life planning/real estate advise

[sunofthebeach]

I live in a working class neighborhood. I have 12 years left on a 5% 15 year mortage and owe $180,000. My payment is less then $1,800. By just making my mortgage payement I will payoff about $10,000 a year of my mortage for the next 10 years. A house like mine down the street sold for $400,000 this month and mine should do the same.

My town and neighborhood is going down hill and the schools are getting worse. I feel like I need to get out. A house like mine in a more affluent neighborhood in the next town will cost me $500,000. The house I really want will cost $550,000 to $600,000. Real eatste prices have exploded in my area. I am on the low end of it gaining only 100% appriciation over the last 5 years. Most have gained more. It upsets me that I will be paying $550,000 for a house that someone bought 3 years ago for less then $300,000. I also don’t want to lose my pool that I put in 3 years ago.

I understand that the more expensive house will appreiciate more, but it seem like we are at a time where we will not see significant house appriciation for 5 to 10 years.

It seems like a bad more to give up the 5% mortgage with 12 years to go to pick up a 30 year mortgage at 7% with a $3,000 mortgage payment.

I have 3 kids and plan to send them all to college.

My plan (choose one)

A. sell my house, move to the more affluent neighborhood with better schools and have a $3,000 mortgage payment. With $25,000 of mortgage interest, the payment will only feel like $2,500 because I will adjust my withholdings. The cost will also be offset by extra pay (about $300 a month) working in the new area. So the new payment will only feel like $600 more then right now.

B. Rent my house, (I think I could get $1700 or $1800) then rent a house for me to live in where I want to raise my kids. This would alow me to have my kids go to better schools, and keep my good mortgage situtation and keep the $24,000 I would have paid in real estate comission if I sold it.

C. Stay, Put my last 2 kids in private school if they do not get into the local magnet school. My oldest is in the magnet school. I could bank the extra money I would have paid if I bought a bigger house to save for College.

D. Do plan C, with the thought that I would sell the house in 3 years when I owe $30, 000 less, maybe make extra payments to get it down to $50,000 less.


I really do want to leave the town I live in. My family take home pay is $7,000 a month.

Does anyone have any advice?
Is there anything I am not considering in these plans?
Does one stand out as better then the others?

[tenax]

i would check out the tax advantages to renting (i'm assuming like in canada, it in effect becomes a small business with writeoffs for repairs, property management, depreciation of certain items due to age (furnace, etc). and use the income towards the purchase of your new house. i know where you are coming from. i had to make a similar call when i moved from one city to another..the house i owned in one city was worth 60,000..new one 196,000. after checking out my options , keeping it was my best option. it's paid off now, sold and money in the bank above helping me pay for my houses since.

[Poconos]

Sun,
It is obvious you're in a higher income bracket. I hope you have a financial advisor you can trust and is good. You also need a good CPA or equivalent for the tax issues. Then you should have an Estate Planning attorney. Each one of the groups I mentioned have their own areas of expertise. You need to get them all in a group, in the same room, and thrash out the best solution FOR YOU. With the ways tax laws, investment market, real estate market, and estate laws change, I don't see any way any one person can keep up with it all. Good advice is seldom free, and it is my belief you get what you pay for but simply the $$$ cost doesn't negate the need to do your homework. Then again, you can do all the right things and something will change in a second, beyond your control, and you'll kick yourself for not doing something else.
Al
Edit: something I just remembered are the intangible things that you cannot possible put a price tag on. Something I did when I considered a major relocation and job change was to make a list of concerns. Everything from commute time, to fuel, food, and insurance prices, to access to a trauma center. Each issue had a weight for importance from 0 to 10 and a rating of -10 to +10. Go down the list and multiply the weight x rating and see what the score is. In my case it was so positive, I'm now in the Pocono Mountains.

[SeanB.]

What part of the country are you in? What is the realestate market predicted to do in the near future? I'm south of Houston, where the market is still growing, as is the job market so there wasn't any big incentive to wait on prices. In fact, our new home went up in price by over 11K just why it was being built - we had a no contingency contract, so our price remained the same.

However, I understand in many parts of the country, the market has started to turn and prices are starting to drop. If this is the case for you, you may be better off selling your current home now and then doing maybe a 1 year lease in the area where you want to live. During that time, perhaps prices will drop. Also, you would be in a unique position of having cash ready and time to wait for any particularly good deals. Finding a GOOD realtor to work with will be very important. You'll need someone willing to be patient and put the time in regularly looking for the right deal.

If you decide to become a landlord, just remember that this will take up some of your time and money for repairs, upkeep, etc. Also, you run the risk of having non-payers, damage, etc. Personally, it's not something I would be interested in doing.

HTH.

[tenax]

I"m with you, Sean..i'm a pretty versatile handyman and the wife thought it no obstacle to having a rental place for me to do the work (what she calls "a boy job") but it sure was a consideration for me as i didn't want service calls at all hours and such from renters. i use a property management company who take care of many situations like this, have trades if needed contacted. unless it's between 9pm and 6am, as specified by me, they will contact tradespeople directly but i get the deduction for the "contracting" of them. the price varies considerably for property management companies so be forewarned if you go this route to get good references and ask questions. but get a good company, and it really does make the rental proposition painless.

[sunofthebeach]

Thanks for all of the information so far.

I guess I do need a financial advisor. I cant really figure out if I can even make the larger mortgage payment and I certainly cant predict what my housing situation will be like in 12 years with the new house.

To add some more information.

The real estate boom is over, there are a lot of houses on the market right now. Last month was the first month the market experienced a decline in price. 15 months ago, houses sold in less then a week now there are many listings that are 90 days old.

I am sure that in 12 years my neighborhood will give me a low quality of life. I don’t think staying is an option.

Maybe I am just getting old and teenagers with loud car stereos that dress like thugs annoy me more then it did 10 years ago.

I don’t know.

[tenax]

sounds like your average college renters:)

[Jeffski]

You should never have a mortage payment that's almost half of your monthly income. I would highly recommend staying put. I just think selling your house in a slow market is a bad idea especially when you're looking at buying a more expensive house at a higher interest rate.

[Jeffski]

BTW, how bad can the neighborhood be if it has $400,000 houses in it?

[sunofthebeach]

You should never have a mortage payment that's almost half of your monthly income. I would highly recommend staying put. I just think selling your house in a slow market is a bad idea especially when you're looking at buying a more expensive house at a higher interest rate.


The numbers were take home. After paying the mortgage I would still have $4000 left. I think about when I first bought the house in 1992 I had a 30 year 8% mortgage. It took all of 2 take home paychecks to pay the mortgage and the family had $1600 left over each month from the other 2 paychecks to spend. We were house poor, but we got throught it. It seems like it will work on paper, but I have $5000 left over every month right now after paying the mortgage and I can't seem to save much money.

The slow market seems relative to me, I may get 10 to 20 thousand less selling my house, but i should be able to make in up when I buy another house.

I change my mind on what I am going to do every couple of hours or so.

[sunofthebeach]

BTW, how bad can the neighborhood be if it has $400,000 houses in it?


My $400,000 house is 2300 sq ft brick front no basement on 1/3 acre. 1200 sq foot town houses go for $200,000 and the older 820 Sq ft Split foyers go for $330,000. All of the houses are way over priced, but they keep selling.

The mansion I plan on buying will probably be a 2600 sq ft house with a basement on an acre.

The cost of living here is outrageous.

[dawndenise]

I strongly second Poconos' advice to talk to a couple of financial and legal professionals.

Renting out your primary residence and then selling it at a later date has significant tax consequences, depending on when you do it, especially since you say it has appreciated 100%. Even with the neighborhood and town going downhill, you may still have an "a s set" that's appreciated substantially whenever you do decide to sell.

Go talk to the pros.

[SeanB.]

Well, if you aren't in a big hurry you could try a little experiment. Figure our how much your new payment would be, with taxes and insurance. Then, when you make your current mortgage payment, put the additional amount aside in a separate savings account. Do that for a few months and see how comfortable you are with the higher amount. After three months, you'll either have some extra money toward a down payment, or a little extra savings.

One thing to consider though, is how much money will you end up spending on private school if you stay put? Whatever amount that is, would have to be factored into your planning if you want a real cost comparison of staying versus moving.

As far as not saving too much of that extra 5k a month, you know the saying..."People spend what they make." If you have more of your discretionary money already committed to something like a better house in a better neighborhood, or private school, that's just money you won't be blowing at the mall or on other more frivolous things. JMO, but the money I spend on my kids, always seems to give the best dividends. I don't think you could go wrong making some sacrifices to provide a better home and school environment for your kids.

Good luck with whatever you decide. BTW, what part of the country are you in? Here, south of Houston, a 300k+ home will get you into about a 3,000 sq ft home in some pretty nice neighborhoods with good schools, amenities, etc.

[sunofthebeach]

Good luck with whatever you decide. BTW, what part of the country are you in? Here, south of Houston, a 300k+ home will get you into about a 3,000 sq ft home in some pretty nice neighborhoods with good schools, amenities, etc.


I am about 20 miles from Washington, DC.

I hope to capitalize on the high cost of housing in aout 12 years when I retire and move to a different area where I may be able to get a house for $200,000.

That is a good Idea to live like I am making the mortgage payment to see how it feels.

[Simmons99]

I agree with the idea of the advice of a REAL ESTATE ATTORNEY or a real estate investor that has done well.

My father and my father-in-law are both really successful real estate investors and my husband and I doubled our net worth last year in real estate (our primary residence), which is how we could afford the new pool.

Generally both my father and my father-in-law say - when the neighborhood is going down hill GET OUT BEFORE THE VALUE DECREASES! You may be on the late end - if you are already noticing that you have a lower %?? of appreciation than houses of comprible age/size in a close neighborhood.

Basically they look at the number of rentals - if there are a lot and the trend is increasing - that is bad; then look at the types of cars parked in driveways - if the trend is towards older cars and more cars that are just sitting - that is bad; then the third is the general upkeep of the neighborhood - if people generally let their yards go and they are not actively trying to improve their homes - that is bad. Not necessarily that there are more noisy teenagers in the area.

I think you should see someone who is familiar with the real estate market in your area to see what you can do - but right now you can sell real estate without tax burden (on the first $250K of profit) as long as it was your primary residence for 2 out of the last 5 years. So you could rent it for a couple of years and be OK. Then after that you have capital gains tax - which is currently fixed at 15%.

As far as private schools (I know I am going to catch hell for this....)- I am a bit biased - personally I believe that sending your children to government run schools is ALWAYS a bad decision - unless you are in an area where the government schools have some sort of competition for students and $$. Even then - government schools will teach your kids what the government wants them to know - just like if you sent your kid to a Catholic school - they would teach your kid what the Catholic Church wants them to know... I'd rather be in charge of my kids education.

My vote - get the new house - rent this house for a couple of years & no new cars for the next 5 years to off set the cost of sending your kids to private school.

BTW - Florida is booming too - you used to be able to buy a nice house for $200K - now the average is about $255K for like a 1500sq foot home. I live further from town - they run about $330K for 2500sq ft - no yard/no pool.

[Pool_Mike]

Guess things are really big in Texas :D

Come to our neighborhood.

I got my 2300 sq ft home for less then 150,000K, which my brother out in Fairfax, VA paid 300K on a condo, told me that our home would be 900K plus out there.
We dont have bad schools. The teachers were my son goes to school always seem to be top of education.

I don't see junk cars or rentals in the neighborhood. Also looks for homes that has a HOA (home owners ***ociation) this will help keep those old cars and raggy people out of here. I cannot say how many times I accidently left our garage door open overnight and not have had my tools, steaks in the freezer or BBQ pit stolen.

IMHO I don't think there is no house that is worth over 250K unless its Michael Jackson house.