I’m debating whether to (1) sell my house and downsize by renting a room in a shared house, which would also allow me to live easily without a car, or (2) keep my house and continue running it as a shared house.
Considerations: I’ve got “hair on fire debt” and a strong desire to extinguish it ASAP (details below). Specifically, I have a goal for significant debt reduction by November 1, 2019 (at least $50k). I aim to leave this area around that time and will sell the house if I still own it then.
I probably should not have purchased the house, but because I did, I now need to live with that decision. Since I moved in, I have rented out one room for $1000, except for the last few months that I’ve been between tenants. To increase that income, I plan to move into my small room and start sharing a bathroom, and rent out two rooms in the house for about $1,000 each (utilities included). I think the time of year will make it easier now to find tenants. As long as this house is mine, however, I’ll be dependent on having good tenants and feeling overwhelmed by trying to take care of it. What I *WANT* to do is sell the house. I’m evaluating whether there is any *wisdom* in selling. I should decide soon because if I don’t sell, I need to find roommates.
ME:
Single, East Coast HCOL major city, no dependents (except one pet)
Income: Before tax, around $145k (ordinary income and rental income combined); after tax about $100k
CURRENT EXPENSES
Housing Costs
Mortgage: 2237
-Principal: $582
-Interest: $1,339
-Property Tax: $252
-Homeowners Insurance: $64
Water/Trash 72
Home Warranty 52
Maintenance 100
Gas 50
Electric 75
Cable/Wifi 64
Total housing costs: 2,068 (mortgage principal not included)
Loans
Federal Student Loans 496
Private Student Loan 303
Personal Loans: 682
Credit Card Payment: 490
Total loan minimums: 1,971
Other Expenses
Cell phone 70
Groceries 250
Work food 50
Going out 100
Medical copayments 15
Haircut 20
Running shoes or race entries 30
Clothing 50
Dog food 70
Veterinarian 25
Music 15
Gifts 50
Travel 150
Misc 50
Total other expenses: $945
Car costs
Loan payment 295
Insurance 57
Registration 25
Maintenance 125
Total car expenses: $502
Total monthly payments: $6,068 (principal is included because it affects how much other debt I can pay)
DEBT DETAILS
Total non-mortgage debt: $176,613
Student loans: $110,506 at 4-5% APR
Credit cards and other loans: $24k at 5% APR and $30k at 11% APR
Car loan: $11,869 at 3% APR
HOUSE DETAILS
Current home purchased in October 2015: $410,000
Current value of the home: $410,000 (estimated by a realtor last month)
Mortgage balance: $367,102
Approximately 27 years remaining to maturity
Approximate cash receipts after sale: $28,000
KEEP THE HOUSE SCENARIO
Amount available for additional debt payments with rental income: $2470
Non-mortgage debt total in November 2019: 107,302
Net worth (if retirement doesn't grow and house doesn't appreciate) $28k
SELL THE HOUSE SCENARIO
Sell for $405,000
Net $28,000 cash after sale (assume closing December 2018); use cash to pay off and sell car, pay off some other high-interest debt
Rent a room for $800
$3716 total monthly payments (eliminate house and car costs)
Amount available for additional debt payments: $4,617
Non-mortgage debt total in November 2019: $50,554
Negligible effect on net worth, just under $28k
When I first posted this, it looked clear that the best option was to bring the two roommates in, because I just looked at it as off-setting my monthly housing cost, which would be so low. Now that I've done this analysis, selling the house looks to be far and away the best option. Am I missing something? I've checked all of my math and especially my debt-reduction calculator math many times over.
*I just realized I didn't factor in any transportation costs whatsoever into the house-sale scenario. I can get to work for free but would probably need to pay some non-work transit, uber, and bike-maintenance costs. I'll work that in tomorrow, but I don't see how that adds a ton of costs.