Well as as FIRE'd Mustachian I would invest in Index funds of course!
I want to downsize and not have to deal with pool etc when traveling.
local moving costs will not be much - '2 men and a truck' for a day would do it
Looking at the numbers:
I have $40k left on mortgage at $1200 mo and HOA at $150 mo
House will sell for about $425K so say I clear $350K after all expenses.
Using the 4% rule that $350K will earn an additional $14k per year if invested wisely
Rent around here for a townhouse ( all I need) is about $2800 = $33K so costing me an extra 33-14 = $19k yr
But I won't have a mortgage or HOA any more so not spending $1350 mo - unsure how to figure that in.
Also will not have Home insurance or Property taxes - call these $5k yr
To me it looks like renting for a year will 'cost' me $14k I can then take my time to :
a) empty/prep the property to get the best price (which could make back much of the $14K rental cost)
b) avoid bridging loan or HELOC to buy next property - just pay cash
c) take my time to find what I want while selling quickly in this hot market
Downside is it adds extra 2 days of moving hassle and expense ( to-from rental)
Am I missing anything?
The $350k net sale proceeds is after payoff of the mortgage, so it is already included in the $14k ROI you figured.
I calculate you are currently spending (1350*12=) $16,200 per year for the house mortgage and HOA, so the rental would be (33,000-16,200=) $16,800 more expensive per year. Of course, this does not account for maintenance on the house, which is at least $2-4k per year, so let's pick $3k/year and say the rental is $13,800 more expensive than the house.
This amount is very close to the $14,000 you expect to earn on the proceeds from selling the house. It would be a vertical move financially, and a step down in luxury.
However... you are within $40k of paying off the mortgage. If this loan is toward the end of its term, that means most of your payment goes to reduce your debt. If your P&I is $1,000, I would expect about $900 of it to apply toward debt reduction. Only the $100 interest in this example is a true expense. If you are paying (900*12=) $10,800 / year towards reducing the loan principal / gaining home equity, we shouldn't compare that to paying rent. This makes renting ($13,800+$10,800=) $24,600 more expensive than continuing to own the house.
After this mortgage is paid off, your costs for property taxes, insurance, and HOA might drop to $350/mo (making up numbers here, fill in your own). At that point, I imagine you might be glad to be paying about ((350*12)+3000 maintenance=) $7,200/year for housing instead of $33,000.
The $25,800 per year difference in this scenario would be like a 6.6% return on your $390k home equity (350k home equity you could walk away with today plus the $40k you would contribute to pay off the mortgage). If rents rise faster than your remaining home ownership expenses, or if the home appreciates, this ROI gets bigger. The risk is whether you lose your home equity in a housing market crash, but in that event you'll lose it in the index funds anyway, as we saw in 2008.
To me this doesn't sound like the right downsizing opportunity.
