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Forum -> Household Management -> Finances

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amother

Green

Tue, Feb 14 2017, 12:28 pm

We are thinking of buying a new home. We have about 140,000 cash as a down payment and own a home that when we sell will just cover our mortgage.

Average price home is 550,000 with 11,000 property tax.

Putting down 20% will give us a monthly payment of about 3,000. Which is pushing us financially but we can afford it, we live in general very conservatively and save monthly, so I"d like to get the monthly payment down.

We have some options of putting down more or maybe we shouldn't.
1. Sell an inherited stock worth about 70,000. But it yields amazing dividends that get reinvested.
2. Sell an investment property, with no mortgage, worth about 70,000+, brings in about 450+ profit monthly (or more, lately there have been a lot of repairs and a vacancy). Home will most likely slowly increase in value. Valuation of the home also works out really well on our tax returns.
3. Refinancing home mentioned above, but the amount received won't be too much. We could also refinance additional similar type of investment properties. But the rate would be higher because they are rentals.
4.. Don't put down extra and if the monthly payments are too hard pull out the stock slowly and get a tax credit for the extra mortgage payments.

What would you think makes the most financial sense?

(and yes, we do pay full tuition, save the max in 401K, save separately for college, etc)

Reesa

Tue, Feb 14 2017, 1:02 pm

the only option I'd consider is selling the investment property. figure out how much lower your mortgage would he if you invested that 70k from the sale into your new home and you'll see where that money gets you more value.

gp2.0

Tue, Feb 14 2017, 1:04 pm

I would cut some corners by trying to sell your home for $50k more and trying to buy a new home for $50k less.

amother

Green

Tue, Feb 14 2017, 6:54 pm

gp2.0 wrote:

I would cut some corners by trying to sell your home for $50k more and trying to buy a new home for $50k less.

How I wish. If this house was one block away it would be worth 200,000 more then we paid. Unfortunately it isn't. And the value will go down, not up. (think train tracks being constructed across the front lawn - as a hypothetical similar situation).

ange

Tue, Feb 14 2017, 7:37 pm

What is the value of the other investment properties minus the debt on them?

amother

Green

Tue, Feb 14 2017, 7:51 pm

ange wrote:

What is the value of the other investment properties minus the debt on them?

We own approx 210K of all investment properties. Some have "higher" interest mortgages. All make a small profit. Its really a side thing my DH got into years ago.

amother

Denim

Tue, Feb 14 2017, 7:52 pm

I am not super financially savvy, but I heard in the name of the Baal Shem Tov that we do not get rid of a source of income, unless there is no other choice.

With that basis I'd go with #4. You still have the option of doing #1-#3 if necessary at a later point in time.

Wishing you success!

Laiya

Tue, Feb 14 2017, 8:25 pm

amother wrote:

I agree with this. Your dividend reinvestments should cause the stock value to appreciate exponentially over time, and the investment property should also appreciate. The cost of selling is the future loss of growth, as well as the income that you are relying on.

Worst case scenario, you can always free up cash at a later date by selling the stock or property, if you find that you need it.

As a side point, can I ask where the location is of your $70,000 investment property?

amother

Green

Tue, Feb 14 2017, 9:54 pm

Thank you everyone for your feedback.

The properties are in Pennsylvania. They were originally purchased for 30K or less. But unless you are nearby to manage them every so often it isn't worth it - it doesn't really make enough to cover the cost of a management company.

amother

Pearl

Tue, Feb 14 2017, 10:05 pm

I once heard that the way you determine if you can afford your monthly payments on home, is that you should earn At LEAST 4x that payment.
Is your combined income, from job and investments $12,000 a month?
Yes, then go with option 4
No, then I would sell the investment property to lower your monthly payment

amother

Green

Tue, Feb 14 2017, 10:07 pm

The rule should really be much higher for frum people. It doesn't take into account tuition for multiple kids, food and clothes for large famlies and yomim tovim expenses.

pause

Tue, Feb 14 2017, 10:12 pm

Laiya wrote:

Except that OP said it would depreciate in value.

Quote:

How wish. If this house was one block away it would be worth 200,000 more then we paid. Unfortunately it isn't. And the value will go down, not up. (think train tracks being constructed across the front lawn - as a hypothetical similar situation).

amother

Green

Tue, Feb 14 2017, 10:15 pm

oh sorry - that is my current house I live in now that will depreciate in value - and unfortunately already has.

samantha87

Tue, Feb 14 2017, 10:33 pm

It sounds like you are making more (as a percentage, return on capital) on your investment properties and maybe stock than you would pay as a mortgage on your new home. If you are making 450/mo or 5300/yr on a 70k property, that's about 7%, or lots more than you'd pay on a mortgage, and that's before deducting the interest. I'd say put down 20%, make the higher payments, and slowly sell the stock if necessary.

Laiya

Tue, Feb 14 2017, 10:42 pm

pause wrote:

amother wrote:

2. Sell an investment property, with no mortgage, worth about 70,000+, brings in about 450+ profit monthly (or more, lately there have been a lot of repairs and a vacancy). Home will most likely slowly increase in value.

amother

Maroon

Wed, Feb 15 2017, 3:13 am

What about stopping the automatic dividend reinvestment for now? If you see that you're managing fine without that extra source of income, you can always restart the dividend reinvestment.

imasinger

Wed, Feb 15 2017, 5:45 am

How good an investment will the new house be? Are you figuring any long term appreciation from it into your thinking?

ange

Wed, Feb 15 2017, 8:28 am

Ok. Here's my take on it. I listen to Dave Ramsey and I think his advice gives good sounds financial peace factoring risk into the equation. He recommends only buying investment properties with cash after your home is paid for. I'm guessing he might respond this way, especially given that the investment properties are not in your home town:

If you combine 140 cash saved, 210 from the investment properties, and the 70 in stock, you would have 420 to put down on your house. If you buy at 550, you only have a 130k mortgage that you pound hard and can probably pay off in a few years of you are very focussed. Then without a mortgage payment you can save up faster and buy an investment property with cash, and then the next and so on. Slow but steady.

Sometimes people call him and say they have enough to pay off their home, if they liquidate their (non retirement) mutual funds, and they don't know what is the better option. He says, "if you had a paid for home, would you mortgage it to invest 70k in the market?" Most people would agree that they'd of course want the security of the paid for home and not risk their home. So even though your case is a bit different, I think I'd want to put all the cash I could and get the smallest mortgage to pay it off fast and free up my income for bigger and better Smile

Let us know what you decide!

amother

Green

Wed, Feb 15 2017, 10:01 am

Everyone thank you so much for the time to think about my question and write thought out responses. It gives me a lot to think about.

amother

Sapphire

Wed, Feb 15 2017, 10:02 am

When I bought my home the monthly payment was a stretch. But now it's a joke. Our monthly payment of 2500 (including property tax and insurance) is nothing ... a house rental costs more than that and an apartment rental is already 2000 in my town. Count on inflation, salary increases (hopefully), mortgage interest tax deductions, and other factors to make your mortgage payments work for you. Buying my home, which was a stretch 5 1/2 years ago, was honestly one of the best things I ever did. (And house prices went up around $300k since then. The house we bought for 600k would now be worth 900k).

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