Housing stuff

[k3am]

Because I'm not smart enough to figure this stuff out in real life, the mortgage guy talks mortgages, the realtor talks buying and selling, and the financial advisor wants to sell investments... So help me noodle through stuff, yeah?

PDQ dollar amounts. I included some to give ideas of what we're looking, but may DD them later.

We bought our home in 2011. For cheap. It's now at pretty much the highest it will ever be. We are a bit under a 40% loan to value.  We like the house and neighbors and have remodeled it to our tastes, but it's in a not good school district, under the flight path, and very much on the small side. We are very comfortable here financially.

We can stay in our same house and send both kids to private school. Primary advantage, we have low mortgage payments, and a single point of drop-off/pickup for the kids (until DD hit's 4th grade, I believe? Maybe 8th, I'm not 100% sure). The downside, we stay in a house that's uncomfortable and kids are going to school with kids who aren't local to them - DD would be bussed to the campus about  15 miles away.

We can sell our house and buy in a nicer neighborhood with better school districts. We would need to spend about $450-500k more than what we think we can sell this house for in order to it. Interior and finishes of the houses in this price range are nowhere near where we'd ideally like them to be. Once DD is out of JrK (so the end of this school year), if she were in a public school, we'd have an extra $1400/month (less whatever we ended up paying for before/aftercare) that could go towards the mortgage. And 3 years after that, another $1600/month once DS starts school. So basically.. things would be very tight until we passed those milestones, but doable. We would need to forgo the vacations we don't currently take but I recently started budgeting for, cut back on wine clubs, eat out less, etc. (All things we do without really thinking of how it affects our budget.)

I am also flirting with the idea of moving into a rental as a long-term option to see what real estate does over the next year or two and either selling or renting out our existing place.

Zillow tells me that the going rent for our house would be enough to cover principal, interest, taxes, and insurance on the house with a profit even if it were only rented for 10 months of the year. The idea sounds nice in concept, but not sure I want to hassle with being a landlord.

I don't know what this does to our tax situation if we either rent the house out (I know we can't claim the interest on our tax filings, but I don't know how much that affects what we pay), and if we sell the house and don't buy another one, we likely have a pretty big capital gains. 

Is there anything else I should be considering? I just feel like whatever choice I make, it's going to be the wrong one. I'm really awful with decisions. 

[186momx]

If you turn your house into a rental you still can deduct the mortgage interest on the Sch E. When you put the house up for rent any interest paid would be a schedule E deduction not a schedule A deduction as of that date.

Don't forget the exclusion of $500K for married filing joint taxpayers on sale of personal residence that you have lived in 2 of the last 5 years.
Easy math example:
Bought House in 2011 for $200K
Improvements 100K which adds to basis
Sold house for 600K
Your net sale is 300K which is 100% tax free

k3am, Does that make sense?

[waverly]

I don't know where you are specifically, but generally speaking I think your area has a lot of affordable housing challenges. If you don't want to live in your current house forever then I would move. You could wait until the kids are out of daycare to move, but prices may go up.

Do you like the private schools in the area? What is the tuition like?

Small doesn't necessarily bother me if you have it remodeled the way you want and like it. Does the flight path bother you? If the flight path, smallness and private schools don't bother you then I would stay.

While before and after care are cheaper, for 2 kids in my (comparably) MCOL area, it is still $160 a week for aftercare, and $240 a week for before and aftercare. We are only doing the aftercare.

Caveat, I really do prefer public school for my child with hearing loss. He gets speech, a hearing teacher, and an FM system. Possibly OT. I know your DD doesn't seem to need any additional support at this time. And how services are implemented and quality is school district dependent.

I would probably have a 200 point pro and con sheet and still be wondering what to do. Also, dependent on if you find a house you like.

[k3am]

Nov 13, 2017 13:47:17 GMT -5 186momx said:

If you turn your house into a rental you still can deduct the mortgage interest on the Sch E. When you put the house up for rent any interest paid would be a schedule E deduction not a schedule A deduction as of that date.

Don't forget the exclusion of $500K for married filing joint taxpayers on sale of personal residence that you have lived in 2 of the last 5 years.
Easy math example:
Bought House in 2011 for $200K
Improvements 100K which adds to basis
Sold house for 600K
Your net sale is 300K which is 100% tax free

k3am , Does that make sense?

So we may not have to pay capital gains at all? Our net proceeds on (estimated sale pricess less purchase price less improvements) the sale would probably be about $330k. So that's under the $500k, so nothing due? Is that right?

[186momx]

Nov 13, 2017 13:55:00 GMT -5 k3am said:

Nov 13, 2017 13:47:17 GMT -5 186momx said:

So we may not have to pay capital gains at all? Our net proceeds on (estimated sale pricess less purchase price less improvements) the sale would probably be about $330k. So that's under the $500k, so nothing due? Is that right?

Yes!

[waverly]

Also, most people I have talked to disliked being a landlord. I think you have to be a certain kind of person to do that. Or rich enough to hire a management company.

[k3am]

Nov 13, 2017 13:51:14 GMT -5 waverly said:

I don't know where you are specifically, but generally speaking I think your area has a lot of affordable housing challenges. If you don't want to live in your current house forever then I would move. You could wait until the kids are out of daycare to move, but prices may go up.

Do you like the private schools in the area? What is the tuition like? 

We would probably keep them going to the same daycare center/private school they're in now for the time being. They get great reviews and are generally well recommended. I don't know how easy it would be to go from this school and into a public school later, since they don't follow common core curriculum. They say they do more, but I don't know enough about this to speak intelligently. Tuition would be roughly in line with what we're already paying for daycare.

Small doesn't necessarily bother me if you have it remodeled the way you want and like it. Does the flight path bother you? If the flight path, smallness and private schools don't bother you then I would stay.

It's small to the point of us feeling cramped. We updated surfaces, but couldn't do anything to the layout. The flight path only bothers me on nights that we've got the windows open. So at least half the nights of the year. 

While before and after care are cheaper, for 2 kids in my (comparably) MCOL area, it is still $160 a week for aftercare, and $240 a week for before and aftercare. We are only doing the aftercare.

It depends on where you get into here. The community centers run one that averages out to about $200/month. That's a pretty big savings. If we ended up in public, we'd probably coordinate to avoid beforecare.

Caveat, I really do prefer public school for my child with hearing loss. He gets speech, a hearing teacher, and an FM system. Possibly OT. I know your DD doesn't seem to need any additional support at this time. And how services are implemented and quality is school district dependent.

I would probably have a 200 point pro and con sheet and still be wondering what to do. Also, dependent on if you find a house you like.

Finding a house is the hard part. If we sell our house and want to buy, we'd need to plan on renting somewhere until we were able to find a new one. Our inventory sucks. 

[k3am]

Nov 13, 2017 14:01:53 GMT -5 waverly said:

Also, most people I have talked to disliked being a landlord. I think you have to be a certain kind of person to do that. Or rich enough to hire a management company.

My mom handles hers through a management company and has been pretty happy with it. I don't' know what the cost is. Google said roughly 5% of rent, which we could absorb. 

[2chatter]

k3am - I am a fan of saving and putting money down - as a budget test tool. So start socking away money like you are paying for that bigger house. Take that money and throw it into the house when you do buy. It lowers the payment and proves that you can afford it. Kind of mentally add DD’s tuition to the amount you sick away - it won’t go toward the down payment... but it will eventually apply to your monthly obligation.

Also - in CA I think taxes are fixed? If not...calculate for that. Our payment has gone up $500 in 4 years - all property taxes plus hazard insurance increase to match adjusted value. I feel like we freaking have an ARM.

[rere]

Nov 13, 2017 14:01:53 GMT -5 waverly said:

Also, most people I have talked to disliked being a landlord. I think you have to be a certain kind of person to do that. Or rich enough to hire a management company.

+1 we had planned on owning some rentals as part of a retirement plan. Then I inherited one. As soon as I can get my brother to agree, we are selling. I hate it. Seemingly normal people do not understand that rent is due, every month. And when I see your vacation pictures online, and you are over a month behind, due to "hard times", we have a problem.

[sandandsea]

For us, making the jump in mortgage was scary but easier than we expected. Also once kids are in school, daycare costs decrease, and more is available for the mortgage. You can always update a house to your tastes over time. The top rule for real estate is location and school districts are big.

I like the community our public school has brought. We see friends out and about and don’t have to drive all over for play dates and bday parties etc.

Private schools are so expensive. One we saw was even more than infant daycare and they were all at least as much as preK. I wouldn’t want to extend higher prices indefinitely. A financial planner friend put it this way “I can pay more for a mortgage in a better school district and deduct the interest/taxes on it or I can pay the same increased amount for private school without a tax benefit.”

I have no interest in being a landlord or having to deal with a management company etc. so that would be my last option. I want a simpler life and less chaos.

I would only rent or do private school if it saves a significant amount in order to buy up sooner. And yeah....I have no idea about the market forecast here. It’s crazy town. Most houses in our area are still all cash deals which means the market is somewhat stable and not due to bad financing. Not sure how the new tax proposals may change this though since we could be highly affected.

[leap]

We are landlords and have been lucky. I think the primary thing is to really screen potential tenants well to find good ones. Our last two tenants have been great. They have paid rent on time and actually have done some yard improvement. One thing to consider though, you will probably have to put $$ into your house again before you sell it. Also, our childcare bill has significantly gone down since the kids started school, but they have also added more activities so our 1,000 a month savings isn't really 1,000 a month. It's more like 750.

[k3am]

Nov 13, 2017 16:49:51 GMT -5 sandandsea said:

For us, making the jump in mortgage was scary but easier than we expected. Also once kids are in school, daycare costs decrease, and more is available for the mortgage. You can always update a house to your tastes over time. The top rule for real estate is location and school districts are big.

I like the community our public school has brought. We see friends out and about and don’t have to drive all over for play dates and bday parties etc.

Private schools are so expensive. One we saw was even more than infant daycare and they were all at least as much as preK. I wouldn’t want to extend higher prices indefinitely. A financial planner friend put it this way “I can pay more for a mortgage in a better school district and deduct the interest/taxes on it or I can pay the same increased amount for private school without a tax benefit.”

I have no interest in being a landlord or having to deal with a management company etc. so that would be my last option. I want a simpler life and less chaos.

I would only rent or do private school if it saves a significant amount in order to buy up sooner. And yeah....I have no idea about the market forecast here. It’s crazy town. Most houses in our area are still all cash deals which means the market is somewhat stable and not due to bad financing. Not sure how the new tax proposals may change this though since we could be highly affected.

I honestly think we'd pay less in private school than we would on moving, and that's not including any upgrades if we got into a "meh" house. But then we're also having to deal with the fact that house we have isn't the house we want long term. 

So, I guess we just don't win here. 

[sdlaura]

If I were you I would probably sell the house, move, and just have things be tight for awhile. We're in a similar situation I think, in terms of our house increasing hugely in value since we bought it. It's sort of a starter type house, so we have felt like we might want to move to something bigger and nicer like most of our friends have. That said, our situations are different because we love our current neighborhood, and it's a good school district, and we don't have any issues like a flight path.

I'm a big fan of getting into a good public school district rather than spending money on private schools, if private school is not something you would do otherwise.

Like a PP said, (and because I believe you're in the bay area) - I do not envy your housing affordability situation. The bay area is totally ridiculous. I have to go up there regularly for work and my firm jokes about me moving up there - but honestly I think it would be cheaper to commute by air a few days a week and just live in SoCal

[sunbutter]

Nov 13, 2017 15:28:57 GMT -5 2chatter said:

k3am - I am a fan of saving and putting money down - as a budget test tool. So start socking away money like you are paying for that bigger house. Take that money and throw it into the house when you do buy. It lowers the payment and proves that you can afford.

This is what we started last month and I planned to do for about 6-7 months. To see how it felt before tripling our mortgage.
(Then my mom lost her job and now I am covering their property tax, cobra and car payment☹️)

[k3am]

sdlaura, yes.. housing is just stupid ridiculous here. I love just about everything about living here except that.

[2chatter]

We also moved for public schools over continued private tuition. Paying for private school while living in a 1700 sq ft starter Home and on top of each other sucked. It paid off in the end to be patient - but had we waited we would have been priced out. Salaries here haven’t risen with housing costs (mine hasn’t risen in 5 years...at all). So...that’s another thought - what’s your career/income trajectory? Projecting that out might mean longer term it’s very viable and tight only for a short period.

[k3am]

Nov 13, 2017 19:22:40 GMT -5 2chatter said:

We also moved for public schools over continued private tuition. Paying for private school while living in a 1700 sq ft starter Home and on top of each other sucked. It paid off in the end to be patient - but had we waited we would have been priced out. Salaries here haven’t risen with housing costs (mine hasn’t risen in 5 years...at all). So...that’s another thought - what’s your career/income trajectory? Projecting that out might mean longer term it’s very viable and tight only for a short period.

When we originally bought, we shopped for the budget we had then. Our salaries have more than doubled.

Mine is likely not going to be much higher ever since my career aspirations are only so high. DHs has some room, but who knows how much?

[traveltheworld]

I would move and buy in a neighbourhood with a good public school. Any money you spend on private school is a sunk cost, whereas at least your increased mortgage payments would be helping you build equity in the home. I also like the idea of having neighbourhood kids who go to the same school as my kids. We did essentially the same thing, so money will be tight for a few years but I'm mostly ok with that. I just keep updating my monthly spreadsheet to remind myself that even though my cash flow is poor, my net worth is increasing.

Also we have rentals that are managed by a professional property management company. They do a good job but charge 10% of the rent, and every time a tenant leaves, it's another $650 in advertising fees.

[ilovelucyvv]

If I could I would sell our house and move into a bigger house in a nicer neighborhood in a heartbeat. But our house is currently going for way less than H bought it for so we are stuck. As in they are practically giving away the house across the street for $100K under its Zillow value and it still hasn't sold. We are going to have to move at some point for H's job and are going to have to rent it out. I am totally dreading that and wish we could just get rid of it. If the value of your house is high now, sell sell sell!

[ilovelucyvv]

Also, those prices are high for private schools, so I would not spend the money on that.

[kimberlybb]

For what it is worth I would forgo the option where you rent your home. We have a few rental properties and it is a huge pain. Even if you do a great job screening prospective tenants at best there is going to be normal wear and tear on your home that you will have to address before you put it on the market or try to rent it again. I don't think it is worth the hassle.

[sunbutter]

Nov 14, 2017 8:31:35 GMT -5 ilovelucyvv said:

Also, those prices are high for private schools, so I would not spend the money on that.

Lol, I was thinking they were low....
Guess there is a big range. I know catholic schools here are less than that but every other private here starts at 20K and goes up from there.