Wrapping up MM101

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Wrapping up MM101

[Graphic added by AJC]

I’m interested in hearing what other readers have to say about Ryan’s “upside down mortgage” … after all, that’s what we’re here for: new perspectives on age-old problems! Other than that, sounds like Ryan’s pretty happy with where he’s sitting … what do you think?


gift_wrapping_2In wrapping up our discussion of MM101, Adrian has asked us the following questions to make sure we have properly vetted our current situation and are ready to move on the next step of our number journey:

1. What, if anything you will change in relation to your current financial situation?

If I could wave a magic wand, I would not be upside-down on my mortgage, but that will correct itself over time as we are not planning on moving soon. That (our mortgage) is the only MM101 related item we are currently dealing with and…

2. How / when you intend to go about it?

…while we could short sell the house and rent, we will not likely do that. We are emotionally tied to the house and would not, in my opinion have much upside with a rental because we would have to either float the note on our mortgage or pay the taxes on the difference on a short sale, all to pay MAYBE $1000/month less and not have the mortgage interest to write off come april 15th.

3. What results you are hoping to achieve?

An appreciation of our home of around 5%/year starting in 2010, bringing us back to an equity position around 2012.

4. If you haven’t specifically addressed debt in your response/s to 1. – 3. (above), what (if anything) you intend to do about your current debt?


BTW: if you are planning to increase/decrease your current debt via a debt snowball, avalanche, bazooka, cash cascade, all, none, or I don’t know … this would be a GREAT place to discuss it.


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Reader Comments

Yeah I wouldn’t bother selling or doing anything with your home Ryan. You are planning on living in that house for quite some time, which is exactly what a house is for. Like Kiyosaki says, a house really isn’t an asset and I can’t see your house being the main thing that is responsible for getting you to your number, ever, unless you planning on waiting 60 years to sell it, at which time, your number will be minuscule with inflation. Great job!

Just live in it, enjoy it, and not have to worry about being over the 20% rule.

Sell the house and rent?
From my experience and I have bought and sold several houses in the past 40 years. With a growing family you never come out ahead other than size and desires. Financially you are always behind the curve. Ryan unless you move or out grow what you have, stay with it and pour money into paying the thing off. Early in my career I was provided a parsonage or home to live in as part of my salary, while that was good to not have house payments in many other ways it was a real pain. Owning rather that renting has it’s down sides but in the long run I woulds rather do it. At least I’m not paying for some one elses investment.

@Scott – Thanks!

@Lee – I agree selling and renting would not likely turn out well in the end. I’m not sure about pouring money into it though.

While it might be “comforting” to pay off our mortgage early, I believe the opportunity cost of that money (especially with such low interest rates) is too high for me to do it AND reach my number by my date.

When you are emotionally attached to a house it’s called ‘home’ and your mother doesn’t think you should sell either. 🙂

@ Sue – Nicely said!

@ Ryan – A home performs two functions: housing and investment.

Like most dual-purpose things, owning your own home is probably a poor compromise on both …

… in my experience, you can usually rent a better house than you can afford to buy AND can usually find much better returning investments.

Yet, I recommend that one does own their own home, for a number of reasons:

1. Often it can turn out to be a person’s only investment,

2. It is a ‘safety net’ in case all else goes wrong,

3. You have continuity of tenure (the ‘landlord’ won’t kick you out, as long as you keep up with the payments)

4. Over time, you may build up equity that you can ‘release’ to kick-start other investing activities.

For me, it was always 3. (and, the associated ’emotional attachment’ that comes with calling your house your ‘home’ as Sue suggests) that held the most sway as I always expected to make my ‘fortune’ elsewhere. And, I have never actually used the equity for investing (except for my brief HELOC-fueled stock speculation experiment of 2007/2008).

So, I would suggest that you ask yourself the following question:

If I were to invest in a house right now, given my current net worth, is this the house that I would invest in (and, if not, are the changeover costs/hassles worth it)?

If the answer is YES, then stay. If the answer is NO, then sell/move … be it into a rental or to purchase another.

This is a question that we all need to ask at least once per year (or, whenever the market and/or our financial position changes), as – in effect – we are ‘buying’ our house every year (by missing the opportunity of selling and putting the money to work elsewhere).

I forgot about #4
4. Over time, you may build up equity that you can ‘release’ to kick-start other investing activities.

Over the years it’s been the equity that came in handy for things I wanted or needed, too bad I wasn’t thinking about the “investment” side of life.

Keep the house or “a” house

@Ryan – I hope the housing market recovers soon!

@Adrian – I agree that we have to examine our housing situation regularly but isn’t it a hassle to move purely for that reason? I think I’m beginning to agree with Robert Kiyosaki more on not treating our home as an asset. But now we need to fit in the 20% Equity and 25% Income Rules as well. Maybe applying the rules for “affordability” and treating it as a non-asset when looking at it as an investment.

@ Mark – Yes, but the 20% Rule is a MAXIMUM (and, recognizes that your house is a poor asset, at best) … these extra questions help you deal with deciding if THIS house is right for you, even if you are under the Max. (and negative equity is surely under the max.?).

All I’m asking you to do – at least once per year (or whenever the market changes significantly) – is re-examine your decision, taking into account the emotional/hassles/etc. No?

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