Worth it to downsize and still have a mortgage???

How to avoid signing your life over to a mortgage
Post Reply
mooretrees
Posts: 53
Joined: Sun Jan 27, 2019 1:21 pm

Worth it to downsize and still have a mortgage???

Post by mooretrees » Thu Sep 05, 2019 4:40 pm

Dilemma is that we have too much house for us and about 125 k left on the mortgage. We are seriously considering trying to get this 3 bedroom 2 bath house ready for sale and trying to find a 2 bedroom 1 bath with a much smaller footprint.

Considerations:
-This current house is on the 'right' side of the tracks with excellent commute to work (6 blocks away) and about 2k in property taxes
-Needs a decent amount of work to get it sale ready: paint everywhere, declutter and finish basement room remodel and upstairs bathroom sorta remodel
-Nearing the end of the house buying window, I guess we have until Thanksgiving for this year according to the real estate agent
-Just planted our fall/winter garden
-we have a tenant wanting to sign a year lease and ready to move in at the end of this month
-we don't have a lot of cash lying around, all money from sale of this house would be rolled into the next house
-buying next house would be contingent on selling this house
-next house would be smaller and not likely to have a natural room to rent out like current house
-mortgage rates are great right now
-'looming recession' means good time to sell/buy and bad time for both coming ahead
-new house would be on 'bad' side of the tracks and longer commute (by bike)

The numbers:
-Likely we could sell this current house for anywhere from 175k to (unlikely, but possible) around 200k
-any new house would probably be around 140-150k
-current mortgage has 125k left
-one income (when we bought this house we had two incomes but now have a stay at home dad)-harder to get a mortgage?
-Monthly costs with current house are around $1300 (utilities, mortgage, property taxes, etc) and renter would be paying $400 month

So, really, is it worth it to hustle and get this house ready to clear maybe 40-60 k? Plus side of selling this house and buying a smaller house are that it would drop the mortgage and reduce upkeep and electricity (all other utilities are basically fixed). Those are big upsides. But, downside is that we go through a lot of effort in a short amount of time and still have a mortgage and still have years to pay on the mortgage. The current house has the possibility of 'earning' money with a renter. That money could go to the mortgage or to savings. It's more flexible where it goes.

We looked at a 750 sqft house today and didn't walk away in love with it. It doesn't make me love our house more, but I prefer some things about it. I worry that we'll do a bunch of work, spend a bunch of money/time and not be able to find a house worth moving into. The other thing that worries me is that we don't have a pile of cash lying around and trying to do things quickly usually means spending more money.

We left our meeting with the realtor with a three week deadline. We'll do a bunch of surface work on this house and have him do a market analysis in three weeks. Then we can see what he has to say. He did say that with a renter, it might not be worth all this effort to move.....

Thoughts?

Scott 2
Posts: 1304
Joined: Sun Feb 12, 2012 10:34 pm

Re: Worth it to downsize and still have a mortgage???

Post by Scott 2 » Thu Sep 05, 2019 9:55 pm

Assuming a $175k value, you have roughly 50k in assets related to your home today.

If you pay the realtor 6% of sale (10.5k) and incur 3.5k. in moving and staging costs, you'll reduce the value of the housing asset to $36k.

What is the reduction in monthly cash flow demand? Account for opportunity cost of losing the renter, income tax deductions, interest, property tax, etc. How long does it take to pay back that reduction in net worth? What do you do with that money? Is it invested, or does it buy craft beer?

My gut feel is you are looking at 5-10 years, and unless you are gaining a lifestyle or location you prefer, it doesn't make sense. The gap in home values is too small.

Frita
Posts: 187
Joined: Thu Mar 15, 2018 8:43 pm

Re: Worth it to downsize and still have a mortgage???

Post by Frita » Thu Sep 05, 2019 10:41 pm

Also, consider the kid stuff. Moving with a young child can be more stressful as well. Some kids react better than others so consider your child’s temperament. It sounds like your current house is in a better neighborhood. How would that affect schools in the future, or do you plan to homeschool?

User avatar
Bankai
Posts: 539
Joined: Fri Jul 25, 2014 5:28 am

Re: Worth it to downsize and still have a mortgage???

Post by Bankai » Fri Sep 06, 2019 1:21 am

Probably not worth it - lodger at $400/m is equivalent to $120k at 4% swr.

2Birds1Stone
Posts: 720
Joined: Thu Nov 19, 2015 11:20 am

Re: Worth it to downsize and still have a mortgage???

Post by 2Birds1Stone » Fri Sep 06, 2019 9:38 am

Imho, not worth it. Especially if you can tolerate your current neighbors.

Jean
Posts: 1025
Joined: Fri Dec 13, 2013 8:49 am
Location: Switzterland

Re: Worth it to downsize and still have a mortgage???

Post by Jean » Fri Sep 06, 2019 10:25 am

I would rent out the extra room and bath. Because as said, this income is equivalent to a lot more capital than you'll get, you seem happy were you are, and moving will cost you a lot of time and money.

mooretrees
Posts: 53
Joined: Sun Jan 27, 2019 1:21 pm

Re: Worth it to downsize and still have a mortgage???

Post by mooretrees » Wed Sep 11, 2019 9:15 am

I think I am leaning towards seeing how living with a renter works for 6 months, doing some upgrades to the house and seeing if we feel like selling in the spring/summer.

Thanks for all the feed back, really helped think about this in different (less emotional!) ways.

I did some mortgage calculator playing around and the heart of the matter is that having a mortgage is the pits. I thought I understood that when we bought the place, but I wasn't really thinking about long term. And ERE wasn't on my radar. I think now the best way to go for us it to go through with our school bus build and see how that lifestyle works. Rent this house out and eventually sell it when we want to live in fixed home. And buy our next home outright.....

Jean
Posts: 1025
Joined: Fri Dec 13, 2013 8:49 am
Location: Switzterland

Re: Worth it to downsize and still have a mortgage???

Post by Jean » Sat Sep 14, 2019 6:58 pm

That sounds like a good plan.

Post Reply