| My home as an investment? |
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mewalsh100
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Location: Ohio
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| My home as an investment? |
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I have just recently gone through a divorce and amazingly enough, I have not incurred any short term (IE Credit Card Debt). My ex and I just built the house (2-1/2 years ago) that I live in alone now. I have gone through the mortgage assumption process and I am now the sole "owner" or debtor. The house is in a very nice, newer suburban development. The original purchase price was $251K. My most recent appraisal is $281K. Just this past week I received a rather hefty property tax increase as a result of the county being slow to assess the improved property (IE a home on it as opposed to construction sublot) and also a school levy. I think I can offset the increase by scaling back on my 401K investment, but I'm not sure if this is wise or not? I would like to keep the home, but not at the cost of my future financial freedom. I am 35 years old, and have a 30year fixed mortgage on the home at 5.375%. (I am not in a "bubble-market" region either) I've considered selling and getting into something more economical, but my fear is that in selling the house, I will consume any of the equity I've built through realtor commisons. Does anyone have any advice?
mewalsh100
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Tue Aug 08, 2006 5:14 pm |
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BlankenshipFP
Money Talk Advisor
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If you can't afford it, you should sell. Sell for appropriate value, don't discount it, but sell it nonetheless.
You said you'd like to stay there, but not at the risk of your financial future... so if it's more house than you can afford, admit it, sell it, and take the proceeds to move on to the appropriate house.
With regard to your concern about paying a realtor to sell it, presumably you made a down payment on the house, right? Plus you've been making payments for 30 months, and you've seen price appreciation of around $30k. If you made a 10% down payment, your loan balance should be roughly ~$217,000 at this point, so if you sell the house for $280k, and a 7% commission would be $19,600, you would still net $43,400... your results may vary.
Jim Blankenship, CFP®, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Tue Aug 08, 2006 6:24 pm |
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mewalsh100
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Location: Ohio
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| not sure |
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Hi Jim,
Thanks for the response. I guess that's the thing I've been struggling with. I can make the payments, and I'm not incurring any short term debt to do so. I've simply scaled back my 401K investment to kind of maintain the same amount of cash flow I had prior to this tax increase. I'm still investing anywhere from $250 - $350 per month into my 401K. I guess I was thinking that I could just look at the house as another part of the portfolio that would provide both a safe and adequate return over the long term.
mewalsh100
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Tue Aug 08, 2006 7:46 pm |
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coaster
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I guess I can't see any problem with that at your age, BUT ... is your income going to go up enough to cover both your future maintenance expenses and your increasing property taxes? You don't want to be cutting back your retirement contributions year by year until you're not saving anything.
~Tim~
Eye Candy : Why Whimsy
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Tue Aug 08, 2006 9:25 pm |
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BlankenshipFP
Money Talk Advisor
Cash: $ 79.56
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Location: Illinois
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I agree with coaster - you want to make sure that this "cutting back" on 401(k) contributions is a very temporary thing, and that you get back on track so that you'll have time working on your side with your contributions.
Best wishes -
Jim Blankenship, CFP®, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Tue Aug 08, 2006 9:35 pm |
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mewalsh100
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Joined: 03 Aug 2006
Location: Ohio
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| tax increase |
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I am fairly certain that my property taxes will stabilize now that this major school levy has passed, and the property has been formally assessed with the home on it. That was the real biggy. I do see the logic in scaling back, but at the sametime I'm looking at the house as a part of my overall "portfolio" and retirement plan. It's safe to say that I will not lose money on the house/property. I know I'll take a bit of a bath to sell in this current buyers market, and I will also lose that awesome 5.375% rate on a 30 year fixed! I guess I'm waying the cost of sticking it out a little bit and keeping the house against taking the hit when I sell and all the other "start-up" costs to get into a new place, including a new mortgage of 6.5-7.5%. Also, as I mentioned earlier, I am still contributing a minimum of $250 a month to my 401K, and often much more when commissions are strong. My next step will be to layout my past two years success' as a Sales Manager to the owner of my company, and offset the increase further with a salary raise. Any more thoughts and advice are greatly appreciated. Thanks again for all the help!
mewalsh100
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Tue Aug 08, 2006 10:54 pm |
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go2self
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An alternative strategy would be to pay off the house quickly as possible then start moving the 1400 monthly mortgage to high yield investment.
Judging by your ability to include 250 monthly to 401k your income can probably pay off the house in 10 years, then on sale profits are 100% yours. This eliminates concern of a market down turn.
Apply the alternate strategy and the break even (monthly payment to principal equals interest would be year 4, as opposed to year 20 on a 30 year note.
You also have the benefit of 100% equity ownership that you can pull out or leverage at your discretion.
Here are three thoughts to help keep your budget in track:
Spending is an emotional value decision. Price vs feel good or better = well spent
Buying is a utility value decision. Price vs usefulness = good buy
Investing is a profit value decision. Price vs profit on exit = good investment
Time is our most volatile resource that if not used immediately is lost instantly
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Tue Aug 08, 2006 11:53 pm |
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BlankenshipFP
Money Talk Advisor
Cash: $ 79.56
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I wouldn't recommend pre-paying a 5.375% mortgage - you'll want to keep that as long as you can. You'll likely make far more in even the most conservative investments, especially when you net out the tax deduction...
Jim Blankenship, CFP®, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Wed Aug 09, 2006 11:58 am |
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coaster
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I'm with Jim on that one; that's pretty cheap money these days. Until the next down cycle in interest rates. And who knows when that will be.
~Tim~
Eye Candy : Why Whimsy
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Wed Aug 09, 2006 12:38 pm |
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mewalsh100
New Member
Cash: $ 1.90
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Location: Ohio
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| keep it? |
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So, given all that info, am I on the right path with my decision to keep the house? The other aspect of this whole thing is on a personal level. At 35, there is a real strong chance I will be married again, or at least seriously involved with someone. Bottom line, I'm pretty sure I'll want / need the space again in the near future. (I have my daughter weekends and a signifigant other around my age will probably have kid(s) of her own) I hate to sell the home and lose the 5.375% mort, get into a smaller/cheaper place as a gap stop for the next 3-5 years, and then have to get back into a larger place at a much higher rate.
mewalsh100
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Wed Aug 09, 2006 1:54 pm |
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coaster
Senior Advisor
Cash: $ 1357.80
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IMO, go with keeping the house for now and reevaluate your position in a year from now.
Good luck & best wishes. 
~Tim~
Eye Candy : Why Whimsy
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Wed Aug 09, 2006 2:53 pm |
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mewalsh100
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Location: Ohio
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| Thanks! |
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Thanks! I think that's what I'm going to do.
mewalsh100
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Wed Aug 09, 2006 3:56 pm |
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Kiaser
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Joined: 12 Apr 2006
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| Re: My home as an investment? |
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quote:
Originally posted by mewalsh100
I have just recently gone through a divorce and amazingly enough, I have not incurred any short term (IE Credit Card Debt). My ex and I just built the house (2-1/2 years ago) that I live in alone now. I have gone through the mortgage assumption process and I am now the sole "owner" or debtor. The house is in a very nice, newer suburban development. The original purchase price was $251K. My most recent appraisal is $281K. Just this past week I received a rather hefty property tax increase as a result of the county being slow to assess the improved property (IE a home on it as opposed to construction sublot) and also a school levy. I think I can offset the increase by scaling back on my 401K investment, but I'm not sure if this is wise or not? I would like to keep the home, but not at the cost of my future financial freedom. I am 35 years old, and have a 30year fixed mortgage on the home at 5.375%. (I am not in a "bubble-market" region either) I've considered selling and getting into something more economical, but my fear is that in selling the house, I will consume any of the equity I've built through realtor commisons. Does anyone have any advice?
Congrats, you just dropped a hefty load of debt (the wife).
You live alone now, no reason not to rent out a room or two and make the other people pay for not only the property tax hike but a large part of the mortgage payment too!
Change your 401k contributions to whatever is matched by your company only. Take all the other money and put it into an IRA. Everything else dump into an investment portfolio that's outside of retirement accounts.
A home is an excellent LONG TERM investment. Ask anyone above 50 that had sold a house they were paying on in their 20's and 30's and they'll tell you they would give anything to have kept that house. If you want to downsize, do so but rent out that house in it's entirety and keep it.
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Thu Aug 10, 2006 12:50 am |
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El Presidente
Full Member
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Joined: 22 Apr 2006
Location: Colorado
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| Re: My home as an investment? |
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quote:
Originally posted by Kiaser
Congrats, you just dropped a hefty load of debt (the wife).
Assuming mewalsh100 is a man, of course.
I learn by talking. Most agree I never stop learning.
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Thu Aug 10, 2006 1:05 am |
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coaster
Senior Advisor
Cash: $ 1357.80
Posts: 6686
Joined: 11 Oct 2005
Location: Wisconsin
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Yeah, it can be embarrassing to make gender assumptions on a message board. 
I've done it, I know
~Tim~
Eye Candy : Why Whimsy
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Thu Aug 10, 2006 1:52 am |
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