I have a call with a realtor on Friday to check in on next steps. She toured our house last week, so should have a good sense of value, the market, etc. The market in Seattle has been very hot, but if it's anything like the market we're in, has just started to show ever so slightly a bit of softening. We shall see.
Assuming all happens as expected, I'm estimating that we will clear (after taxes) around $835K. We actively worked to pay down this mortgage while we were living in the house, which will obviously benefit us when we sell. Here's my plan for how we will distribute that money. M & I are still working through this, so it's definitely draft one of the plan, and not a final proposal:
- Pay off our vacation house. The interest rate is at 3.5%, so relatively low. There is no tax advantage on the mortgage interest, as we are maxing out that deduction with our primary residence. - around $230K
- Pay down our primary residence - around $200K.
- Add to our investments - $200K
- Savings - all remaining money, so around $205K. This will be money we use to cover yearly expenses moving forward, taxes (federal & property taxes), as well as give us some flexibility on our budget so I can look for a new job that isn't as demanding.
That's the very rough draft of a plan, of course. M is a much bigger financial risk taker than I am (understatement), so he would love to keep the house. I would love to sleep at night & feel more secure about our overall financial picture. :) I'm sure there will be tweaks on all sides as we close in on the final numbers.
Other things we've considered: additional college savings for the kids (we will likely fund out of savings on a regular basis instead of one lump sum), additional smaller property investments, etc. I'd like to sell, hold most of the money (between savings & stock investments) & then make additional decisions over time.
Any recommendations for things we may have overlooked?
We had a house we kept as rental property for many years. I was thrilled when we got rid of it, even though the area had appreciated very much and the rental was about 5 times the original mortgage.
ReplyDeleteThere's a lot of worry that comes just from owning it, even if things go well!
DeleteTouch choices, I would probably pay down the mortgage on the primary residence after paying off the vacation home versus putting 200,000 more in investments, but you want more liquidity and I get that - it gives you more freedom. None of my beeswax but do you guys have a line of credit? Hubby and I have always each had individual ones (from before we were married that we kept $20,000 each) and a joint one $100,000. All 3 mean instant access to money and we pay absolutely nothing for having it. That allowed us to put all our money that was not retirement savings into the mortgage thereby allowing us to pay it off much faster. Anyway, lots to think about! You guys have your head on straight so you will do fine. I don't like rentals, we have one now but my Mom doesn't really count as a renter :) pretty much zero downside other than the fact that we don't charge her the market rent on the condo as she is a low income senior. It can't be rented to non-family so will be liquidated should she ever want to move out of it (probably 10 years or so when she wants to go into senior living facility). I think you are right by selling the rental as $4500 annually is a very low amount after paying everything, one small repair could obliterate that.
ReplyDeleteUnfortunately, paying down our primary residence doesn't reduce our monthly cash flow. We continue to look for other options that free up cash flow while earning interest. More to come on this! And, we have an LOC, but it's tied to our rental property, actually. ;-)
DeleteYou should actually check into this. Most mortgage companies don't advertise this but many will do a reamortization of your existing mortgage with keeping the same terms for a low fee ($250-500) if you pay it down a significant amount. It's worth checking into. This can also be called recasting.
DeleteThat's a great suggestion - we will definitely look into recasting!
DeleteYour plan makes a lot of sense. While it is making a bit of money, and there is opportunity for it to increase, with two young children, living in another state, the peace of mind to me would be worth the potential growth. Of course, the house could also depreciate, as much as that is unlikely, it is a possible. Your story highlights how while costs and wages differ in parts of the country, parts of the world, there is no right way to do anything, but having personal comfort is key.
ReplyDeleteI'll have to do another budget post soon, because the difference between California income tax & property tax compared to other places is stunning. It's $100K more than we were paying in Washington!
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