Sell both of my properties, or ride it out?

[Anonymous]

Right now we have a combined HHI of 400k, but I'll be taking a 140k hit when I move out of a biglaw job later this year (so new HHI will be $260). Right now I own two properties -- a rental property that has a PITI of $2100 a month that I rent out to my parents for $1700/month, in exchange for them taking care of my two kids. We own a nearby primary residence with a PITI of $4300. Both of the mortgages are at 3.5%. So the total amount I pay out of pocket for mortgages each month is $4700. This has been a great arrangement for us so that we can leave our preschool kids with people we trust, for less money than a daycare center or a nanny.

Is it crazy to try to tighten our belts and keep this same arrangement when we're earnings $140k less? Although our base HHI every year will be a lot less, I will receive a discretionary annual cash bonus of up to $50k, plus stocks of up to $50k (that vest in 2 years). I was thinking that I could base my budget on a probable $20k extra a year, and take out some $$ from savings to pay for living expenses. We have about $80k saved (not counting 401(k)).

DH is pushing pretty hard for us to sell both properties, take the equity of $300-400k, and buy a house in the $600-700k range where the whole family, including my parents, could live together. Of course, this would involve a major commute to get a big house like that for that price (whereas right now my commute is 20 minutes).



So what say you - crazy to try to reduce spending and keep both properties? They are in Arlington if that makes any difference.

[Anonymous]

Anonymous wrote: buy a house in the $600-700k range where the whole family, including my parents, could live together.

Good luck with that. Finding a property with independent living quarters for your parents is going to be hard enough. Finding one at that price is going to be nearly impossible. You won't want a traditional home. At a minimum, you need a separate entrance, something with cooking facilities, a bedroom and bath, and a sitting area or living room - ideally, a daylight basement apartment or something that has an addition for this purpose. Try going out and looking for properties like this and see what you come up with.

I'd stick with what you have for a year and see how it goes.

[Anonymous]

Anonymous wrote:

Anonymous wrote: buy a house in the $600-700k range where the whole family, including my parents, could live together.

Good luck with that. Finding a property with independent living quarters for your parents is going to be hard enough. Finding one at that price is going to be nearly impossible. You won't want a traditional home. At a minimum, you need a separate entrance, something with cooking facilities, a bedroom and bath, and a sitting area or living room - ideally, a daylight basement apartment or something that has an addition for this purpose. Try going out and looking for properties like this and see what you come up with.

I'd stick with what you have for a year and see how it goes.

OP here - yeah, the only places that I've found are in Calvert or Anne Arundel county, so long commutes to downtown. I've seen a couple in the past year so I know they're out there.

[Anonymous]

I would try riding it out first and see how it goes. You should be moving to a lower tax bracket that will help some.

[Anonymous]

As a licensed real estate broker here in DC/MD/VA, I would suggest you hold onto the properties. You are not taking into account the cost of selling the two properties, fees associated with the transfer of title and the increased mortgage rate you will have to pay on the new home. Current 30 year fixed rates are around 4.625% which is significantly higher than your current rates. In addition, your rate of appreciation on your properties is higher (typically) the closer to the city you are. By the time you factor in all these criteria, I am not sure you will be saving as much as you think, your commute will be worse and you will be living with your parents.

[Anonymous]

Anonymous wrote:I would try riding it out first and see how it goes. You should be moving to a lower tax bracket that will help some.

This. Try living on the lower paycheck amount, and bank the difference. Your current setup is pretty dreamy - I'd hesitate to give that up so quickly. Long commutes are soul-killing, especially if both parents have to do it.

[Anonymous]

What is your DHs current commute?

[Anonymous]

Why move out of big law now? Save more money for a few more years. See if you can save that $140k that your salary would drop. If you can do that, you will have $280k extra (or less after taxes) AND then you know you make enough money to keep both homes.

You have great childcare, so why quit your lucrative job now?

[Anonymous]

Anonymous wrote:Why move out of big law now? Save more money for a few more years. See if you can save that $140k that your salary would drop. If you can do that, you will have $280k extra (or less after taxes) AND then you know you make enough money to keep both homes.

You have great childcare, so why quit your lucrative job now?

I am counsel in biglaw and the partners who give me the majority of my work are retiring in a matter of months. I have not been told of any prospect for partnership, and I am doubtful that the clients will stay with me, a counsel, for their work. So I will be a super senior counsel, generating no $$ for the firm with very few hours. I do not think I have the luxury of a few more years, and given that it took me 1.5 years to network into an in-house job, it is not so easy just to make a jump (at least in my area of expertise).

[Anonymous]

As someone who recently lived with my mother for a few years, please please please do not underestimate the strain of living with your parents. Unless you get along with them amazingly well, as in better than 99% of the humans on this planet. If my parents had their own house nearby I would do whatever it takes to keep them there.

[Anonymous]

A very similar scenario was just posted last month and you might find some helpful advice in that thread:

http://www.dcurbanmom.com/jforum/posts/list/743635.page

OP had a small rental property/fallback, their current house, two small kids, and was going to take an income hit that would drop HHI from $320k to $200k. She summed up their options as follow.

(1) Sell our primary home and the fallback home. Buy something that's around $600-700 with a down payment of $300-350k. The interest rate will be higher and we will pay lots of transaction costs but oh well

(2) Suck it up and try to make it work in our current situation. No more lawn mower or cleaning service. No more going out to eat. Reduce retirement savings just to the match.

(3) Sell fallback home only and refinance our main home. We can't do a recast because that is not allowed with a VA loan. We will pay a higher interest rate than 3.5%, obviously.

(4) Sell fallback home and put the $ in some sort of safe savings vehicle. Pull money from it as needed to help pay for main home so we don't lose our low interest rate.

[Anonymous]

Anonymous wrote:A very similar scenario was just posted last month and you might find some helpful advice in that thread:

http://www.dcurbanmom.com/jforum/posts/list/743635.page

OP had a small rental property/fallback, their current house, two small kids, and was going to take an income hit that would drop HHI from $320k to $200k. She summed up their options as follows:

(1) Sell our primary home and the fallback home. Buy something that's around $600-700 with a down payment of $300-350k. The interest rate will be higher and we will pay lots of transaction costs but oh well

(2) Suck it up and try to make it work in our current situation. No more lawn mower or cleaning service. No more going out to eat. Reduce retirement savings just to the match.

(3) Sell fallback home only and refinance our main home. We can't do a recast because that is not allowed with a VA loan. We will pay a higher interest rate than 3.5%, obviously.

(4) Sell fallback home and put the $ in some sort of safe savings vehicle. Pull money from it as needed to help pay for main home so we don't lose our low interest rate.

I should add their PITIs were nearly identical to yours, both at 3.5%, the rental property at $2000 PITI and their current house at $4500 PITI.

[Anonymous]

Would it be possible to use the equity from your parents house to build an addition onto your current house that would work as separate independent living space for them? They could pay a smaller amount in rent and your monthly obligation goes down, your commute stays the same and you maintain some space independence.

[Anonymous]

Where would you get a house big enough for $6-700k that can fit all of those people? No, do not sell the rental. You are accumulating a loss on it, which will be huge when you sell. You are claiming it as a rental, I assume? If not, you should be.

[Anonymous]

Anonymous wrote:Where would you get a house big enough for $6-700k that can fit all of those people? No, do not sell the rental. You are accumulating a loss on it, which will be huge when you sell. You are claiming it as a rental, I assume? If not, you should be.

Yes, I'm claiming it as a rental. I have not lived in it for many years so will have to pay capital gains/depreciation recapture when I sell.