Better to spend all of savings and be debt free or full of debt with lots of... | TigerDroppings.com

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townhallsavoy
Auburn Fan
Member since Oct 2007
3045 posts

Better to spend all of savings and be debt free or full of debt with lots of...


...savings?

Curious about the Money Board's thoughts.

I'm trying to sell my house, and I'm not having much luck on getting the offer I need to break even. In fact, it looks like I'll need to write a check for $9k just to get out of the house. Then, I'll need about $5k-$7k to purchase another one. That effectively wipes out the savings I've built up over the last few years.

I could rent the house and then purchase another one, keeping the $8k in the bank. I've already been preapproved to purchase a second home if I decide to rent out my house. Problem here is that I would then have two $150k+ mortgages, but at least I have a safety net if something happens.

I do need to move, and I've had two offers already.

Any thoughts?







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rintintin
New Orleans Saints Fan
Life is Life
Member since Nov 2008
7496 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

Problem here is that I would then have two $150k+ mortgages


With interest rates so low this may actually not be a bad thing. And depending on how much your mortgage is on your current home, you could pocket even more money by renting it out. Why pay to move out when you could make money by moving out?






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OnTheBrink
Alabama Fan
TN
Member since Mar 2012
3539 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

Better to spend all of savings and be debt free


quote:

Then, I'll need about $5k-$7k to purchase another one.


Dude, unless you are buying a moblie home or a cardboard box, you will NOT be debt free upon the purchase of another house.

I thought this was going to be one of them good ole debate threads on paying the house off vs. return on that money.

Anywho, why do you HAVE to get out of the house?






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LSURussian
LSU Fan
Baton Rouge
Member since Feb 2005
80159 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

Problem here is that I would then have two $150k+ mortgages
Have you factored in your interest deduction from income taxes?






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ZereauxSum
LSU Fan
Lot 23E
Member since Nov 2008
7992 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

you will NOT be debt free upon the purchase of another house.


Yeah my thinking also. You'll be in debt in either scenario so choose the one that won't make you cash-poor.






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TigerintheNO
LSU Fan
New Orleans
Member since Jan 2004
22529 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

why do you HAVE to get out of the house?






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townhallsavoy
Auburn Fan
Member since Oct 2007
3045 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

Dude, unless you are buying a moblie home or a cardboard box, you will NOT be debt free upon the purchase of another house.

I thought this was going to be one of them good ole debate threads on paying the house off vs. return on that money.

Anywho, why do you HAVE to get out of the house?


Sorry, I don't consider my mortgage to be "debt" as it's a cost that everyone typically has.

So, debt free was the wrong term.

We need to get out of the house for work related reasons.






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townhallsavoy
Auburn Fan
Member since Oct 2007
3045 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

Have you factored in your interest deduction from income taxes?


I haven't because I'm a child when it comes to understanding investments and interest and insurance and other adult things in finance.

What should I expect?

Current house has $167k left on mortgage. $950/month mortgage. Rent will be $1200/month, but all of the profit would go to a savings account in case we need to make repairs/unexpected expenses.

We'd be looking at a house $140k-$160k.






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Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
18082 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


What's with the rash of posters creating their own accounting rules?





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OnTheBrink
Alabama Fan
TN
Member since Mar 2012
3539 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

Sorry, I don't consider my mortgage to be "debt" as it's a cost that everyone typically has.


Wrong way to think about it IMO. But that's for another thread and discussion.

quote:

We need to get out of the house for work related reasons.


Tough spot. As someone mentioned above, renting it out may be the best option in the immediate future with rates low.






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townhallsavoy
Auburn Fan
Member since Oct 2007
3045 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

Yeah my thinking also. You'll be in debt in either scenario so choose the one that won't make you cash-poor.



The fear is that I have two mortgages and have to rely on renters to not go bankrupt.

If I get shat on by my renters and then can't fill the house with people, we couldn't afford two mortgages for very long.



This post was edited on 4/16 at 1:53 pm


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OnTheBrink
Alabama Fan
TN
Member since Mar 2012
3539 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

If I get shat on by my renters and then can't fill the house with people, we couldn't afford two mortgages for very long.


That to me is the answer then. You should only rent it out if you can afford no one to be in the rental for 6-12 months. Take the hit, move on, and continue to build your emergency fund.






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townhallsavoy
Auburn Fan
Member since Oct 2007
3045 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

That to me is the answer then. You should only rent it out if you can afford no one to be in the rental for 6-12 months. Take the hit, move on, and continue to build your emergency fund.


We COULD spend our savings for 8-10 months. It'd be possible, but not ideal.

My wife would kill me then die of a heart attack. She's terrified of renting the house out and insists it would only lead to trouble.

I feel like selling the house and depleting our savings will only lead to trouble.






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OnTheBrink
Alabama Fan
TN
Member since Mar 2012
3539 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

It'd be possible, but not ideal.


quote:

She's terrified of renting the house out and insists it would only lead to trouble.


quote:

I feel like selling the house and depleting our savings will only lead to trouble.


Doesn't sound like there is an ideal scenario in this situation. I did learn very early own that when my wife was happy, my life was happy!






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LSURussian
LSU Fan
Baton Rouge
Member since Feb 2005
80159 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

What should I expect?
The interest is deductible for most taxpayers and if you rent the house then you probably can have a depreciation (non-cash) deduction, but there are special rules which apply to rent houses that you once lived in, so, as they say, see your tax adviser.






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trident
Tennessee Fan
Member since Jul 2007
3340 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


quote:

We need to get out of the house for work related reasons.


sounds to me that you are moving out of town. With this scenario I would sell because it is going to cost you a fortune to fix the issues with the house once a renter breaks (they will always break stuff). I would payout and then start to rebuild the emergency fund again






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nikki6
New Orleans Saints Fan
Dallas
Member since Jul 2011
1782 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


I wouldn't rent it out unless you don't care about the condition of the house much. Renters tend to frick shite up. Even if the deposit is $1200, chances are they'll do more damage than that.






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Tigerpaw123
USA Fan
P'ville
Member since Mar 2007
9075 posts
 Online 

re: Better to spend all of savings and be debt free or full of debt with lots of...


Would you qualify for 2 mortgages?

Would one of them be considered a small business loan and be at much higher interest rates?







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townhallsavoy
Auburn Fan
Member since Oct 2007
3045 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


We qualify for two mortgages. Great credit scores and good enough income.

My bank said they would both be home mortgages.






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FredSecunda
LSU Fan
Baton Rouge
Member since May 2005
7150 posts

re: Better to spend all of savings and be debt free or full of debt with lots of...


Not sure what the answer is, but I don't think the answer is to carry two mortgages, even with renters in one of the houses. What if you have to make major capital improvements to either house at the same time? You're taking on quite the risk by doing this.

I'd consider selling the house by owner to avoid paying a realtor. See if this gets you back to even. At the very least, you can see where your offers come in and no what the market is telling you about the value of your home.

If you decide not to sell it, rent the house and then rent a cheap apartment while you build up more savings. Reassess in one year.






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