Place your bets, please

Bottom line up front (or what some refer to as BLUF): Yes, I can handle both houses for as long as it takes.

I know it can be difficult to get a true picture of our decision making when we only convey the results in a few hundred words. I apologize if I left this a bit vague.

I’m a planner and analyzer by nature and would not have entered into this arrangement without a solid back up plan. In this case I actually have two back up plans.

Primary plan – Rent one house with positive cash flow while living in the other. This plan is in play and working well right now.

Back up plan – Carry both houses on my own back. I started this process with the assumption that I had to carry both homes indefinitely. By my math, that is not only possible, but quite doable.

Back up to the back up – Have a fire sale on properties. Fortunately I bought smartly (my opinion ) on both homes. I am in the position of being able to discount both homes significantly relative to current comparable home sales and still make a profit.

As for gambling with my future…I think that’s inherent in just about any investment we’ll ever make. Given that opinion we are all gambling here at 7m7y.

Thanks for the discussion.

“can he handle both these properties for as long as it takes?”

Jeff?

1. Sell it. Ideally there’s a sizable profit here in three years or so, but that depends upon the RE market. However, I think I could fire sale the property if I needed to move it quickly and still make a profit. So the selling door is open.

2. Rent it. I would do this only if there was a good reason why I should hold on to the property longer. Things such as current RE market environment, potential for future appreciation and rental financials would be key indicators for me. As I mentioned in the post, I believe at $3600/month mortgage it would cash flow negatively for a while. If I can refi down to below 5%, I’ll in a better position to do damage control in a rental scenario. Obviously I’ll need to factor in closing costs etc. to determine whether the numbers make sense for me. I’m willing to suck up a negative cash flow of $300-600 per month (which I’ll call an investment) if it means I can continue to control the property long enough to realize future appreciation. I consider this similar to my dollar cost averaging approach to my 401K/IRA etc…albeit with maybe a bit more risk.

@ Mark – You’ve touched upon one of my strategies, reasons or maybe excuses to justify the mortgage payment I’m incurring on this one.

I’ve rationalized it as follows:

New Mortgage Payment =

Old (Virginia) Mortgage +
Additional Military Housing Allowance +
My Monthly 401K investments.

I am violating Adrian’s 50/50 “found money recommendation” with the additional housing allowance. But otherwise, I view this situation as one where I’m paying the same mortgage as I’m used to (Old + Found $ + existing investment).

As part of this plan I’m shifting my monthly 401K contributions into my home for the short term. Month to month, I expect it to “feel” the same financially.

Naturally, there will be some true exceptions to any rule (otherwise everybody would have the same ‘rule book’ and we’d all be rich simply ‘by the numbers’): e.g. a duplex on one title, and you live in one and rent the other. But, what’s your exit plan … how do you release the investment portion of the equity?

If you have a good answer to that question, perhaps you can proportion the income and equity rules. Just don’t fool yourself …