the proceeds from the sale for that. So it would take longer than a year to do both. I haven't flushed those number through entirely yet though, and there are a lot of unknowns (sale price, how much we would actually have to pay for a house, pay raises, etc), but I suppose I should slow down and not rush into buying a house!

You make 125k and you're not focused on RE. If you want to pay off the 30k in loans and save 30k for a down payment and you're expecting 20k in profit from the sale of the house, you should definitely be able to do both in one year. You'd only have to save/paydown about 45k in a year. You could absolutely 100% do that.

garion

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Re: What to do about our living situation
« Reply #9 on: March 17, 2016, 03:17:24 PM »
If there is nothing you could do to improve your rental to make it more livable (i.e. paint, inexpensive fixes/improvements, even if they are not reimbursed) I would explore Option 3.  I've lived in shitty, falling apart houses and its so demoralizing having to leave work and go home to a place you hate.  You make good money and could quickly save up a down payment (and apply the proceeds from the sale of your other home).  If you mentioned the interest rate on your student loans I missed it, but its worth running the numbers on buying.  A $300K mortgage at today's interest rates (~3.75%) would give you a payment of ~$1400.  More than your current rent, but less than renting something better, and if it makes your time at home way happier.....

Thanks! My student loan is a federal loan at 6.55%. I have run the numbers on refinancing with SoFi and it didn't come out to be that of a savings on interest (5.5% on a 5-year loan), so we haven't pursued it.

Another Reader

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Re: What to do about our living situation
« Reply #10 on: March 17, 2016, 03:33:07 PM »
I'm hearing a lot of rationalization and more than a little entitlement here.  In your shoes, I would stick with the cheap rental as long as possible and treat the debt as a "hair on fire" emergency.  Where would you be of one of you lost a job after you dumped all of your savings into a house?  Suck it up, pay off the student loan and then decide what to do.  Impatient?  Cut your spending to the bone and pay the loan off faster.  Once that is done, then allocate all that excess income you think you are going to have to saving for a house and a cash cushion in case things go very wrong.

DebtFreeBy25

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Re: What to do about our living situation
« Reply #11 on: March 17, 2016, 04:50:46 PM »
There's nothing wrong with not wanting to live in a dump. If you've grown tired of dealing with option 1, it's time to look into option 3. If you're planning to live in this area for several years and can afford to buy, it usually makes sense to do so.

Yes, it is absolutely possible to lose money buying a house. There are never any guarantees that you'll be able to sell it for as much or more than you paid. On the other hand, you have a 100% chance of losing 100% of your rent each month. In five years, you will have spent $58,500 on rent, and that's assuming that you continue renting your current place at its current price.

In the right scenario, say a DIY renovated fixer upper, a multi-family unit or a nice place in an appreciating market, you may be able to make money. (I bought a foreclosure when I was 23. Did some DIY renovations and sold it less than 3 years later at a profit.) Buying certainly makes more sense than spending $1600/month on a place you'll never own; instead of paying your mortgage you'd be paying someone else's. Ideally you'd be able to save a 20% down payment before buying, but the point of mustachianism isn't to make yourself miserable living in a place you hate.

justajane

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Re: What to do about our living situation
« Reply #12 on: March 17, 2016, 05:52:46 PM »
If you don't want to retire early and you're miserable in this house, I would find something better for a few years. Does your area have duplexes with yards for the dogs? When we first married and were renting, we found duplexes much cheaper than freestanding houses. The square footage on a duplex can rival that of a house. I've also lived in duplexes with fenced-in yards.

garion

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Re: What to do about our living situation
« Reply #13 on: March 17, 2016, 06:14:34 PM »
If you don't want to retire early and you're miserable in this house, I would find something better for a few years. Does your area have duplexes with yards for the dogs? When we first married and were renting, we found duplexes much cheaper than freestanding houses. The square footage on a duplex can rival that of a house. I've also lived in duplexes with fenced-in yards.

I have lived in duplexes before and loved them. I have been looking at houses and duplexes, and we haven't noticed duplexes being much cheaper. So the $1600/month estimate would apply to a duplex as well.

former player

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Re: What to do about our living situation
« Reply #14 on: March 18, 2016, 03:00:06 AM »
Would your landlady sell you the house you are renting?  If you can get it cheap enough, you could either do it up how you like it or do it up to sell.

garion

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Re: What to do about our living situation
« Reply #15 on: March 18, 2016, 03:16:00 AM »
Would your landlady sell you the house you are renting?  If you can get it cheap enough, you could either do it up how you like it or do it up to sell.

She might be willing to sell, and it would probably be cheaper than buying a different house, but this house has some structural issues that concern us too much to consider that option. If/when she does sell, the house will likely be torn down and rebuilt.

eliza

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Re: What to do about our living situation
« Reply #16 on: March 18, 2016, 08:54:16 AM »
Negotiating with the landlady is a good idea, thanks!

I should clarify, we could have a down payment in 6 months if we use the proceeds from the sale for that, and I could pay off my student loans in 6 months (or sooner) if we use the proceeds from the sale for that. So it would take longer than a year to do both. I haven't flushed those number through entirely yet though, and there are a lot of unknowns (sale price, how much we would actually have to pay for a house, pay raises, etc), but I suppose I should slow down and not rush into buying a house!

You make 125k and you're not focused on RE. If you want to pay off the 30k in loans and save 30k for a down payment and you're expecting 20k in profit from the sale of the house, you should definitely be able to do both in one year. You'd only have to save/paydown about 45k in a year. You could absolutely 100% do that.

I second the above.  Something does not seem to compute.  Besides the rent -- what are your normal expenses per month?

As theotherelise noted, you are talking about saving $60,000 total; or $40,000 after proceeds from the house.  You need to save about $3,400 per month to make that happen.  That should be relatively doable on 125,000 income with no debt (after you pay off the last $10M of student loans) and your cheaper rent.  You seem to indicate that you are only saving $1,700 per month (since it will take you about 6 months to save $10,000 to finish off your SL after selling the house).  I know you don't want to RE, so you might be less extreme than many of us --- but if the goal of paying off student loans and moving to a nicer house is important enough, you could probably make spending cuts that would allow you to do both within the next 12 months. 

Another way of looking at it is you eventually want to save up a $30,000 for a 10% down payment on a house.  At your current $1,700 savings rate that would take 18 months.  If you move into the more expensive place, your savings would go down to $1,075 - so saving up your down payment would take 28 months (not including any increased utilities, moving costs, etc).  There is no right or wrong answer --- would you rather be in a position to buy a house sooner or would you rather increase your standard of living now even though it delays your ultimate goal.

garion

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Re: What to do about our living situation
« Reply #17 on: March 18, 2016, 09:35:34 AM »
Thanks for the responses!

The target number I had in my head for a down payment plus closing costs was $50,000, so that plus the $30,000 in loans would be $80,000 total, or $60,000 in addition to the house sale profits (which are not a given). We might be able to get away with a smaller down payment fund, particularly if we can find a house <$300,000. I need to do more exact numbers on how long it would take us to save this (if we are doing a smaller down payment fund, it could well be about a year), but my main dilemma is whether to prioritize aggressive loan payments (I was paying $2000+/month for a while at the end of last year) or saving for a down payment (while paying the minimum of $443/month on loans). Our plan is to keep throwing money into savings for now and reevaluate after the house sale.