Are we stuck for now?

[Anonymous]

OP here- I'm listening and I'm very impressed with the graphs and all the calculations. Thank you! You've convinced me. We're going to sell. I know it's the right thing to do. I'm curious about the occupation/education of the PP who did the graphs. What is your job and/or what's your educational background?
When I read the threads about how hard it is to buy a house in the DC area (especially a close in, upper brackets one) and how hard it is to save for a down payment, it does make me think twice. I guess the answer is we unfortunately bought when everyone assumed (from the evidence of the last 10 years) that real estate would continue to significantly appreciate and that with the booming economy we would get strong raises and significantly increase our salaries. A few months later it all crashed. It just doesn't make financial sense to put so much of our money into our mortgage when we could be getting a much better return on savings.

[Anonymous]

Anonymous wrote:OP here- I'm listening and I'm very impressed with the graphs and all the calculations. Thank you! You've convinced me. We're going to sell. I know it's the right thing to do. I'm curious about the occupation/education of the PP who did the graphs. What is your job and/or what's your educational background?
When I read the threads about how hard it is to buy a house in the DC area (especially a close in, upper brackets one) and how hard it is to save for a down payment, it does make me think twice. I guess the answer is we unfortunately bought when everyone assumed (from the evidence of the last 10 years) that real estate would continue to significantly appreciate and that with the booming economy we would get strong raises and significantly increase our salaries. A few months later it all crashed. It just doesn't make financial sense to put so much of our money into our mortgage when we could be getting a much better return on savings.

I'm the graph guy, I'm in analytic strategy & finance, undergraduate in economics, graduate MBA in finance from a top 3 university, graduated in the top 2% of my class. But.... Credentials aside, you shouldn't sell because of my graphs. First, I made a lot of assumptions about stuff I didn't know, I.e. Your portfolio size and risk allocation, the exact equity numbers you have, the precise rate of your mortgage and its terms (I.e. Is it balloon, interest only, have prepayment penalties, etc). You really should sit down with a financial advisor who you can openly discuss income and assets and all that with.

I'm glad my effort opened your eyes a bit, but please do have someone with access to your real data run the numbers.

Good luck

[Anonymous]

Anyone who ever got an interest only loan needs a financial advisor for big decisions.

[Anonymous]

OP, my view is usually that financial advisers' main role is to come between clients and their money, and on these threads you can normally advise people to educate themselves, buy Vanguard etc, and all will be well.

But in your case, you seem to have such a high income, and be in such a mess, that a few hundred dollars with a financial adviser would be money well spent. I also would not base any rash decisions on PP's graphs, beautiful though they are. In particular, the spread between 2 percent appreciation from real estate asset and 6 percent from financial asset seems excessive to me.

[Anonymous]

Home Price $1,250,000
Mortage $1,000,000
Equity $250,000
Cost to Sell $57,500
Sale Price $1,150,000
Losses $(100,000)

If you take the haircut now, you walk away with $150K in equity - and in your first year add $36,000 to that. Your 2nd year you do the same, and so on and so forth. Each year that grows by perhaps 6%.

I think this is off by $50K. If the mortgage is $1 mil and you sell for $1.15 mil and there's $57.5K of selling costs you'll have a shade under $100K rather than $150K, not sure if this is reflected in PP's graphs or not.

[Anonymous]

Anonymous wrote:

Home Price $1,250,000
Mortage $1,000,000
Equity $250,000
Cost to Sell $57,500
Sale Price $1,150,000
Losses $(100,000)

If you take the haircut now, you walk away with $150K in equity - and in your first year add $36,000 to that. Your 2nd year you do the same, and so on and so forth. Each year that grows by perhaps 6%.

I think this is off by $50K. If the mortgage is $1 mil and you sell for $1.15 mil and there's $57.5K of selling costs you'll have a shade under $100K rather than $150K, not sure if this is reflected in PP's graphs or not.

Actually the mortgage is $1,144,000. I think the cost to sell may be closer to 80,000. I'm hoping the sale price will be $1,250,000 or very close to it. So we probably will walk away with nothing and that is a big concern.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Home Price $1,250,000
Mortage $1,000,000
Equity $250,000
Cost to Sell $57,500
Sale Price $1,150,000
Losses $(100,000)

If you take the haircut now, you walk away with $150K in equity - and in your first year add $36,000 to that. Your 2nd year you do the same, and so on and so forth. Each year that grows by perhaps 6%.

I think this is off by $50K. If the mortgage is $1 mil and you sell for $1.15 mil and there's $57.5K of selling costs you'll have a shade under $100K rather than $150K, not sure if this is reflected in PP's graphs or not.

Actually the mortgage is $1,144,000. I think the cost to sell may be closer to 80,000. I'm hoping the sale price will be $1,250,000 or very close to it. So we probably will walk away with nothing and that is a big concern.

You said earlier your take-home is 16K - 7K for house - 4.2K for school = 4.8K for everything else (food, utilities, etc.) and it will go up to 9K per year next year when you put your kids in public school right? 4.8K for everything sounds very doable as long as you're not eating out a lot and buying a lot of stuff.

In the meantime, can you either sell some stuff or perhaps rent out one of the rooms/basement of your home to bring in a little extra money? Also, how old are you guys and what, if anything, has been saved for retirement (including pensions and employer match/contribution to 401(k).

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Home Price $1,250,000
Mortage $1,000,000
Equity $250,000
Cost to Sell $57,500
Sale Price $1,150,000
Losses $(100,000)

If you take the haircut now, you walk away with $150K in equity - and in your first year add $36,000 to that. Your 2nd year you do the same, and so on and so forth. Each year that grows by perhaps 6%.

I think this is off by $50K. If the mortgage is $1 mil and you sell for $1.15 mil and there's $57.5K of selling costs you'll have a shade under $100K rather than $150K, not sure if this is reflected in PP's graphs or not.

Actually the mortgage is $1,144,000. I think the cost to sell may be closer to 80,000. I'm hoping the sale price will be $1,250,000 or very close to it. So we probably will walk away with nothing and that is a big concern.

You said earlier your take-home is 16K - 7K for house - 4.2K for school = 4.8K for everything else (food, utilities, etc.) and it will go up to 9K per year next year when you put your kids in public school right? 4.8K for everything sounds very doable as long as you're not eating out a lot and buying a lot of stuff.

In the meantime, can you either sell some stuff or perhaps rent out one of the rooms/basement of your home to bring in a little extra money? Also, how old are you guys and what, if anything, has been saved for retirement (including pensions and employer match/contribution to 401(k).

We are in our early fifties and have saved some (about $240,000) for retirement but I know it's not enough. We also have college tuitions to pay, so I feel like instead of putting so much into our mortgage we need to be maxing out our 401(k)s and saving $ for college. Part, if not all of the money currently going to private school will probably go to college tuition (unless there is a gap year).

[Anonymous]

Early fifties? Wow. I don't know if I should slap you or hug you.

401k all the freaking way

[Anonymous]

I am also stuck.
Our house was $430K when we bought it, built an expensive deck and did a lot more upgrades, now it is worth $320k, owe $316k, payments of $2100 means we would not be able to find a rental for less, so we are stuck

Got divorced and cannot afford to sell or to keep. But at least the kids have a roof over their heads and the school is OK, not great, but OK

[Anonymous]

Anonymous wrote:I am also stuck.
Our house was $430K when we bought it, built an expensive deck and did a lot more upgrades, now it is worth $320k, owe $316k, payments of $2100 means we would not be able to find a rental for less, so we are stuck

Got divorced and cannot afford to sell or to keep. But at least the kids have a roof over their heads and the school is OK, not great, but OK

Can you afford the payments?

[Anonymous]

OP we were in your exact situation. We had to take a loan out to cover cost of selling, we were about 30k short. It was so stressful. Fast forward 3 years and we are in such a better place. We have a great long term rental (love it and don't even think about owning!) and can now plow money into our 401(k)s and college savings. But really the best part is how less stressed we are.

[Anonymous]

OP, I've said this before, but you've ignored it. After your last post I feel compelled to repeat myself. You are in your early fifties and have $240k saved for retirement, with no home equity, and a spouse who has a spending problem and enjoys the finer things. You apparently have little to nothing saved already for college, despite the fact that you have 4 kids, some of whom are getting close to college age.

Regardless of what you decide to do with the house, you need to abandon the notion that you are paying for college. You absolutely cannot afford it. I realize it will be hard to tell your kids, and you'll feel like you're letting them down. But there's enough time for them to apply for merit scholarships or take out loans, and you can help them with incidentals. But the idea that you are in financial position to pay for college tuition (never mind multiple tuitions!) is a fantasy. No fancy graph or chart will change that.

[Anonymous]

Anonymous wrote:OP, I've said this before, but you've ignored it. After your last post I feel compelled to repeat myself. You are in your early fifties and have $240k saved for retirement, with no home equity, and a spouse who has a spending problem and enjoys the finer things. You apparently have little to nothing saved already for college, despite the fact that you have 4 kids, some of whom are getting close to college age.

Regardless of what you decide to do with the house, you need to abandon the notion that you are paying for college. You absolutely cannot afford it. I realize it will be hard to tell your kids, and you'll feel like you're letting them down. But there's enough time for them to apply for merit scholarships or take out loans, and you can help them with incidentals. But the idea that you are in financial position to pay for college tuition (never mind multiple tuitions!) is a fantasy. No fancy graph or chart will change that.

If we don't pay for private school ($4200) and we rent for $3000 (instead of $7000 mortgage) that gives us $8200 we didn't have, which is $98,000. Couldn't we save $60,000 for retirement and spend $40,000 on college? (May need a little less or a little more depending on choice of college). Planning on kid one working/doing a paid coop and kid 2 getting merit aid.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP, I've said this before, but you've ignored it. After your last post I feel compelled to repeat myself. You are in your early fifties and have $240k saved for retirement, with no home equity, and a spouse who has a spending problem and enjoys the finer things. You apparently have little to nothing saved already for college, despite the fact that you have 4 kids, some of whom are getting close to college age.

Regardless of what you decide to do with the house, you need to abandon the notion that you are paying for college. You absolutely cannot afford it. I realize it will be hard to tell your kids, and you'll feel like you're letting them down. But there's enough time for them to apply for merit scholarships or take out loans, and you can help them with incidentals. But the idea that you are in financial position to pay for college tuition (never mind multiple tuitions!) is a fantasy. No fancy graph or chart will change that.

If we don't pay for private school ($4200) and we rent for $3000 (instead of $7000 mortgage) that gives us $8200 we didn't have, which is $98,000. Couldn't we save $60,000 for retirement and spend $40,000 on college? (May need a little less or a little more depending on choice of college). Planning on kid one working/doing a paid coop and kid 2 getting merit aid.

Yes.. And I'm not PP....but honestly I think your retirement needs to become a major priority ASAP. I'd have them take loans and if in 4 years your assets are doing well offer to pay off a portion or all. For the sake of making it up, let's say you can turn that $400k into $700k in the next 5 years, wouldn't you be better off with that than a paid off college bill, particularly given your ages? Put differently if one of you loses a job in 5 years, you can't borrow back against the college you've already paid off. Right now you need to take a massive leap into the "holy shit I'm retiring in ten years and have nothing" pool.

- graph guy