As many of you know, our #1 financial mistake was the purchase of our home back in 2007.
Not only was it at the peak of the bubble, but we bought it with no money down, no budget, and the 2nd worse crime of all: on a complete whim. (We literally took a wrong turn on our way to check out an apartment to rent, and 48 hours later we had a house to our name *facepalm*).
The first crime? Buying it because everyone else was. You know, the whole “American Dream” thing.
Every last person I knew either owned a home, or was in the process of settling down and picking one up, and having been freshly engaged to my future wife I thought, “this is the natural next step, right? Who cares if you weren’t even thinking about buying a home this morning. Everyone else figured out how to afford it, you will too!”
Well, it turns out it’s not for everyone. While we were fortunate enough to be able to afford the place and not get into too much trouble over it, the fact was we shouldn’t have done it. Or at least spent more than two whole days thinking about it :)
Home ownership is no joke. Unless your plans include living in the same home for 7+ years (my didn’t) or you enjoy the ability to “own” something and tweak it to your liking (I thought I did, but turns out that’s not really important anymore) you should probably stick to renting. Even if people say it’s “throwing money down the drain.” That’s not always true, and plus those people don’t matter anyways!
What does matter is your happiness. And sometimes that means not following the crowd as crazy as it may seem. Some of the most popular (and financially free!) money bloggers don’t even own themselves – JL Collins, Go Curry Cracker, Mad Fientist and plenty more. In fact, when I shot Mad Fientist a note about writing this post, he sent me back the following:
Mrs. Fientist and I currently rent a furnished apartment and we’re absolutely loving it! We’ve owned and sold two houses so far in our lives and I don’t know if I’ll ever buy another place to live in.
Since our current apartment is furnished, we could literally pack up less than one carload worth of stuff and move out. It’s extremely liberating and I’d gladly throw a tiny chunk of money away every month (which isn’t really the case because I’m getting something important in return for that money – shelter), than potentially throw a LOT of money away in real-estate commissions, maintenance costs, legal fees, and opportunity cost of having a big chunk of my money invested in an asset that underperforms the markets (which is exactly what happened with our last house and with most houses, if you look at the historical figures).
I’m actually trying to take it to the next level and just use my travel-hacking skills to live out of hotels and airbnbs very cheaply all over the world but I don’t think I’ve got the Mrs. convinced yet :)
Point is, renting doesn’t make you an idiot. Living someone else’s life does.
And while I’m still inching back to living my own life again, it got a whole hell of a lot better once we got out of our house and started renting again – making our old house a default rental property (and a rental property that loses cash every month at that – d’oh).
But what’s done is done, and we now come to a crossroads I need your help with!
We got a notice from our renter recently that they’ll be breaking the lease due to military orders that came up (something you’re legally obliged to comply with, penalty-free (and rightfully so)) so now we have a few weeks to make a tough decision:
Do we find a new renter, or sell it once and for all?
It’s no surprise that my heart is saying DUMP DUMP DUMP! Haha… But logic is telling me to slow down and go over everything as to not make another heated decision in the moment ;) And y’all know how much I love following my emotions.
So this is my chance to hear outside opinions from people who know me (and my wallet) the most. I didn’t have this blog when I took out out that loan for $360k back then (though it did prompt the creation of this site – so I can’t hate on it too much), but I have it now and I’m calling in a lifeline :)
Here’s the general state of affairs, financially:
- Purchase price: $360,000
- Possible sales prices: $280,000 worst case, $300,000 more than likely, $320,000 if the lottery strikes (we’re taking a loss no matter how it pans out)
- Amount still owed: $290,326.04
- Costs to offload: $20,000-$30,000? (Will need to double check w/ realtor…)
- Amount of cash we have on hand: $27,228.32
- Amount losing each month w/ renter: $600’ish (difference in rent vs mortgages + maintenance + homeowners association + property manager fees)
So best case we walk away with $10,000’ish if we sell and no longer bleed $600/mo, and worst case we need to come up with $40,000+ to seal the deal, but we still get to stop the bleeding every month. And more than likely it’ll be somewhere in the middle.
There’s also the tax implications to everything as we’d be getting rid of our yearly loss write-offs, but obviously a $0 loss is better than LESS loss ;) (Another crazy thing people like to say btw – “Don’t pay off your mortgage, you’ll lose your write offs!” If you’re not paying it down, hopefully it’s because you’re paying your other – worse – debts first or investing your $$$ elsewhere…)
Now if we continue to rent it out, we still bleed the money each month, but also don’t have to deal w/ all the hassle and coming up with a chunk of money from all the fees. Not to mention that *eventually* it would become a cash generating property as we’re paying extra towards the principal each month, though quite some time away. On the other hand, it would still cost us to have our property manager vet a new renter all over again and get them through the door, so we’re not coming off scott-free no matter which route we choose.
(And before you say it – we’re not getting rid of our property manager as they’re a God send! Haha… Costs some money, but saves so much time and patience with everything, especially while living in different states. For us the $$ is worth the trade off of being on call 24/7…)
Here’s the full list of pros and cons…
Pros to selling the house
- No more worry/headache
- No more bleeding of $$ every month
- No more anxiety any time a call/email comes from the property manager
- No more feeling like you have an extension of yourself somewhere. And far away at that.
- No more having our largest $$ mistake on the books!
Cons to selling our house
- Big chunk of cash out the door
- We’d be selling it at a loss
- We lose any chance of turning it into an extra income stream over the years
- It’ll take some bandwidth to get it prepared and cleaned up and ready to be shown properly
- It might not be the best time to sell as the market hasn’t fully recovered/improved?
- And, in a weird way, we’d lose our back up home if the $hit ever hit the fan
So pretty much the emotional side wins in the pros, but the financial effects take the cake in the cons. And just for fun, I plugged in the house into all those shopping/selling tricks from over the years just to see what my gut reactions were. They were pretty telling:
Which decision makes you the most excited? Selling the house!
What would you rather have, the house or cash? Cash! (If it were an option)
Would you move right into this house the second you bought it? No. (This trick is more about deciding which clothes to buy or not (if you’d wear it right out of the dressing room, buy it! If you hesitate, put it down.) but figured I’d swap in the house just to see what would happen :))
So obviously you know which way I’m steering ;) And in all reality, we’ll be okay whichever route we end up taking, but of course you always want to set yourself up for the best possible option.
Last week I was gung-ho with wiping our hands once and for all, but over the weekend the doubt has started to creep in… After all, it could totally wipe away our cash! Maybe it’s better to wait another year until we’re more stable? Or at least until we get our 2nd income again?
So much to consider, but it’s time to stop and get outside opinions now…
What would you do if you were me? Sell and be free, or rent and suck it up?
Here’s our latest net worth if you need more financial info, but pretty much looking for first reactions here and any insight from your own experiences you could bestow upon me. I’m good at a lot of things, but making home ownership decisions I am quite obviously not ;) HELP!
UPDATE: Thank you guys so SO much for all the comments and emails and messages! You’re so good to me! I’m reading and considering each and every one of them, and just so thankful for the killer community we’ve got here. Really appreciate the time you’ve spent sharing your opinions with me, and I absolutely love y’all for it. THANK YOU SO MUCH!
UPDATE #2: We decided to put it on the market :) WISH US LUCK!!
UPDATE #3: WE SOLD OUR HOUSE! OMG!!!!!!!
PS: Did I mention I hate home ownership?
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!