House or Home?

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  • January 29, 2009

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House or Home?

It’s probably not appropriate for us to make any ‘confessional’ jokes … but, we appreciate the candor, Lee. You’ll need to also look at Lee’s NWiQ profile to calculate the 20% Equity Rule for yourselves, and take a chance that Lee’s $71k a year income is before or after tax (?) in order to check Lee’s calc’s on the 25% Income Rule.

Any sage words for Lee?

_________________________

2009 marks our 40th year of being married. In 1969 many ministers had the mixed blessing of living in a church owned parsonage.  This was great for all concerned.  The church didn’t have to pay a livable income because they there was no house payments, insurance or utilities. Pretty sweet deal.  But on the other hand in terms of future investments and a place to retire in this was not such a great idea.  But again for young couples just starting out and for church that couldn’t pay large incomes this was just the way things seemed to work out.  But Now it’s 2009 and church owned parsonages are not so popular, things have changed pretty much across the board.

Nearly 15 of my 40 years of ministry and marriage was tied up in the parsonage era and has put me behind the eight ball so to speak.  Then add to that poor money management, bad decisions, and an inability to sell a previously owned home in a low income community which made us have two mortgages for several years and eventually the heart ache of bankruptcy  Oh and let’s not forget the good old GI Loan that wasn’t all it is made out to be.  All this said my housing situation is not where it should be for a man 61 years of age with a 40 year work history…Oh I didn’t mention numerous refinancings did I?

Housing lenders and bankers must really like me, I can tell that by the way the laugh when I go to do business with them. 🙂

Anyway the present value on my home is $120,000 and the current Mortgage is $82,000 and we make $732 a month payments which figures out to be a little less than 11% of our annual income.  So I would guess that on the 20% rule I’m ok on but with only making approx $71,000 a year the  25%Income Rule is out of  line.

WHAT ARE MY PLANS? #1 plan is to better understand early retirement (another not so smart decision) being self employed for the past 15 years and putting literally nothing aside shot a huge hole in my retirement holdings.    #2 Learn to live with my present housing situation since it also serves as housing for my daughter and her two children who can’t at this time afford to pay anything on the mortgage. #3 make plans to get out from under the mortgage altogether as soon as possible.

By the way, confessing to past mistakes takes a lot out of a guy but this does give me a better picture of myself. 🙁

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Comment Number:
1
Written by:
Scott
Posted on:
January 29, 2009 at 9:21 am

Lee, keep your head up and just forget the mistakes of the past. Only take the lessons with you that you have learned from the past(but I know you already know this). Just focus on where you are now and where you want to be in the next few years, don’t let the past get you down and everything else becomes null and void.

To put things in perspective another way, i’m 34 years old. What if I only live to be 74 years old due to some genetic weakness or disease, despite anything I do to live a healthy lifestyle? Then by that assumption, I only have about 40 yrs left to live, of which according to my number, I’ll spend 30 of those with my Number and living out my life’s purpose.

On the same token, what if your built to live to be 100? It’s happening more and more everyday to those who don’t smoke, don’t drink and keep their weight, etc.. within reason.

Then by that assumption, we would have the same time left, brother!! So lets get to it and get to where we need to be!!!

According to your numbers, if you make 71k per year, i’m guessing that’s probably around 4500.00 per month in net income against a 732.00 per month mortgage. Is this the total payment with taxes and insurance escrowed in, or do you have to pay for those separately? Either way, it probably doesn’t matter, as it looks like you are well below the 25% rule.

The only trouble I see is that the equity in your home represents approximately 48% of your total networth. I believe this is where the focus should be in figuring out a correction…

Comment Number:
2
Written by:
Lee
Posted on:
January 29, 2009 at 10:12 am

@Adrian – Confessional jokes? The only thing inappropriate in life is takeing yourelf too seriously. 🙂 I tell people if you don’t want to enjoy life stay awar from me, because I do.
@Scott- I hope I didn’t leave the wrong impression, at 61 years of age I am happier and more excited about the future thatI have ever been. The past is simply something I can learn from.

Comment Number:
3
Written by:
Josh
Posted on:
January 29, 2009 at 12:37 pm

Lee, sounds like your a candidate for a home equity line of credit to free up capital for investing. Is this an avenue you plan to explore?

Comment Number:
4
Written by:
Lee
Posted on:
January 29, 2009 at 1:07 pm

@ Josh – I do now 🙂 thanks

Comment Number:
5
Written by:
Adrian
Posted on:
January 30, 2009 at 7:35 am

@ Lee – Conventional wisdom says that you are on the right path for a person of ‘retirement age’: pay down the equity in your home and who cares if half (or more) of your Net Worth is tied up in the value of your home?

Get a part-time job in the local supermarket, with the other ‘retired folk’ – which will help pay for the canned food, and still leave you plenty of time for volunteering at the local church …

… but, you are no ordinary 60 year old … and, this is no ordinary forum!

Here, we measure the passage of time not in % of expected lifespan (a.k.a. ‘age’), rather in Percentage of Required Number:

If you are at a low % of your required Number, we move straight into Making Money 201 … we have plenty of time for shifting to Making Money 301 AFTER we get close to our Number and/or Date – that is OUR version of the ‘old age pension’ (at 70 for you, 49 for me, and maybe late 20’s or early 30’s for some of our Community).

If that is the case, and you are committed to achieving your Number, then Josh is right on the money: you want a HELOC or a simple refi (if you can talk a bank into giving somebody your age either) and use that money to help build your ‘Lee Inc.’ empire!

Just make sure that you have a great idea, an even better plan to execute, and a stand-out team around you … unlike, say, Josh you only get one shot at this, or it’s full-time at the supermarket for you and a room for you and your wife with one of the kids …

… you sure the Retreat Center, etc. is worth it?

Comment Number:
6
Written by:
Mark
Posted on:
January 31, 2009 at 9:20 pm

HELOC rates are low now since it is mostly tied to the Prime Rate which is 3.25 currently. The rate will change but for short term investments, I think you can do better than 3.25. If you are with a credit union or co-op, I think you can find prime minus one which is now at 2.25%.

Comment Number:
7
Written by:
Adrian
Posted on:
January 31, 2009 at 9:59 pm

@ mark – If rates are low, I always like to see how I can lock them in … a HELOC can’t, a refinance can. Of course, if you need a flexible line (or can’t refi-) then a HELOC @ 2.5% sonds pretty good to me! Just remember, it could be 12.5% in a few years … or not 🙂

Comment Number:
8
Written by:
Diane
Posted on:
February 2, 2009 at 8:58 am

Sounds like everyone’s addressed the things to do: $ in house is higher than 20% of net worth; alternatives are refi or HELOC. Other thing is to reassess life’s purpose? Is it something you really feel strongly enough about to make this risk (with your home and your wife’s and your daughter’s and your grandchildren’s home, too) or – alternatively – you need to focus more on raising capital from organizations and people who are hard-strapped to fund all the charitable and good organizations they’ve funded in the past (and which are hit first in a recession of belt-tightening), plus federal/state/local grants and matching funds, etc. Is there a way you can put your family to work to help this or to help build this in the future – maybe using free labor a’ la habitat for humanity, getting policemen and their families, firemen and their families out to help build on their day’s off. Get some land donated or find it cheap in the countryside. Or, decide you need to invest your own money (Adrian’s question) and follow the refi/heloc advice above. Thanks for braving the first set of bullets…I’m sure my gauntlet is coming up soon…

Comment Number:
9
Written by:
Adrian
Posted on:
February 2, 2009 at 8:29 pm

@ Diane – Great comments. Just want to point out, however, that the 20% rule is independent of your Number; it’s designed to ensure that you are always investing at least 75% of your Net Worth FOR your and your children’s/grandchildren’s future.

Comment Number:
10
Written by:
Bob
Posted on:
February 6, 2009 at 8:39 am

Lee, thanks for being transparent. You had the courage to say a lot of things, that I would be too afraid to admit to another person, let alone the world. I’m afraid you are having the “average” feelings of most of us. Where has life gone? How did I get in this situation? How can I make the most of my present condition? The number one rule must be: Keep your eyes on the ultimate prize. In 100 years none of this will matter anyway!

Comment Number:
11
Written by:
Julie Thompson
Posted on:
February 6, 2009 at 10:19 am

Lee, Your financial picture is certainly not unusual. We are taking Financial Peace at Fellowship Bible on Monday nights at 6:30 PM, 10th and Urish. Take the time for you and Ellen to attend this and glean from Dave Ramsey’s wisdom – iron sharpens iron you well know. Give yourself the tools to form a plan, and work a plan and as Dave says – learn to make your money behave! This will only enhance whatever else you are doing. There are probably several Financial Peace University’s going on all over Topeka at this time. Just check the website. We will be on the fourth lesson Monday, the 16th. Come join us!!