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Complex - windfall/rental house/etc

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TravelMoney
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Complex - windfall/rental house/etc  Reply with quote  

I am recently divorced and have to make some quick decisions. I'm a bit overwhelmed with all the factors and hoping to get some solid advice and bounce some ideas around. I'm trying to give a good overall picture but there might be some important factors I forgot to include. If so, please let me know. Thanks!

Background:
-I am recently divorced and received some money from the sale of our house. About $90K.

-I own a rental house in another city. It is currently rented out, but the tenants are moving at the end of this month. The mortgage on this house is about $1300 per month. It rents out for $1450, but I receive $1300 after the property manager's portion. Since it's in another city, I can't realistically manage it myself. They keep it rented out pretty well.. I've not really had much vacancy. The current principal is somewhere around $96K. If there are any repairs needed, they take that money out of the rent, so I'm not guaranteed $1300 each month.

-I've tried to refinance the rental house in the past, but was unsuccessful because it's not my primary residence and I didn't have enough equity to qualify for a refi. The interest rate is 6.375% fixed (I know...this is insane). I have a 21.5 years left on this loan. When I purchased the house, it was my primary residence. I changed it to a rental when I got married and moved.

-I had to move very quickly when the marital house sold, and so right now I'm living in an apartment and paying rent that is slightly more than my mortgage on my rental house. $1500 per month rent.

Okay so here's my challenge. I'm trying to decide what to do with my rental house and with the money from selling my other house. Do I put the $90K toward a new house/condo where I live now? Do I use it to pay off my other house (or nearly pay it off)? Do I use just some of it to refi the rental house to get a better rate and then put the rest toward another house to live in? Do I invest it in some other way? And I'm also trying to decide if I should move back into the rental house and turn it back into a primary residence, or keep it as a rental. If I move back into the rental, I would refi after I move back in since the requirements and rates are different on primary residences.

-My job is in my current city. It's theoretically possible for me to keep my job if I move into my rental house, but it might cause issues and I'm not as sure of my job security.

-I always wanted to have rental houses as investments for later on. I just got lucky that things worked out the way they did with this rental in that it was easy to turn into a rental since we had two incomes. But now, things are different. If I move back into that house, I'm worried that I'm sacrificing an investment opportunity that I wouldn't have again as easily.

-I'm still trying to decide if I want to buy another house where I live now, but if I do, I definitely would need the $90K, or at least some of it, for a down payment.

-I'm not a rich person. I only make $60K per year. i also don't make enough in my paycheck to cover both mortgage and rent if my rental house is vacant for any stretch of time. If I were to keep the other one as a rental, I would have to keep some of the $90K in reserve for that possibility.

-No other debt. My vehicle is paid off, but it's getting up there in years and it's likely that I'll need a new one in the next 3 years. Student loans are all paid off and I pay my credit cards every month.

I would appreciate some advice and if there are things I should be keeping in mind, I appreciate those suggestions as well. Thanks!
Post Sun Jun 05, 2016 12:11 am
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oldguy
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Actually, I would not change much, your situation looks good. The rental house is about an even cash flow - in 10 years it will be worth quite a bit more, maybe an extra $50,000. And your $96k loan will be lower, And you will have raised the $1450/m rent to about $2000/m.

BTW, be sure to put the depreciation on your income taxes every year, that will give you an extra $600 of income each yr. Plus, when you sell the rental, there is "depreciation recapture" - you will have to pay it whether or not you took it every yr.

Your loan (6.375%) is about right for a NonOwnerOccupied house, on my houses, the NOO premium ranged from 1/2% to 1.5% above OO rates. The premium has been even higher, but I've never refi'd one of mine above 1.5%. Maybe in 5 or 10 years, when the house has grown another $50k, you might refi it. But the reason is to remove equity, you prolly won't get a better rate.

And, if you like your current apt, I would keep it - your real estate investment is currently in a SFH - and it is not tied to your living arrangement, that gives you flexibility and keeps your investing life and your living life separated.

And I would hang on to that $90k. ( Lottery winners on average are broke in 7 yrs - people break up the lump sum into small pieces, scatter it to things that make sense at the time - pay off a car, buy a new car to assure "reliable transportation for their future", pay off mom's house, yada - and then invest gto last $10k "for their future", lol - all backwards).

Personally, I would put the whole $90k in an Index fund that historically doubles about every 7 years - and then let it bake for 21 yrs ($720,000). And your rental will be paid off about then. (If you have access to 401k and Roth you could start putting the $90k there - or just put it into a taxable account with a no-load broker.
Post Sun Jun 05, 2016 4:21 pm
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Arron Derek
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quote:
Originally posted by oldguy
( Lottery winners on average are broke in 7 yrs - people break up the lump sum into small pieces, scatter it to things that make sense at the time - pay off a car, buy a new car to assure "reliable transportation for their future", pay off mom's house, yada - and then invest gto last $10k "for their future", lol - all backwards).

Personally, I would put the whole $90k in an Index fund that historically doubles about every 7 years - and then let it bake for 21 yrs ($720,000). And your rental will be paid off about then.


Good piece of advice. Concerning the lottery winners. I think it goes about different behavioral patterns. All in all winning huge money after the decision to buy Powerball tickets online or over-the-counter and getting several dozen thousand dollars selling a house because of the divorce are different things. Just as you say the winners think it is the end of the trip forgetting about the funds management. They toss the money around being to greedy to pay for the sound financial advice.
Post Mon Jun 13, 2016 9:38 am
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oldguy
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quote:
winning huge money after the decision to buy Powerball tickets online or over-the-counter and getting several dozen thousand dollars selling a house because of the divorce are different things.


Different - yet alike in that both involve a sudden large lump sum of money.

In a society that is programmed to manage a weekly paycheck, the skill set for a lump sum is quite different. Eg, if most people were given their weekly check as a lump sum on Jan 1, do you think that they would still have money in Dec?
There is a book about the differences between "earned" income and "found" money, people treat the two very differently. Applies to lottery wins, inheritances, lawsuit awards, etc.
Post Mon Jun 13, 2016 3:54 pm
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Bartholomew Barton
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[quote="oldguy"]
quote:
In a society that is programmed to manage a weekly paycheck, the skill set for a lump sum is quite different. Eg, if most people were given their weekly check as a lump sum on Jan 1, do you think that they would still have money in Dec?
There is a book about the differences between "earned" income and "found" money, people treat the two very differently. Applies to lottery wins, inheritances, lawsuit awards, etc.


It is rather interesting topic! Could you please share the link for the book you mention. I wonder how it describes the following: imagine you are the regular French lotto player, being in the game for several years already; you spend the hard-earned money for the tickets and finally you win; wouldn't you consider the winning "earned" or maybe "deserved" not "found" - all in all you spent to get it.
Post Tue Oct 25, 2016 9:24 am
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ken-do-nim
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quote:
Originally posted by oldguy

Personally, I would put the whole $90k in an Index fund that historically doubles about every 7 years - and then let it bake for 21 yrs ($720,000). And your rental will be paid off about then. (If you have access to 401k and Roth you could start putting the $90k there - or just put it into a taxable account with a no-load broker.


Another option is to put the $90k into a set of dividend equities that pay around 7% and earn yourself an extra $6300 pre-tax per year as a raise. It sounds like you could use some extra income annually; that's a 10% raise.
Post Wed Nov 02, 2016 5:33 pm
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oldguy
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quote:
It is rather interesting topic! Could you please share the link for the book you mention.


Sorry - I think I read that during college - and I'm now age 77, I have no recollection of what book it was. Maybe you could goggle it?
Post Wed Nov 02, 2016 8:53 pm
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