Comments on: Should we stay or should we go?

Question: Should we stay or should we go?

hollygoheavy — Fri, 21 Jul 2006 17:40:47 -0800

I'm considering selling my house and moving back into an apartment.

I just took a new job with a property management company in multifamily housing. There is a really good discount for employees and I'm in an upscale community with a lot of amenities. My husband and I are not great homeowner's-we hate yardwork, neither of us are real big on DIY stuff and we just got stuck with a massive bill for a slab leak in our dining room.

Even without the discount, the rent on an apartment with the same square footage would be around $400 less than our current mortgage (we really got screwed badly) and honestly, we don't know if we really want to bother with refinancing, especially since our neighborhood seems to be slowly going downhill. With the discount it's about half our mortgage payment, and we'd have none of the homeowner crap to deal with.

I plan on staying in this industry, hopefully and most likely with this company, however employee housing discounts are an industry standard so even going with another company I'd still have that perk. One other "pro" to me is that not being tied down to a house makes me relocatable which is something my husband and I are not averse to.

Opinions? Experiences? Slaps on the back of the head for not owning a home and going back to paying rent?

By: seawallrunner

seawallrunner — Fri, 21 Jul 2006 17:50:07 -0800

go for it - home ownership is not the only form of investment out there

I'm sorry to hear that your ownership experience is not a positive one. You could pay the rent on your beautiful discounted apartment and invest the difference (from the mortgage payment) in a carefully created stock portfolio. Talk to a financial planner who does not get commissions on the stock that s/he recommends.

By: JMOZ

JMOZ — Fri, 21 Jul 2006 17:51:15 -0800

Well, there are two aspects to owning a home: 1) it is a place to live, and 2) it is an investment. The place-to-live aspect is easy enough to resolve in your situation, but the investment part is a bit trickier.

In recent years, real estate (such as a house) has been a fantastic investment. Property values have gone up in most of the country. Of course, past performance doesn't indicate future performance, but there's a common aphorism that states, "Land is the only thing no one is making more of."

Basically, the logical thing to do in your position is make your best educated guess on how value of your house will change in the future. Also consider the value of how else you might invest the other half of your mortgage payment if you were to move into an apartment. (You are planning to invest that, right? Right??) Try to predict which will leave you more financially stable in the future. If you aren't the good-with-financial-math type, consider consulting a financial planner. They will likely have some handle on the real estate market in your area.

Of course, logic only goes so far, and if you're unhappy with home ownership, there's a value in not having to do it, too. That's harder to put a pricetag on.

By: crazycanuck

crazycanuck — Fri, 21 Jul 2006 18:00:05 -0800

What they said about investing the difference. Remember that you will also be paying more in federal tax (if you itemize) because you are losing the deduction for mortgage interest.

There are other miscellaneous downsides associated with renting, such as dealing with landlords, living under other people's rules, dealing with neighbours in an apartment setting, and the risk having the place sold out from under you. There is also the possible unpleasantness associated with living where you work (what happens if your job goes south?). These downsides can offset the downsides associated with home ownership.

If you ask me, looks like a wash. Go with what you're comfortable with.

By: crewshell

crewshell — Fri, 21 Jul 2006 18:00:59 -0800

If this discount is large enough you may be able to rent out your current home, live i nthe apartment and still come out ahead every month while still building equity and such. Now this does not negate your upkeep of your home but deals can be made with tenants about maintence or you could hire a managment company to handle it... and remember that rents will rise over time and the benefit will decrease... at least the financial one will. As to you own life style gains or loses thats harder to measure

By: konolia

konolia — Fri, 21 Jul 2006 18:34:35 -0800

Make sure you like working in property management first. And think hard about whether you want to live where you work. A friend of mine was a manager for a townhomes community and the other owners/tenants were not great about respecting office hours.

By: hollygoheavy

hollygoheavy — Fri, 21 Jul 2006 18:52:18 -0800

Thanks for your input everyone-to clarify a little:

Our home has appreciated almost 110k since we bought it.

The public schools in our district have markedly declined and we are seeing some disturbing signs of the neighborhood beginning a downward slide as well (kids congregating and smoking on the corners, people begging for money in the grocery store parking lot at the closest major intersection, more homes in our subdivision have gone to rental properties so the upkeep isn't there anymore). We're wondering if we're on the edge of a bubble that might put us in the hole if it bursts.

I like property management, I've been in it a while and plan to make it until retirements. As far as living where I work, that's definately something to think about. FWIW, the team I just joined is a long term team, some of them there 10+ years at this property and quite a few live on site. I do worry about the tenants coming to my door at odd hours though.

Please, keep the thoughts and opinions coming, this is providing so much for discussion for us-things we never thought of!

By: concrete

concrete — Fri, 21 Jul 2006 19:34:13 -0800

If it takes as long to appreciate 110k as I think, this probably isn't a concern, but you will have to pay capital gains taxes if you've lived in the house for less than two years (IRS Tax Topic 701). If you have lived in the house for less than two years, there is a provision for a reduced exemption, but it doesn't appear that your situation fits any of the qualifications.

By: unexpected

unexpected — Fri, 21 Jul 2006 20:18:17 -0800

just a thought...since you're in the property management business, wouldn't it be good experience to move out of the house, into the apartment, and then rent the house out to someone else?

This would give you valuable experience "managing property" and let you keep the benefits of owning a house (tax deduction, etc.)

By: JohnnyGunn

JohnnyGunn — Fri, 21 Jul 2006 21:28:16 -0800

Sell the house. If you are looking at your home to bring you financial freedom or a winfall, you will be disappointed. I look at my house as four walls and a roof. Renting is the alternative. Your rent is half of what you pay in a mortgage. What about maintenance? That will drive up your costs considerably. There is a tax break for a mortgage, but depending on your income, that might not be worth a lot. I would find out if you are going to be 1099'd for the vbalue of the discount on your apartment rent. IF so, there will be taxes due.

I would take the difference between what I am paying now and the new rent and save it. See how quick it builds. Just like the equity in your house, but no downside risk. Lock in the $110k. Cash outperforms a down market in both real estate and stocks.

By: Melsky

Melsky — Fri, 21 Jul 2006 21:38:33 -0800

I would sell it, especially if you think the neighborhood is going downhill and you don't enjoy being homeowners. I don't think housing values will continue to rise at the rate they have been the past few years and they may go down. They may even go down a lot.

The fact that there are people who have been working and living there a long time is a really good sign.

By: vanoakenfold

vanoakenfold — Sat, 22 Jul 2006 01:12:41 -0800

I think the biggest problem you cited was the being-screwed part of buying the house. I would not consider apartment dwelling as any plausible definition of wise money management except as a temporary substitute while getting back on one's feet, going to college, lengthy vacation, etc -- even at a "big savings", you'll never get that money back.. "savings" merely being a business ploy to mean "less spending" and not actually saving anything except off of the already inflated-for-profit rate. Even if you work there you'd still be losing money, just losing it slower. With a house, you get back pretty much everything you spend except for your own personal effects.

By: vanoakenfold

vanoakenfold — Sat, 22 Jul 2006 01:13:24 -0800

That is, sure, sell the house you're in, but get a different house somewhere else.

By: A189Nut

A189Nut — Sat, 22 Jul 2006 02:58:37 -0800

Can't you sell the house and buy an apartment and keep the difference?

By: Big Fat Tycoon

Big Fat Tycoon — Sat, 22 Jul 2006 08:54:58 -0800

"With a house, you get back pretty much everything you spend except for your own personal effects."

Yeah, except all the mortgage interest you pay, property taxes, maintenance and upkeep costs. Owning property is nice, but as has been pointed out in previous threads, real estate is not historically the best investment over the long term -- or at least the recorded history.

By: Mars Saxman

Mars Saxman — Sat, 22 Jul 2006 09:34:52 -0800

With a house, you get back pretty much everything you spend except for your own personal effects.

The majority of each monthly bill goes to interest, not principal, and you never get back any of the money you spend on PMI, HOD, property taxes, or general maintenance. Housing prices are based on availability of credit, and interest rates have been very low for the last few years, but rental prices are limited by local salaries, which haven't grown at anything like the same rate.

Imagine that someone buys a house at 7%, and their monthly mortgage payment is $2000. Only about $250 of that first payment goes to principal: all the rest is interest. It will be about ten years before $500 of that monthly payment applies to the principal. But it's entirely reasonable that this hypothetical someone could find an equivalent rental house for $1500, leaving $500 a month free to invest in a 401(k), mutual funds, or some other profitable venture. And this completely ignores all the other costs mentioned above, which bias the argument further in favor of renting.

The "angle" with a house, of course, is that appreciation means you effectively earn interest on the entire value of the house, no matter how little of it you've actually paid for so far. If the rate of appreciation is substantially higher than the rate of the mortgage, you stand to make a lot of money. With a more conventional investment, you only earn interest on what you've put in so far; but then you didn't borrow the money, so you don't need as great a rate of return in order to make a profit.

By: Melinika

Melinika — Sat, 22 Jul 2006 20:15:45 -0800

IMO and of course only my opinion: based on all the info you've given here, in your situation, I'd sell the house and rent the apartment.

By: kantgirl

kantgirl — Sun, 23 Jul 2006 08:44:23 -0800

First, let me start by saying I was in the same boat you were two years ago. I went to my financial advisor and he told me to sell. It was the best advice I ever received. (Well next to the invest in index funds bit) I went from being in the red to way way in the black (and that is AFTER having taken a loss on the house, real loss, showed up with a big ole check at closing)

Now, There is reason to believe that there is a housing bubble. This site while talking about San Francisco has some very good information about why. The basic point is that prices are disconnected from fundamentals. (something almost every bubble article talks about) So, what has driven the price of houses is speculation. This means that there will have to be a correction. A correction means houses will likely loose value. Many say this will trigger a recession.

All of this aside. Any investment book worth it's salt will tell you, that for real estate investments you should be able to rent the property for a profit in order for it to be a good investment. So, unless you can rent the place for more then you pay a year (including taxes, ins, maint)

There are many rent vs buy calculators out there. Try plugging the numbers. *Just keep in mind many are bias to one side or another*

A few things to keep in mind when looking at total cost of ownership. How much tax saving are you *really* getting? Remember to subtract the standard deduction from your estimate. So, if you are paying say $8,000 a year in mortgage interest and you are married then, you are not gaining anything. (Standard deduction is $10,000 for married people filing jointly) Then there is the cost of maintaining a house. You should budget 1% of the houses value a year for maintainer costs.

One more thing. Investing/Money management is a forward looking business. Don't look at what you put in. Look at where the investment is going. :-)