Anonymous wrote:22:12 - tht is all very informative, but is assumes that (1) OP and her family have the discipline to implement the strategy (all evidence to the contrary), and (2) they even want to, when it's more likely that th $3000/month will go straight to college tuition payments.

Well I can't model "what if i only sorta follow instructions". As for 2, that college tuition payment is going to exist no matter what they do, so whether or not they pay for it by not contributing $3,000 towards savings (if they sell) or eating into whatever savings they already have (if they dont sell), its going to have to come from somewhere.

And anyway, the college thing is technically an argument for selling as well. Lets say they have $200K in liquid savings today (which it sounds like they dont, but lets pretend) - that $200K can throw off ~$12K in investments per year. Combined with the $3,000 they could be saving thats $48K a year, or for the sake of simplicity, lets say 1 year tuition is $50K.

Sell:

Have Interest Savings Total Cost Loss
Year 1 $200,000 $12,000.00 36000 $48,000.00 $50,000 ($2,000.00)
Year 2 $198,000.00 $11,880.00 36000 $47,880.00 $50,000 ($2,121.00)
Year 3 $195,879.00 $11,752.74 36000 $47,752.74 $50,000 ($2,249.26)
Year 4 $193,629.74 $11,617.78 36000 $47,617.78 $50,000 ($2,385.22)

Total $191,244.52

Stay:
Have Interest Savings Total Cost Loss
Year 1 $200,000 $12,000.00 0 $12,000.00 $50,000 ($38,000.00)
Year 2 $162,000.00 $9,720.00 0 $9,720.00 $50,000 ($40,281.00)
Year 3 $121,719.00 $7,303.14 0 $7,303.14 $50,000 ($42,698.86)
Year 4 $79,020.14 $4,741.21 0 $4,741.21 $50,000 ($45,261.79)

Total : $33,758.35

So in 4 years you can either have $191,000 left in your savings, or you can have $33,000.

All that said, you are right that the OP wont listen to any of this.

22:12 - tht is all very informative, but is assumes that (1) OP and her family have the discipline to implement the strategy (all evidence to the contrary), and (2) they even want to, when it's more likely that th $3000/month will go straight to college tuition payments.

Here I got bored.



If you assume a historical real estate increase of 2% (which is generous if you look at case-schiller) and a historical rate of return of 6%, even if you assume a 200K withdrawl in year 5 you could still be a millionaire in 15 years just by continuing to contribute $3000 a month to your savings.

The comparison to selling now and investing $3000 a month vs savings $0 and riding your home to retirement is dramatic - even when you consider the loss on home sale, the loss on appreciation, the loss of equity buildup through mortgage payments - you are still way ahead selling.



Assumptions are straightlined mortgage amortization across two points (im lazy), 2% growth, $3K a month into assets at 6% for 15 years.

Basically, keep your house and up with a little under a million in 15 years or sell it and end up with closer to $1.5M. I'm also pretty modest on the stock portfolio, since realistically youd likely increase your contributions from $3000 over the course of 15 years. In that case its worth noting the gap would just continue to widen, although somewhat dampened since presumably you could be investing any incremental income you make into stocks whether or not you sell.

I would also add that the college costs are going to be there whether or not you sell, so its not something you should attribute to selling. Look at things on the margin - selling means saving $Y, not selling means saving $X.

If you remind me what your mortgage amounts / rates are, I'm bored enough to actually graph the comparison for you.

Oh you wanted me to reply to the question above...

All I meant by the $100K comment is that $3,000 a month invested in a tax advantaged account is going to throw off 6% (on average) a year, so by the time you hit year 15 you'll easily have amassed an incremental $100K (more like $200K).

I dont recall if you shared the details of your mortgages, so I assumed the following:

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%.

That leads to this:

With 6%
Year 1 $186,000
Year 2 $235,320
Year 3 $287,599
Year 4 $343,015
Year 5 $401,756
Year 6 $464,021
Year 7 $530,023
Year 8 $599,984
Year 9 $674,143
Year 10 $752,752
Year 11 $836,077
Year 12 $924,401
Year 13 $1,018,025
Year 14 $1,117,267
Year 15 $1,222,463

And thats assuming no income growth over that period which is of course not likely. Its feasible that within 10 years you'll have assets that are GENERATING $50K of income a year, forever. Plus, if we are talking about 529 plans or 401k plans here, you've got a tax advantaged vehicle as well. In fact, I'd argue your $3,000 is understating the potential savings because you could be doing $3,000 AFTER tax (in which case thats $1.1M thats totally tax free above), whereas pre tax you could probably do $3,500 or more, but I digress.

Now you say, what about my home? Wont it also appreciate at 6%? Perhaps (although I'd argue that real estate is a much riskier investment than a diversified set of stocks and bonds as it is by definition not nearly as diversified and much more prone to long term exogenous shocks), but against that come a lot of costs - your mortgage for one, your property taxes, your maintenance, insurance, etc. And that adds up - by 2027 you'll have paid something on the order of $600K in interest alone. You'll still owe something like $700k on the loans too.

To say nothing of the property taxes and maintenance which on a $1.25M home is no small amount of cash. Also, keep in mind that in 15 years when you DO sell, anything over $250K appreciation, plus improvements will be taxable.

Its a simplified analysis to be sure cause I don't have all the data necessary to really do this properly but my basic point is that you can continue to save $0 towards retirement, bank on an undiversified real estate asset to increase, or take a hit today knowing that in 10 years or less you might have assets that could fund annual college costs in their entirety just on interest.

To me the choice is simple: stop keeping up with the joneses, go rent for a year or two to get your shit together, buy a less expensive home somewhere and move on.

Look at my comments in 10:58 and let me know what you think.

Anonymous wrote:Are you there 33 yr old, 1.6 mil?

Yea. Sup?

Are you there 33 yr old, 1.6 mil?

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Op, you seem like a lost cause. I get that taking a loss sucks, but sometimes you have to make a hard decision for the long term. You aren't looking At the flipside ... In ten years would you rather have money to help your kids put their first down payment down or not? Do you think they'll give two shits if they grew up in a rental? When you hit retirement age will you say "Fucking tumbleshits, thank god we have enough to retire" or will you say "Thank Christ my counters are carrera and not some fucking soapstone".... And when you lay on your deathbed will you say "I helped my children grow and leave them enough money for them to be less stressed in their own life" or will you say "That twat next door doesn't have a Mercedes!"

I am considering selling. However, I do wonder if our house will be a nest egg for our kids. In 25 years we will hopefully have a good amount of equity and it will have appreciated some. On the other hand, investing some of that money in a 401k might be smarter, just not sure.

I don't what more to tell you. The real estate will never ever be more than 25 years of $5,000 or more month going into tax advantaged accounts. You can easily prove this yourself with some simple math. You'll have recouped losses in two years, and in five you'll have $300k in an account throwing off perhaps $15K a year. In ten years your contributions alone would have hit $600k, to say nothing of the hundred grand or more you'll have seen via appreciation. It's entirely possible that within 15 years you could have a million in there. Even at the five year mark you could easily take out $200k for a sow payment on a house and not be stretched (assuming of course you buy what you can afford). Anyway I digress, best of luck to you.

Signed - 33 yo, $1.6M and making far less than you

Thanks for the post. We are leaning towards selling. I think your numbers are a bit optimistic, partly because I don't think we can find a rental that fits our family of six in the school district where our kids currently are for less than $4000, maybe 4500. So at best we save $3000. Also, some of that may need to help pay for college, (in addition to our savings from not paying for private school) especially in three years when we'll have two in college.

PP, just curious, what do you mean by the 100 grand or more you'll have seen via appreciation?

True! No one has yet suggested OP should try to make more money!

Conclusion: OP wants a solution that doesn't involve spending less money.

Anonymous wrote:

$100,000 is a lot of money. I'd rather not lose all that money. We only lose that money (via realtor fees and closing costs) if we sell. So the lose is not in the past and we can prevent it by not selling, which we don't have to do. I doubt we can save $100,000 or two in a couple years. We have a bunch of college tuitions to pay. The consequences of not selling is we have a very tight budget and a large part of our income goes to housing. We also can't save as much as we should for retirement or college. However, we hate the idea of renting. Uprooting kids, not necessarily long term, many rentals are dumps or expensive, not building equity, can't change it or make improvements, feeling like you are regressing financially.

OP, you need to come to grips with the fact that you can't pay for college for your kids. You make enough that syou shoudl be able to, but profligate spending has put you in a position where you can't. Now, if you want to change that, you sell the house, accept the loss and reduce your monthly expenses - then you can pay for college. But your position seems to be: (i) you don't want to sell the house, because you'll lose $100,000, it may be a good investment in the future, and renting will make you feel bad, (ii) you want to pay for college, and (iii) you don't want to cut expenses. You can't serve all of those masters at the same time.

+1

$100,000 is a lot of money. I'd rather not lose all that money. We only lose that money (via realtor fees and closing costs) if we sell. So the lose is not in the past and we can prevent it by not selling, which we don't have to do. I doubt we can save $100,000 or two in a couple years. We have a bunch of college tuitions to pay. The consequences of not selling is we have a very tight budget and a large part of our income goes to housing. We also can't save as much as we should for retirement or college. However, we hate the idea of renting. Uprooting kids, not necessarily long term, many rentals are dumps or expensive, not building equity, can't change it or make improvements, feeling like you are regressing financially.

OP, you need to come to grips with the fact that you can't pay for college for your kids. You make enough that syou shoudl be able to, but profligate spending has put you in a position where you can't. Now, if you want to change that, you sell the house, accept the loss and reduce your monthly expenses - then you can pay for college. But your position seems to be: (i) you don't want to sell the house, because you'll lose $100,000, it may be a good investment in the future, and renting will make you feel bad, (ii) you want to pay for college, and (iii) you don't want to cut expenses. You can't serve all of those masters at the same time.

OP, What you need to do, once you are not paying for private school anymore, is agressively pay down your second mortgage. Hopefully you are pretty young and your house is in a good area. Things will loosen up with the loans in time and you will be able to either refinace and combine it with the first loan, in the meantime pay it down. If the house is meeting your needs and you like it, the commute us good, the neighborhood is nice and safe, schools are good, then keep it.