Author Topic: Sell old primary residence to pay off student loans / other debt  (Read 686 times)

BiggerFishToFI

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Sell old primary residence to pay off student loans / other debt
« on: December 13, 2017, 09:12:16 AM »
Considering selling our old primary residence which is now a rental to pay off student loan and some car loan debt, as well as give us some float since I am considering starting up a small business and taking a month or two off to travel next summer. Over half our net worth is tied up in equity in the house.

We last lived in the house from 2011 to May 2016, so as I understand it we have until May 2019 to sell it and not have to pay any capital gains tax because it was our primary residence for 2 of the last 5 years. Does that sound right?

Some details:

House Equity: $260k(conservative) - 120k(mortgage@3.8%) - 20k (closing costs/realtor/a couple fixes around the house) = $120K
House rents for $1500/month, payment is $900/ month
Student loan debt: 60k @ 4.5%
Car debt: 17k @ 3.5%

If we sold the house we could pay off all the debt and have ~45k-65k leftover. The whole idea of no debt / halving our monthly expenses / having enough cash to take a month off when my wife finishes her residency next summer / no more renters / being able to start my own business without as much stress / etc. etc. etc. is sounding very appealing.

Also, any thoughts on selling without a realtor?

Edit: Found the sticky that says provide the following:

Market Value: $260-290k
Original Purchase price: 160k
Original Mortgage Amount: 130k
Interest Rate: 3.875%
Mortgage Term: 30
Term remaining: 24
Amount remaining on mortgage: 120k
Gross Rents: 1500/mo or 18k/yr
Principal and Interest (the P&I of your PITI - should match with the above info):  $246.92(P) + $392.60(I)
Taxes and Insurance (the T&I of your PITI): $169.46(T) + $72.62(I)
HOA costs: $0
Deferred maintenance notes: House needs paint soon, carpet

 
« Last Edit: December 13, 2017, 09:46:00 AM by soontoberich »

Dicey

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Re: Sell old primary residence to pay off student loans / other debt
« Reply #1 on: December 13, 2017, 09:56:58 AM »
Question: What other investments/assets do you have right now?

Comment: Pretty sure you're gonna get hit with a blizzard of "Sell the car and pay cash for something cheaper" type of advice, so please be prepared to justify ownership of what sounds like an expensive vehicle.

BiggerFishToFI

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Re: Sell old primary residence to pay off student loans / other debt
« Reply #2 on: December 13, 2017, 10:18:07 AM »
Question: What other investments/assets do you have right now?

Comment: Pretty sure you're gonna get hit with a blizzard of "Sell the car and pay cash for something cheaper" type of advice, so please be prepared to justify ownership of what sounds like an expensive vehicle.
Haha yeah I have already gotten a blizzard of flack in a case study I posted a while ago. As this point we are keeping the car with plans of driving it until it dies. Although we may reconsider this as the resale value is very high (Subaru). My wife's residency demands up to 2+hrs of commuting daily for the remainder of her position (~7 months) in a city that gets significant winter weather. The safety and reliability of the car is worth it to us at this point.

Other assets/investments (~129k):
Roth IRA 1: $43,026
Roth IRA 2: $12,586
401k: $27,960
IRA: $16,378
Taxable: $13,443
Cash: 14k

Income: $11,343/month, 136k + 15k (bonus/overtime) = 151k / year before tax expected to increase mid 2018 to 200k / year
Rental income: $1500/month,  18k / year before tax
« Last Edit: December 13, 2017, 10:20:36 AM by soontoberich »

surfhb

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Re: Sell old primary residence to pay off student loans / other debt
« Reply #3 on: December 14, 2017, 09:08:46 AM »
No.    You guys are young and have an incredible income and potential.   

With that income you should be out of debt (including the mortage in 3-5 years)

Tuskalusa

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Re: Sell old primary residence to pay off student loans / other debt
« Reply #4 on: December 14, 2017, 09:14:15 AM »
Where are you living now. Do you have another house with a mortgage?  Are you renting?

I guess Iím wondering if you would ever want to move back to the house you are considering selling.  Becaus3 the mortgage on that property seems like something you could wipe out aggressively, if you focused on it. Then you would still reach your goal of being debt free, but you would have a significant asset.

What is you 10-Year goal?  So we can put the potential sale plan in context?

Dicey

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Re: Sell old primary residence to pay off student loans / other debt
« Reply #5 on: December 14, 2017, 10:35:18 AM »
No. You guys are young and have an incredible income and potential.   

With that income you should be out of debt (including the mortage in 3-5 years)
I'm still thinking, and so far, surfhb is reading my mind. Now I think we have two separate issues to discuss. You should cash flow your debt to see how fast you can kill it before you decide to take a shortcut and kill the income-producing golden goose asset. More questions.

Where is the house (generally speaking)? What is the market outlook for the area? What condition is it in?

HawkeyeNFO

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Re: Sell old primary residence to pay off student loans / other debt
« Reply #6 on: December 15, 2017, 10:45:57 AM »
You are correct about the capital gains.  You are exempt under the 2 of 5 rule.  I believe it's sec 121 of the IRS tax code. 

As long as it's a rental, you need to be taking depreciation into account on your taxes.  It will help your cash flow each year that you maintain it as a rental. 

But when you sell it, you are subject to depreciation recapture, even if you didn't take depreciation.  With your income, that means a 25% tax on the depreciation for each year.  So if you wait until after May 2019 to sell, you will lose your capital gains exemption, AND owe a high amount of depreciation recapture tax as well.  Only 2 ways to avoid any of this:  death or a 1031 exchange.

Given your income, and the low interest owed on the debt, I wouldn't worry about selling the house at this point.  You ought to be able to save the necessary amounts to pay off the debts in a year or 2 just from your salary alone.  Can you start your own gig without quitting?
« Last Edit: December 15, 2017, 10:48:44 AM by HawkeyeNFO »