[Kelly]

Question for the FI Hive:
Starting with the facts:
My family currently lives in a small 1,200 sq ft split-level in an affluent city suburb. My husband and I believe we could expect to get somewhere between $350,000-375,000 if we sold.

We are about 6 months away from having a fully paid off mortgage! This will put $1,200/month back in our pockets, allowing us to accelerate retirement savings.

Our family is feeling a little cramped. We both work from home, so my husband uses one of the bedrooms as his office. Our two young children (boy and girl) currently share another bedroom.

We sleep in the third. And we ALL share one full bathroom on the bedroom level.

We are considering moving about 90 minutes west of our current location, and found a lovely, mostly-renovated, 4 bedroom, 2.5 bathroom, 3,850 sq ft home. Currently listed at $359,000!!!

If we move, we will miss all the amenities of a city suburb… close to restaurants, shopping, social events, etc.

Here’s my question for the hive… would you:

Take out a HELOC on house #1 for down payment on house #2. Rent out house #1 (we could rent for about $2,300/mo, netting $1,300 after setting money aside for taxes/maintenance); and use the net rental income towards mortgage on house #2.

This keeps an investment property.

Sell house #1, purchase house #2 outright. Continue on with no mortgage and use extra financial breathing room to accelerate retirement investments in 401K and ROTH?

Stick it out in house #1, with all the amenities of a city suburb, and build an office above the garage when it’s time to put separate the kids in their own bedrooms.

All opinions welcome, as we need to consider all the things!

[Roberta]

We have a separate “office” over our garage, with its own entrance. And via a door in our dining room, you can also access the upstairs or lock the door. It’s 550 SQ ft.

After we were done using the room for our purposes (date night, TV room etc) we put in a bathroom, a kitchenette (no stove, there is a large grill right outside the stairs if the tenant wants to cook on a gas stove. They never have) & it’s now a studio apartment.

That we rent to a single person only. It pays our mortgage!
Key for us, was the separate entrance.

It was the best thing we’ve ever done from an investment perspective.
So, I would go that route.

Use the house for your needs until you no longer need it.
When you are ready to retire, you stay in the bottom and rent out the top!

[Tony]

Stick it out, put part of the $1200 toward a local coworking space membership, and convert the current office into a bedroom.

It also wouldn’t hurt to make some smart renovations to create more space and make the space above the garage into mixed use space or apartment.

[Adam]

I would only move 90 minutes away if you want to spend 95% of your time in that area. This isn’t a 10-minute-down-the-road kind of move.

Everything you do will be in the new location.

[Adam]

Option 4: sell house, use some proceeds for next house, get a mortgage, use the rest of the proceeds to boost emergency funds, retirement accounts, and/or brokerage accounts.

Refinance if/when rates drop.

[Kay]

Add a she shed in the backyard with electric and WiFi. Office in the day, date night getaway at night. Convert the office bedroom back to a bedroom.

Pay the mortgage off and keep your city conveniences.

[April]

Unless you really really want to become a landlord, I would choose option 2 or 3. If you really want to stay there, add on to the house (#3).

[Pooja]

Renting is a hassle. Tenants aren’t always responsible, some won’t pay, and then won’t leave either. So, it’s a hassle to manage that yourself from 90 minutes away, plus raise kids and have jobs.

I would sell it and buy if I was moving. Or definitely hire a property manager.

What do you think about schools in the city vs suburbs?

That could help you with the decision. Is there any other thing you like about the new area besides the house?

One good thing about not living in the city means you won’t be spending a lot in restaurants and shopping, so you’d be saving!

[Damon]

Whether you want to give up the amenities of the city is a totally personal decision. For me, that’s a no.

I rather live in a smaller home near amenities than a mansion in the burbs.

But if you decide to move, I’d sell the current home and just proceed without mortgage and invest the net.

[Scott]

Reading between the lines it sounds like you really like where you are so option 4 would be stay in that area but modestly upsize to say a 1500-1600 square foot home that has maybe 1.5./2 baths with a den/finished basement that can be a home office.

Basically that is your home (absent life happening) until the kids are off to college.

See if an addition, or new home, would give you more bang for buck.
Yes this might cost you 10-20% above your current value.

I believe you should have ‘enough’ home but not ‘too much’ home.

I get why the current place is too cozy, though…my personal preference here…I can’t see why a family of four needs a 3,850 sq foot mansion located in the proverbial middle of nowhere (a guess for location given the mansion is the same price as where you are).

[Carol]

In all honesty, that is a HUGE jump in home size. Be sure to account for the additional costs to update, clean, heat and cool, and possibly your home insurance and property taxes.

I would look for another home that is in the 2,000-2,500sf range.

I have had many clients downsize because of said ongoing costs on the larger homes.

[Rick]

Other than unleveraged price speculation, rarely a good idea, I don’t believe holding onto house#1 as a rental is a good idea at the rental rate you shared.

You could sell for say $350k, the lower number in your range, invest with a projected return rate of 10%, apples to apples comparison since the rental rent provided is not after inflation return, and have really close to $3k per month.

Now this likely won’t be as tax advantaged at the time as rental income but it will be nearly as good or better in the long run since the tax man will come calling for that depreciation recapture one day.

[Beatrice]

I would not buy a larger house. That will cost you more, not just the mortgage, but property taxes. Does the current house have an attique and basement?

You can easily build 2 offices in the attique, and use the current bedrooms for everybody.

When I lived in NYC I was renting an one bedroom apt. in a basement.

You can build 2 offices there or bedrooms with a shower and kitchen.

[Kim]

You’re trying to cut expenses so now if you move you’ll make your drives to go shopping intentional (I need groceries, Johnny needs a new pair of sneakers.

I think it’s harder not to spend when you have consumerism all around you.

So, if you really are trying to save more $$ then yes moving away from all the shopping at your fingertips might be a good thing.

You’ll cook more meals at home in your bigger kitchen. Spending weekends watching movies at home and playing games etc .

[Author]

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