please share your opinion

[phoenix123]

hello everybody,

this is my first post! my husband and i are in our late 20's and do not have much knowledge about finance, investing or the real estate market. we are trying to plan for our future and are in need of some good advice. please allow us to describe our situation. we would be very appreciative of any advice we can get. please excuse any possible mistakes in this post, english is not my first language. i apologize for the length of this post, i am a woman and do not know how to be brief here we go:

my husband and i currently live in a home that is worth less than we owe on it. we want to move because the house has gotten too small for our family. we have tried to sell it for the amount we owe on it, without success. we did however find a person who is willing to rent it for the amount of our monthly mortgage and HOA payment. if we rent it out, we would break even, as long as nothing breaks, needs to be replaced, the HOA raises their dues or our interest rate goes up. we have an adjustable rate mortgage. if we refinanced, our interest rate would be a lot higher (right now it is only 3.5%). in order to refinance, we would also have to pay the difference between the value of our house and our loan, which we would like to avoid. we would like to sell the house as soon as possible without losing money.

would you sell the house for a loss?
would you refinance and rent it out?
would you not refinance and rent it out?

next concern is the bigger house we would like to purchase. we are expecting a gift of approximately $180K from a family member from europe. this would be enough money to buy the kind of home we are looking for in cash.

would you use the entire $180K to purchase a new home?
would you invest it otherwise and get a mortgage?
would you use part of it and invest the remainder?
if you would not spend it all on the house, what would you invest it in?

thank you in advance for taking the time to respond and share your opinion!

[LuxLiving]

I'd stay in my house and consider adding on and/or adjusting my expectations as to the size. At least until market conditions made it feasible to sell it free and clear without a loss.

Once you actually get the 180K in hand I'd divide it into two pots - 1 pot 20K disaster/emergency fund and 2nd pot of 160K - invest it carefully and consider it inviolable for retirement. Those amounts might vary some after taxes.

YMMV.

[maat55]

How much do you owe on your house and how much is it worth?

Are you moving in the same area(city)?

Is your loan an adjustable rate?

[disneysteve]

Welcome. Not enough details to give an accurate answer but without any more info, I'd vote to stay in the house. It isn't too small. You just think it is. I've known families with 6 children living in a 3-bedroom home. They make it work. You can too.

As to what to do with the 180K, it is impossible for us to answer that based on the limited info you've given. If you want an answer, post income, expenses, current savings, number of kids, etc.

[phoenix123]

thank you for your answers!

we cannot add on to the house because it is a townhouse. it is a small two bedroom and we are two adults and one baby. we want two more children. also, my husband works from home and needs a room to himself as an office. right now he works from our bedroom. right next to our bedroom is the baby's room, who likes to scream a lot, which is a problem because my husband is on conference calls a lot. the baby's bedroom is so tiny that we would not even be able to fit a second crib in there if we had another baby. we really need more space.

i read that if i receive a gift from out of the country, i will not have to pay taxes on it. does anybody know if this is correct?

on our current house we owe about $110K. i am not sure what it's worth, but we have tried for over year to sell it for that price without success. another house in our street (same as ours, although i don't know what it looked like inside) was recently foreclosed and sold for $65K.

we live in southeast phoenix (AZ) and want to move to northwest phoenix.

our loan is an adjustable rate.

my husband's annual income is $50K. i stay home with the baby. we are planning on having a second baby soon. our monthly expenses are pretty much the amount of my husband's monthly paycheck, we have not been able to save much since i stopped working 7 months ago. i do not plan on going back to work anytime soon, i would prefer to stay home with the babies. we have about $50K in savings and expect a gift of $180K in january.

any more advice??

[LMA]

Needless to say now is not a good time to sell. But if you still choose to move then rent it. From what you say this would also be a gamble because your rental income would barley cover your expenses and you could be at negative cashflow if any of the conditions you mention happen.

How do you know you can get a renter for what you would be asking?

If you still move I would set aside part of the $180k to cover rental losses. Also, if the $180k buys you a home free and clear then you might be able to absorb the rental losses.

From being a landlord myself I just want to let you know that based on what you are describing your are definitely looking at having rental losses so be prepared. And of course don't do a single thing until you have the $180k IN YOUR HAND.

[Merch]

I would probably use some of the 180k for an emergency fund and pay of any outstanding debts that you have.

I think the question is do you want to be a landlord? If the answer is yes, then I would use some of the money to make the property cash flow positive. I then would save the money from the rental and start an emergency fund for the rental. That way when something breaks or the renter moves out, you will have some money to take care of that expense.

If you don't want to be a landlord, you have 2 choices. One is to try and rent for a year and wait for the market to come back a little. The second is sell the unit for what it will bring in and then use some of the $180k to pay off the remainder of the mortgage.

Good luck and it's great that your family can help you so much.

[snafu]

Sadly the real estate bubble burst with AZ being particularly hard hit. If you were not expecting a gift of $180.thousand, would you still plan to sell your TH, move to SE Phoenix, and have another child? While you have a possible tenant, should that change, your townhouse could become vacant for several months. What will the financial repercussion be? Are you and/or husband able to do the maintenance required in a rental unit? This is a very serious, long term decision to make while the economy remains weak and your husband's income is moderate.

Perhaps the baby could be moved to the living rm during your husband's business hours. Alternately your husband's office space could move out of the bedroom. Babies don't take much room if you limit their accouterments.

According to your brief outline...YOU wish to be a stay-at-home-mom [SAHM], YOU will not consider returning to the workforce, YOU wish to have another baby very soon and a third child to follow. However, your income doesn't appear to support your plan.

[zetta]

There are some numbers you definitely need:
* likely sale value of the home (let's say $65k for now)
* amount you owe ($110k)
* cost of property taxes, insurance, HOA, etc on townhouse
* estimate of how much these may increase
* rent you can get for the townhouse
* rent for a larger house that would suit your needs
* purchase price for a house that would suit your needs

First, set aside 6 months expenses from the $180k. This is your emergency fund in case your DH loses his job.

I would recommend using a large portion of the $180k to increase your downpayment so that you can refinance the townhouse into a 30 year fixed mortgage. Do this whether you stay in the townhouse or rent it out. Ideallly, the payment on this mortgage should be low enough that the renters will cover the mortgage, HOA, propety taxes, and insurance, and a cushion against any future increases in these.

Next, set aside enough money to cover the case where you don't have renters for 3-6 months.

With whatever is left, investigate whether you are better off buying a larger home, or renting while you save a larger downpayment (20%) for one. You may also decide to rent until the real estate market recovers enough to sell the townhouse.

Another idea -- it might be cheaper to stay in the townhouse and rent a room for office space for your DH. Two kids can share a bedroom for a few years.

You also need to run some numbers to determine whether you can really afford a second child right now. A 5 year spacing between children can make it easier to pay for preschool now and college later. I would recommend getting on a budget so that you are able to save some of each paycheck (eventually putting 15% toward retirement and 5% toward mid-term savings.)

[HelpMeFriend]

Getting a large gift?

Speaking from one who wasted their inheritance, I would save half of it automatically. Rent your house out, if you are sure that the person you rent to is worthwhile and will stay for a while. It would really bite if you bought a new house to live in and got stuck with both houses in the end.
Use half of your gift towards a down payment for a new house that fits your family, but not because you must have a super nice house. Also, with rates as low as they will ever get, don't get an adjustable mortgage, but a fixed low rate.
Also, save some money for your kids future. Even if it is a small amount, it will grow with interest in time and it will be large when they are older (your age or older).
Good luck with your decision.

[wincrasher]

I think that once you get the 180k you should do the following.

Keep your $50k savings as EF and to cover any rental shortcomings.

Rent your townhouse - even at break even rent. You are competing with foreclosures now and will for a few years. Just be thankful you can get a tenant that covers your rent.

Buy a new home that meets your needs - but doesn't go over the 180k including all your closing costs - those should be minimal since you are not financing. Keep in mind schools and property taxes - they effect value and your later happiness in the new home. Plan on staying put for several years. You should be able to find a great deal in Phoenix and stretch those dollars. But it will be a purchase you can't unload any time soon - so make it the right one.

I'd rethink both the number of kids and the SAHM plan. Your husband needs to make more money for you to do this comfortably. But if you both rent your townhouse, and buy your next home outright, then you should have more money left over each month than you do right now. There is risk of course, but if you don't have a tenant, then your expenses will be the same as they are right now, but you'd have a bigger home.

You need to look into your possible tax liability for the $180k gift. You may have to claim it. But there may be other strategies, like having the relative buy the house for you. You need to talk to a tax consultant before you do anything.

[zetta]

Here's a great calculator to help you determine whether it will be better to rent or to buy the larger home:

http://www.nytimes.com/2007/04/10/bu...PHIC.html?_r=1#