Looking to get ahead on finances and get more compounding in investments.

Scenario:
Age: mid 30s
Current mortgage remaining 27 year note 400k @ 2.87%
Monthly mortgage: $3900
House is worth ~$800k.

possible equity: $250-300k after 3 years of ownership.

Sell home and rent <$3900 for the foreseeable future and roll equity into investments. (We have talked about moving to smaller town where this rent is easily achievable). Rolling into into our current investments and assuming 7-8% return, we would be able to retire at 60 without making extra contributions (we still would).

I don't foresee my house being worth multimillions here in Dallas (Kessler/Stevens Park near golf course) in 25 years. (Maybe I am wrong).

What am I not thinking about here? Obviously renting with a young family would not be ideal. We could save up and buy again eventually, but barrier to entry would be more difficult.

Once again goal is to get hands on more cash to compound the next 25 years. Radical idea I know, but would rather be financially free at 60 vs thinking I have to live on a budget the last years of my life because I didn't think wisely in my earlier years.

txaggie_08 said:

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What I can't figure out is how you have a $3,900 mortgage payment on a $400k loan @ 2.85%

My $400k, 30 yr loan, @ 3.25%, is 2.5 years old and I pay $1750/month. If I were to include homeowners and taxes on a monthly basis, that still only gets me to about $2400/month.

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Maybe,

• $700k price
• $150k down
• $500k note
• $150k in appreciation over 3 years
• @2.85% rate and 2% in P-Tax
• = $2.2k PI + $1.4T + $1I = ~$3.7k

Ballpark. Shop the insurance or argue better with the CAD.

RangerRick9211 said:

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CuriousAg said:

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Looking to get ahead on finances and get more compounding in investments.

Scenario:
Age: mid 30s
Current mortgage remaining 27 year note 400k @ 2.87%
Monthly mortgage: $3900
House is worth ~$800k.

possible equity: $250-300k after 3 years of ownership.

Sell home and rent <$3900 for the foreseeable future and roll equity into investments. (We have talked about moving to smaller town where this rent is easily achievable). Rolling into into our current investments and assuming 7-8% return, we would be able to retire at 60 without making extra contributions (we still would).

I don't foresee my house being worth multimillions here in Dallas (Kessler/Stevens Park near golf course) in 25 years. (Maybe I am wrong).

What am I not thinking about here? Obviously renting with a young family would not be ideal. We could save up and buy again eventually, but barrier to entry would be more difficult.

Once again goal is to get hands on more cash to compound the next 25 years. Radical idea I know, but would rather be financially free at 60 vs thinking I have to live on a budget the last years of my life because I didn't think wisely in my earlier years.

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We're missing most of the equation to help out.

• @60, what is your projected # you need?
• Outside of home equity, how much do you have in retirement/taxable today?
• How much do you plan to contribute to retirement/taxable going forward?
• What's the delta you're trying to make up or is this just an efficiency of capital idea?
• Do you like your home and can it accommodate your family (size, school districts, etc.)
• Do you itemize (mortgage interest deduction)?

My gut, @2.87%, your reality:

• A phenomenal hedge against inflation. You know what your mortgage will be for the next 27 years. Do you know what rent will be next year, the year after, [...]? Do you know what the market returns will be for the next year? You have a great known locked in.
• 3 years ago, cash-out REFI would be the play. You could evaluate a home equity loan or HELOC if you really want to pull equity.
• Cap gains, amigo. Do you file single or jointly for the home sale exclusion? If single, you're sniffing some taxes.

Can you not continue to save, save your bonus, save your future raise, minimize expenses, hammer the career / upskill / whatever to make more, etc., etc. all other things to shovel money into the market vs. selling your house? 2.87% is too hard for me to pass on.

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I have a lot to think about here. This the # is the tall order... "What kind of life do we want at 60?"

Think this was more of an efficiency of capital idea. We are not in a current district where they can go to the high school. They are good through elementary and maybeee middle school if the community keeps buying in. kiddos are 2.5 y/o and 7 months. So we have time, no rush.

File Jointly and yes I need to fight CAD on taxes.

$3900 because we put little money down because money was cheap and we were doing what we could at the time. Pay a little extra each month to try and knock it down quicker.

Quote:

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I don't foresee my house being worth multimillions here in Dallas (Kessler/Stevens Park near golf course) in 25 years. (Maybe I am wrong).

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Everyone else can work the math for you but I just want to say I think you are way wrong here. That is one of the most beautiful areas in Dallas proper. It's gorgeous. We almost moved into that area, and the only reason we didn't was because there just wasn't quite enough nearby amenities at the time (this was several years ago).

It's only going to get more valuable.

Baby Billy said:

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jamey said:

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My FA friends all say rent forever. But if you're already in a house at a low interest rate, I'd find it hard to sell.

And Dallas housing has sky rocketed the last 4 or 5 years. People aren't going to stop moving here.


I could probably sell, and clear 400K X 7% market gains a year = 28K, divided by 12 = 2333 per month rent, which gets me a lot less than I have now with no diversity in real estate.

And rent will continue to go up imo

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Rent forever? Unless you're moving every few years, why would anyone rent vs buy?

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This is what I am trying to answer. If I can pull equity and get it working and have it compound for the next 25 years vs potential appreciation.

Look I hope my house is worth more than the math I am running. Yes we agree that it is one of the prettiest neighborhoods in Dallas. The schools suck which is what is holding it back.

I don't know if the value of this neighborhood is realized yet. Is there a way to see how it is pacing compared to other zip codes or know if there are future projections for growth?

CuriousAg said:

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Look I hope my house is worth more than the math I am running. Yes we agree that it is one of the prettiest neighborhoods in Dallas. The schools suck which is what is holding it back.

I don't know if the value of this neighborhood is realized yet. Is there a way to see how it is pacing compared to other zip codes or know if there are future projections for growth?

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The schools nearby may suck but that may not matter for long. Texas will pass universal school choice in this next legislative session and you will be able to take your education dollars to any school you'd like. I wouldn't make this decision based on schools.

I would only do this if you wanted to move to a smaller town.

Also assuming you cash out the equity and invest it, you wouldn't have that large of a barrier to re-enter the housing market down the road because you could take what you invested plus gains and roll that into a new house down the line.

Baby Billy said:

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jamey said:

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My FA friends all say rent forever. But if you're already in a house at a low interest rate, I'd find it hard to sell.

And Dallas housing has sky rocketed the last 4 or 5 years. People aren't going to stop moving here.


I could probably sell, and clear 400K X 7% market gains a year = 28K, divided by 12 = 2333 per month rent, which gets me a lot less than I have now with no diversity in real estate.

And rent will continue to go up imo

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Rent forever? Unless you're moving every few years, why would anyone rent vs buy?

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opportunity cost and maintenance are the drivers

every once in awhile, I'll read one of these articles about it being cheaper to rent, so I'll go on HAR and check out the rental opportunities for single family homes in decent neighborhoods. Turns out, they're 95% crap. Poorly updated (if at all). If it was a temporary situation, I could live with that, but to be a permanent renter? No thanks.

As someone mentioned, if you're OK with shared walls at an apartment, it could make sense to rent (especially in an overbuilt market like Houston), but finding a good single family home is tough. Maybe it's easier in the suburban areas, where homes are generally newer.

Diggity said:

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every once in awhile, I'll read one of these articles about it being cheaper to rent, so I'll go on HAR and check out the rental opportunities for single family homes in decent neighborhoods. Turns out, they're 95% crap. Poorly updated (if at all). If it was a temporary situation, I could live with that, but to be a permanent renter? No thanks.

As someone mentioned, if you're OK with shared walls at an apartment, it could make sense to rent (especially in an overbuilt market like Houston), but finding a good single family home is tough. Maybe it's easier in the suburban areas, where homes are generally newer.

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Real world scenario as we listed our townhome to sell or lease last September. Kind of hazy on the purchase numbers as it's been a few months and we were pretty much set on going with the renters, which we did.

But within a couple days we had one offer to buy with more expressing interest and one application to lease.

The lease: $3,500/month

The purchase offer: 20% down (~$105K), the rate on their preapproval letter would have brought their mortgage payment to around $2,800 if I'm remembering correctly. I know what taxes and insurance are...so their monthly costs would have been at least $3,700, probably closer to $3,800-3,900 when considering the reset of the property values with the purchase. (their preapproval letter had an estimated all in cost of $3,950).

So, taking $3,750...roughly 7% more expensive to buy than rent, not including any homeowner costs tied to maintenance. Also not considering the costs of paying a $100k+ down payment.

Also, no way we would have taken this offer with the interest we had. Heck, the realtor even said in their email "Let me know if you want to counter."

MAS444 said:

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With a family and young kids, I couldn't imagine wanting to lease as a long term plan.

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I had that situation when I moved into my current house. The schools were not good at the previous house but interest rates were still low so we upgraded and paid more for a house in a better ISD with the idea being the extra cost on the house was like investing private school dollars into a house in highly ranked
public school district which would appreciate

The OP could do the reverse and downgrade the house, put 300k down and have a higher percentage in equity but you'd have to refinance later or wait and see how interest rates and pricing looks in a year or two.



I'm in Coppell and there's a lot of 80s and 90s houses that are really fixed up and schools are mostly rated 8-10

Something like this, borrow ~135K

https://www.zillow.com/homedetails/432-Leisure-Ln-Coppell-TX-75019/26972572_zpid/?utm_campaign=androidappmessage&utm_medium=referral&utm_source=txtshare

You could own the house outright in a handful of years, freeing up that 3900 forever.

I'm kinda hung on the mortgage. It needs to go away to retire. I'll free up 20K a year when it's paid off but that's a decade way and would like to retire earlier. We have a taxable account we may employ to take out the mortgage but I showed my wife this idea and she said don't tempt me. We could reclaim that 20K a year in mortgage liability immediately

This is always a tough question. My sister sold her home (Cedar Park), and invested the proceeds. She now has a growing portfolio, but has rent anxiety. How much will the rent increase each year? Will the owner of the house I'm living in sell it and require me to move? How much will it cost me to move again? Etc.

I've stuck with it. I am debt free (foolish, but liberating) and now only worry about how much my "rent" to the local town will go up each year. I do have to pay for maintenance, but don't kid yourself if you're renting that those costs are not ultimately built in to the price of your rent.

I see folks thinking the renting route is financially savvy because they hear the bombastic social media financial gurus stating how hood debt is and that they are billionaires who would never own their own home.

If these guys are renting, they are renting from themselves.

They always talk about what a dumb investment a house is because of all the taxes, insurance and maintenance you have to pay - as if landlords don't factor that in to rental rates.

Not saying the OP is falling for that, but loads of people do.

I've had this discussion with a PE guy I know. He has a very nice house outside of Austin, and he threatens to sell it go rent and put the cash in the market pretty often. He hasn't done it though and I don't think he actually will.

jamey said:

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sam callahan said:

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I see folks thinking the renting route is financially savvy because they hear the bombastic social media financial gurus stating how hood debt is and that they are billionaires who would never own their own home.

If these guys are renting, they are renting from themselves.

They always talk about what a dumb investment a house is because of all the taxes, insurance and maintenance you have to pay - as if landlords don't factor that in to rental rates.

Not saying the OP is falling for that, but loads of people do.

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I have argued this point often with FA friends.

In the end, when I'm retired and money is tighter, my annual bills will go from 70K to 50K once the mortgage is paid off. Even the property taxes will effectively freeze in place at 65 yrs old. That seems like a good deal to me.

Not to mention I'll own an asset I could cash out if I wanted for whatever reason.

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Yep, we just did this and I can attest to the fact that it's nice freeing up that mortgage cash. It's pretty damn freeing to get that liability off the balance sheet.

jamey said:

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My FA friends all say rent forever. But if you're already in a house at a low interest rate, I'd find it hard to sell.

And Dallas housing has sky rocketed the last 4 or 5 years. People aren't going to stop moving here.


I could probably sell, and clear 400K X 7% market gains a year = 28K, divided by 12 = 2333 per month rent, which gets me a lot less than I have now with no diversity in real estate.

And rent will continue to go up imo

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what is a FA Friend?

and my buddy made a fortune in private real estate development projects in DC and he rents in McLean and tells me to only rent, even when retiring down to Florida in a few years.

I'm assuming it means financial analyst.

JDCAG (NOT Colin) said:

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I'm assuming it means financial analyst.

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Yes, or financial advisor

txaggie_08 said:

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CuriousAg said:

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$3900 because we put little money down because money was cheap and we were doing what we could at the time. Pay a little extra each month to try and knock it down quicker.

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Why don't you request a recast from your lender? You can keep your current 2.85% rate that way. A new $400k, 30 year loan at 2.85% is only $1,650/month. That's a savings of over $2,300/month that you can then throw towards investments.

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uh that's only about $500 savings a month. (his current P& is $2100)

Still gotta pay taxes and insurance ya know?!