Buy a new house to save tuition costs?

**jIM_Ohio** · 11-09-2010, 05:45 PM

If you rent out your current house, when you sell you can write off the losses
you cannot write off the losses from sale of a primary residence

**cicy33** · 11-09-2010, 08:11 PM

Based solely upon the cost of the private school might be better to sell at a loss and move. The cost of the private schools will eat you up. Renters are a great idea on paper. you can write off everything you work on. however, you have to be prepared not to get paid sometimes. If you can handle both mortgages for brief periods then you might consider that route.

**drew21close** · 11-09-2010, 08:44 PM

If you rent all your money will go to the rent and still no matter how long you pay for the rent the place wont be yours.
So if better if you just buy a house and save for the tuition later on.

**drew21close** · 11-09-2010, 08:45 PM

If you rent all your money will go to the rent and still no matter how long you pay for the rent the place wont be yours.
So if better if you just buy a house and save for the tuition later on.

**cicy33** · 11-09-2010, 08:45 PM

Originally posted by drew21close View Post

If you rent all your money will go to the rent and still no matter how long you pay for the rent the place wont be yours.
So if better if you just buy a house and save for the tuition later on.

They are actually talking about renting out their house or selling it.

**cjscully** · 11-09-2010, 10:09 PM

Originally posted by hopefulfirefly View Post

I'm not even sure where to start in order to calculate all the pro's/con's of this situation & how to make a decision.

Dh & I have a 7 month old baby & live in a city where we will absolutely not use the public school system. There is a nearby city with our state's best school systems, arguably as good (or better) than the local private schools. A very high class area, gorgeous homes (that can now be bought for a bargain), and amazing schools. The local private schools cost approximately $7-10K for lower level and $17-25K for upper level/high school.

So, the options we see are either remain in our current home & send him to private schools (at the rates quoted above) or buy in the excellent school area and send him to public school.

Let's see, if we take the lowest price in the tuition price ranges you listed and assume lower level = k-5, upper level = 6-8 and high school = 9-12, then lower = $42,000 and upper+high school = $119,000. So the minimum you would end up needing to pay according to that is $161,000.

What you didn't mention is the home prices in the high class area.

You're also looking at a three year plan. In three years your mortgage balance will go down some. It's possible, but not guaranteed, that real estate values might improve a bit. So you might break even if you wait a couple of years to sell.

So, if you stay where you are you're definitely going to have to eat $161,000 in tuition on top of your $130,000 mortgage. That's $291,000. If the mortgage on a new house (which you said you can afford) is less than that then the move is almost a no-brainer.

Another thing to consider: Another child at any time in the next 15 years REALLY tips the scale toward moving.

**hopefulfirefly** · 11-10-2010, 04:16 AM

Originally posted by cjscully View Post

What you didn't mention is the home prices in the high class area.

You're also looking at a three year plan. In three years your mortgage balance will go down some. It's possible, but not guaranteed, that real estate values might improve a bit. So you might break even if you wait a couple of years to sell.

So, if you stay where you are you're definitely going to have to eat $161,000 in tuition on top of your $130,000 mortgage. That's $291,000. If the mortgage on a new house (which you said you can afford) is less than that then the move is almost a no-brainer.

Another thing to consider: Another child at any time in the next 15 years REALLY tips the scale toward moving.

In the great school district, we could buy a house for around $150-$175K, but we would be settling. Ideally, I'd like to purchase a home that we know we would be very happy living in for a long time (we would just like the basic structure, size, lot size to be ideal & we can make improvements as we live there). To get the ideal home, we're looking at more 200-225K.

Scully-about considering this option in 3 years. I've thought about that...but the savings we'd get now on the more expensive home will be more of a savings than if we wait for the market to rebound a bit. I think the loss we'd have on our current home now would be less than the savings we'd have on a new home (in that area) now. Does that make sense?

I don't feel we can comfortably float both mortgage payments every month. Yes, I think we can afford it if necessary (no renter, etc.), but if we can't regularly contribute what we need to our retirement & float both payments, does that mean we definately shouldn't keep one as a rental? (I know that sort of seems obvious, if you can't afford it, don't do it. BUT, we can technically make those payments if necessary. It is considered more of an acceptable risk with a rental home to do what I've mentioned?)

**jIM_Ohio** · 11-10-2010, 04:32 AM

If you cannot afford the "right house" in the "right district" now, I suggest saving for the large down payment now, and planning to get the exact house and location you want in 5-7 years.

Closing a house costs money which you will not recover, so I suggest only closing on one house, and making that the house you stay in.

Your school problem now becomes a short term issue- you have 2-3 years in current location where you might have kid in school (if you wait 5 years to sell, 2-3 of those years has kid in school) and that might change how you deal with problem.

Planning to continually move is not a plan for economic success.

**cjscully** · 11-10-2010, 09:35 AM

Originally posted by hopefulfirefly View Post

In the great school district, we could buy a house for around $150-$175K, but we would be settling. Ideally, I'd like to purchase a home that we know we would be very happy living in for a long time (we would just like the basic structure, size, lot size to be ideal & we can make improvements as we live there). To get the ideal home, we're looking at more 200-225K.

Scully-about considering this option in 3 years. I've thought about that...but the savings we'd get now on the more expensive home will be more of a savings than if we wait for the market to rebound a bit. I think the loss we'd have on our current home now would be less than the savings we'd have on a new home (in that area) now. Does that make sense?

I don't feel we can comfortably float both mortgage payments every month. Yes, I think we can afford it if necessary (no renter, etc.), but if we can't regularly contribute what we need to our retirement & float both payments, does that mean we definately shouldn't keep one as a rental? (I know that sort of seems obvious, if you can't afford it, don't do it. BUT, we can technically make those payments if necessary. It is considered more of an acceptable risk with a rental home to do what I've mentioned?)

Based on the costs in the area you're looking to move to, I'd say you're better off moving, even if you do have to sell your current house at a loss.

Keeping your existing house definitely represents a level of risk. It's not just the vacancy issue. It's also upkeep and repairs. It's also a question of what are the going rental rates for single family homes in your area. To evaluate whether or not it makes sense to keep it what you would need to do is crunch some numbers. Here's a very rough way to figure it: expected monthly rent minus about a 10% vacancy allowance minus the costs of upkeep (lawn, etc.) minus a repair allowance. If the remaining figure is less than the PITI on the property, don't keep it. If it is greater then you should be okay keeping it.

**Carl73** · 11-10-2010, 09:49 AM

Don't move

I would suggest that you should not move to another district. First of all, if you can't afford a similar house in that area, then you won't be happy living there. You family may also extend in future and you'd want to live in a house that you are at least satified with.

I would suggest that you send your daughter to a private school. The fees may be high, but the level of education is also much better there.

**jpg7n16** · 11-10-2010, 11:55 AM

How close is "nearby"? Have you considered asking the district to approve your child's transfer to the other district? I'm not sure that they'd allow it, but it's worth a shot. Worst they can say is "no we can't do that." Then you're right where you already are.

If approved, you could keep your current house (which you can hopefully afford) - and get your child a great education. Not a bad result for just asking.

Then if they say "no" then look into other options.

Originally posted by hopefulfirefly View Post

I think we could get a renter for our current home, but it brings with it a few concerns. Firstly, our home isn't really a 'rental' home. It's very nice & completely upgraded, not what you usually find in a rental.

That'd make a good selling point to potential renters, so that's not a downside.

is it silly to sell for a loss when we've put so much in? Thank you.

It is silly to consider how much you've put in when trying to make this decision. Any money spent is spent (aka sunk costs). You can't go back and unspend it, so what's done is done. And the home is worth what the home is worth.

Now you'd be trying to play a real estate speculation game: what will this house sell for in X years?

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My advice, spend the next few years (until your child needs to go to school) - in debt elimination mode. Pay down any debts you have, and hopefully you'll be debt free besides the house. Pay down aggressively on the home, and you won't be upside down in 4-5 years.

Then your situation will be much different. Hopefull you'll have maybe $30-60k of equity in the home which upon sale, could be used as a good downpayment.

If you can afford to pay $10-25k/year for private school, you should be able to pay 10-25k/year extra towards your mortgage.

So maybe you should try that out for a while. In 2011, make your "private school" payments as extra on your mortgage, and see what it feels like. After a year or two of that, you'll have a better picture of what sending your kids to private school would be like.

**jIM_Ohio** · 11-10-2010, 12:29 PM

Originally posted by jpg7n16 View Post

How close is "nearby"? Have you considered asking the district to approve your child's transfer to the other district? I'm not sure that they'd allow it, but it's worth a shot. Worst they can say is "no we can't do that." Then you're right where you already are.

If approved, you could keep your current house (which you can hopefully afford) - and get your child a great education. Not a bad result for just asking.

Then if they say "no" then look into other options.

That'd make a good selling point to potential renters, so that's not a downside.

It is silly to consider how much you've put in when trying to make this decision. Any money spent is spent (aka sunk costs). You can't go back and unspend it, so what's done is done. And the home is worth what the home is worth.

Now you'd be trying to play a real estate speculation game: what will this house sell for in X years?

----------------------------------------------

My advice, spend the next few years (until your child needs to go to school) - in debt elimination mode. Pay down any debts you have, and hopefully you'll be debt free besides the house. Pay down aggressively on the home, and you won't be upside down in 4-5 years.

Then your situation will be much different. Hopefull you'll have maybe $30-60k of equity in the home which upon sale, could be used as a good downpayment.

If you can afford to pay $10-25k/year for private school, you should be able to pay 10-25k/year extra towards your mortgage.

So maybe you should try that out for a while. In 2011, make your "private school" payments as extra on your mortgage, and see what it feels like. After a year or two of that, you'll have a better picture of what sending your kids to private school would be like.

excellent post
great advice

**fe2o3ez** · 11-10-2010, 01:05 PM

I agree with Jim, that WAS a great post.

Just to one point on the renting. Remember, you don't have to rent to just anyone. If you get to a position where you dont NEED the money, but arent ready to unload the house, you can be as descriminatory as you would like about who rents your place.

good luck. It's an exciting time for you!

**MonkeyMama** · 11-11-2010, 04:48 AM

I agree with JPG & Jim.

Just some other thoughts:

1 - I agree that I don't see the rush. Staying put and maybe paying for private school is probably worth it as far as saving the down payment for another house and seeing if property values improve, etc. Basically, it doesn't have to be all or nothing. (Private school for 12+ years versus public school for 12+ years - some mix may make more sense).

2 - I would be really wary to rush into a school district with such a young child. How will that school district fare in 15 years time when they are ready to graduate? who knows???

This may or may not apply to your situation, but most people I know moving for school district have been rather foolish. Things to consider:

**The best schools in the 80s/90s/2000s are not going to be the same in 2020 or 2030. I have friends who picked the school districts they went to as children, which did have stellar reputations. BUT, now that their communities are primarily retired folk, most their neighbors don't have a lot of stake in keeping the education top notch. That is not where I would want to be.

**I see too many people judging schools on solely test scores. On the flip side, I know teachers in some of the *best districts.* There is a lot of cheating and slight of hand to inflate test scores and reputation. The home prices in these neighborhoods are outlandish, accordingly. There is so much more to education than "test scores."

**Most people don't know their options when it comes to public school. I highly recommend talking to your neighbors and finding out what is out there. I have a friend who has really struggled financially to stay afloat, but her kids go to all the best public schools around. Her experience has been eye opening to me. I think she will probably save me a fortune in just opening my eyes to all of the alternatives out there.

**As an aside - for the popular schools? It is usually infinitely easier to get in the higher the grade. So switching to public school later may buy you more options. (Depends, but the waitlist for our school is hundreds for Kinder and just a handful of people in 2nd/3rd grade. Maybe no waitlist for 4th/5th. People don't like to change schools once they get settled).

From my experiences in this area, before we had kids, I Tell you that the school district was not even on my radar when we bought our home. We bought in an influential area with a terrible school district. There was wealth and power here, and I admit I was surprised that our community has invested so much to improve our schools (I figured they'd probably just go to private schools, though overall I knew the impact would be positive. I'm just surprised how positive it has been).

Anyway, I remember people aghast where we bought, BEFORE WE EVEN HAD KIDS. I thought it was a little premature to freak out about the state of the school system, and it was. Fast forward 10 years and I have a 2nd grader in one of the best schools in the state. In fact, I can't imagine a better education. (The only reason we got *in* was talking to people and knowing what was going on. I can't stress this enough - talk to your neighbors about your school concerns).

My own experience probably conflicts with some of my advice. The truth is that the wealthier neighborhoods are going to have better schools. (Especially if they have a lot of small kids!) But, a little outside the box thinking can get you there without spending a fortune. For us, judging quality of neighborhood has paid off far more than considering the test scores/reputation before we were ready to have kids. I will tell you that a lot of the schools here have improved or worsened considerably in the mere 9 years we have lived here. I am glad we didn't pay a premium for a declining school district.

Buy a new house to save tuition costs?