Author Topic: Case Study – Newly Single (never married) with Larger House than Needed  (Read 2145 times)

kcore2000

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Situation: Recently single (never married) but bought a descent size house with the thought of getting engaged/married (my mistake). I’m 34, no kids and no debit other than Car (7K) and the house. I live in the beautiful property tax heavy Illinois and looking for suggestions/advice on what you would do with a rather large house for yourself in a market that isn’t great in my area? I've only had it for 3 years, don’t want to lose my a$$ on it but know I should downgrade at some point ...

Market Value: $200-$210K (Local Realtor Estimate)
Original Purchase price: $199.5K
Down Payment: 25% / 50K
Original Mortgage Amount: $149.5K
Amount remaining on mortgage: $141K
Interest Rate: 4.125%
Mortgage Term: 30 years fixed
Term remaining: 27
Taxes: $5178/year
Insurance: $810/year
HOA costs: $150/year
Utilities: $250/month (includes internet)

aweikel7

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Is your current market appreciating? At this point you don't have enough equity to get your money back.

What is your income? Your costs don't look super unreasonable other than the property taxes.

If you did downgrade, the MMM thing to do would be go with a 15 year note..

kcore2000

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@aweikel7,

The housing market in my area is pretty saturated right now. Houses are selling fast but with the demand prices are great. It's a good time to buy. I would say our current market isn't appreciating much right now.

My income is 55K. The property taxes are bothering me a little bit. I'm having to save around $420/mo for those but the mortgage isn't bad at all.

If I was to downgrade I would definitely do a 15 year loan.

Cwadda

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Maybe consider renting out bedroom(s) or doing AirBnB? This would cover your property taxes in whole.

kcore2000

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Yeah, I would definitely rent out a room to help cover the taxes but there isn't really a huge market for that or AirBNB in my area. Most my friends or people I know have their own places or are renting elsewhere. If I can find someone that I'm comfortable with then a roommate would be fine for a little while but don't think I will be able to find that anytime soon. :/

sammybiker

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    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
If your property hasn't greatly appreciated in this bull market, I don't know what would make it appreciate.  This is what I would do...

Sell.  Downsize to a starter 3bd/2ba with lower taxes.  Rent out a bedroom (or two).  Or go crazy and pick-up a duplex.

I imagine you're spending close to 50% of your after tax monthly income on this big empty house that isn't appreciating or cashflowing.  Isn't that scary?
« Last Edit: May 03, 2017, 07:05:15 AM by sammybiker »

Cwadda

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Yeah, I would definitely rent out a room to help cover the taxes but there isn't really a huge market for that or AirBNB in my area. Most my friends or people I know have their own places or are renting elsewhere. If I can find someone that I'm comfortable with then a roommate would be fine for a little while but don't think I will be able to find that anytime soon. :/

Have you tried yet?
If there isn't a large market for AirBnB in your area, that's even better. Being one of the only houses up is a good thing.

checkedoutat39

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If this is Chicago suburbs, most middle-class neighborhoods (where $200k single family houses are) rise at around the rate of inflation, and have forever. They didn't go crazy in the bubble and although they did decline after it popped they didn't stay down for long.

kcore2000

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If your property hasn't greatly appreciated in this bull market, I don't know what would make it appreciate.  This is what I would do...

Sell.  Downsize to a starter 3bd/2ba with lower taxes.  Rent out a bedroom (or two).  Or go crazy and pick-up a duplex.

I imagine you're spending close to 50% of your after tax monthly income on this big empty house that isn't appreciating or cashflowing.  Isn't that scary?

It definitely hasn't appreciated 6% (realtor fees), maybe 1-2% if that. If I sell I'm looking at possibly losing 12-15K of equity, then yes would downgrade to a starter home with lower taxes. In the end is it worth selling and losing the equity just to save 1-1.5K in taxes a year? It is scary and wish I wouldn't of bought such a larger house. :/

kcore2000

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If this is Chicago suburbs, most middle-class neighborhoods (where $200k single family houses are) rise at around the rate of inflation, and have forever. They didn't go crazy in the bubble and although they did decline after it popped they didn't stay down for long.

This is in Bloomington. 1.5 hours south of Chicago if you are familiar with Illinois.

checkedoutat39

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This is in Bloomington. 1.5 hours south of Chicago if you are familiar with Illinois.

Or even if I'm not :)

I originally wrote a post calculating total cost net of tax write-offs and figured it was costing you in the range of $1000-1100/month + utils + maintenance to live there. So compare this to places you'd be comfortable renting plus the utilities on those units.

Property taxes filter down to renters one way or another. It's a cost a landlord has to account for.

Generally, if carrying costs of owning aren't much different from those of renting, don't sell unless you have to. People tend to underestimate the costs of friction and the hassle factor.

Cwadda

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How about renting a bedroom to an Illinois State graduate or professional student?

SBuck

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Looks like your PITI is about $1,224 per month. HOA fees seem to be extremely low at $150 a year.

As for me just reading through your scenario, I would advise against selling it. As you have a low credit utilization and eliminating that reporting mortgage by selling it, could lower your credit. Curious how far away do you live from where you work?

My suggestion, the interest rate on the mortgage is fair, sounds like there is equity in the property, market values are pretty steady, certainly selling the property is going to represent a negative impact and a refinance is going to be too early. Why not turn this into an investment property? I don't know what the square foot age is, condition, or how many bed/bath rooms you have. But estimating what similar values are going for in your area could be $1,500-$2,000 per month as gross rental income.

Since, you're single, young, stable credit, low expenses, why not rent a smaller property and hold the current property- receive rental income that pays the bills and generates income/credit/tax write offs.   

waltworks

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Sell it. Way too much house for one person living on $55k a year.

The money is gone, c'est la vie. Holding onto it will most likely just result (in the long run) in a huge amount of opportunity cost as that equity just sits.

-Walt

kcore2000

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Looks like your PITI is about $1,224 per month. HOA fees seem to be extremely low at $150 a year.

As for me just reading through your scenario, I would advise against selling it. As you have a low credit utilization and eliminating that reporting mortgage by selling it, could lower your credit. Curious how far away do you live from where you work?

My suggestion, the interest rate on the mortgage is fair, sounds like there is equity in the property, market values are pretty steady, certainly selling the property is going to represent a negative impact and a refinance is going to be too early. Why not turn this into an investment property? I don't know what the square foot age is, condition, or how many bed/bath rooms you have. But estimating what similar values are going for in your area could be $1,500-$2,000 per month as gross rental income.

Since, you're single, young, stable credit, low expenses, why not rent a smaller property and hold the current property- receive rental income that pays the bills and generates income/credit/tax write offs.   

Yeah I'm looking at around $1400/mo (that includes mortgage, taxes, home insurance). The house is around 2750 sq/ft livable area and is a 4BR/3B. It's fairly large, great condition for 20 yr old house, in a cul-de-sac in a nice family friendly subdivision, so renting it consistently would be hard I would think. Also, if i couldn't find a consistent renter I wouldn't want to get stock with the bills from the house plus renting another property.  I only live 2-3 miles from work and can get from house to desk in 10 mins so that is super nice.