Home Sweet Home
Photo credit: loanswithrob.comt
Home Sweet Home
I have to admit that I admire those who jump in early … writing these posts is no exception: by posting first, Scott – and now Ryan – are taking a chance. But, taking chances is what life is all about: jump in and see if the water’s fine … find out for yourself, don’t wait for somebody else to tell you 🙂
I think there’s a flaw in Ryan’s reasoning around the 20% Rule – but, I’ll have to double-check his NetworthIQ profile to be sure – in the meantime, can anybody else see it?
_________________________________
I purchased my house in February 2007 for $685,000. It was just after everyone knew the bubble had popped, which is why we were able to purchase it for $65,000 less than it had previously been listed for (what we thought was a great deal!). Since then, it has dropped in value to around $630,000 (Yikes!), and we have paid off $20,000. This means we owe about $35,000 more than our house is worth.
My monthly “nut” for this house, including everything, is $4700 (hence the picture at the top of the post!). This is 34% of my net income, BUT, because my home is large enough to serve as my office as well (large dedicated space for storage of product, meetings, etc.), I do not have to lease another office. Therefore, my corporation pays me $1200/month for the use of that space, taking my gross house liability to $3500, or 25% of my net income.
As for the 20% rule, I would be right on with $101,000 net worth and $20,000 of mortgage paid off. BUT, the value has gone down, so technically the 20% rule says I should pay off $55,000 more, right? Though if that is the case, I would probably not follow the 20% rule due to my adherence to the 25% rule and not seeing any additional return on that investment (of course, my payment would go down, but it’s only at 5.25% and I can write off the interest). What do you guys think? What would you do?
As for our plans with this house, we will likely live here for another 8 years or so, until I retire with my number!
I certainly wouldn’t pay an additional 55k on your home Ryan. I think what the 20% rule states is that you should should keep the equity in your home at LESS than 20% of your overall networth. I would think that for Money Making 201 purposes, one would want that number to be even less, perhaps, ideally at zero! Since this would be money that stays liquid and can be used to invest with.
With you having negative equity in your home right now, your home is currently contributing zero to you networth.
But, hopefully the next housing boom will begin soon and you can eventually use that regained equity to invest with and let it help you get to your number!