Hi Financial Planning - throw away in case I give away too much identifying information.
My wife and I, both in our low 30s, have gone in circles on this topic and wanted to get some outside thought since we need to make a decision soon. I lurk here often so what better place to post and contribute to.
The numbers you all love:
- Total income 190k before taxes in fairly volatile tech field. Wife and I both at same company.
- 300k in retirement, both maxing 401ks and HSAs each year plus some.
- Approx. 5500 take home pay a month after all our deductions, taxes, etc. This is 2 paychecks a month calculated and ignores the extra 2 a year, stock options, bonuses and ESPP extra income which usually gets diverted to savings.
- Estimate bills around 4000 a month. Only debt we have is house. This got high lately because of new twin daycare costs. Tighter than we would like but we are going to see if we can budget and live off this for now. Expecting small raises in the spring.
Now for our dilemma - we bought a new house (2.375% rate) because we outgrew our small starter home with the arrival of twins. The housing market we live in has exploded with people fleeing the high cost of the west coast. We live one state further inland in a MCOL city.
- Scenario 1: Sell current house. Estimate take home profit of $180k (owe $138k) from when I bought it 7 years ago. Recast new house mortgage to below 80% loan to value to drop the $50 PMI and payment by $300, giving us an extra $350 take home pay each month. Estimate this leaves us with $170k in the bank afterwards which lets us put some money into new home. Too much money for an emergency fund so likely will look into investing it into the stock market, which we haven't done much in the past.
- Scenario 2: Keep current house and rent it out. Likely can rent it for $1600 a month and payment will be $1150 a month (3.875% rate with 23 years left on loan). We figure we would have roughly $50k in savings to invest in the new home and for an emergency fund in this scenario. I know the rule of thumb is 6 months worth of bills in an emergency fund but given how volatile our jobs are and we are both employed by the same company, this makes us nervous and we have always opted for a larger emergency fund.
Scenario 1 gives us the option to sell stocks in the event we both lose our jobs (lower risk in my mind), while Scenario 2 provides us with investment property at low cost and approx. $800 in profit a month currently ($450 above loan amount and $350 in equity gain) but with the stress of being landlords. This is higher risk in my mind because we are leveraged further with a second mortgage and our money is tied up in a second property.
As I type this out, the tl;dr is take our extra cash flow and either invest it in the stock market or into real estate. Anyone have any other considerations i didn't cover?
Submitted September 17, 2020 at 09:23PM by throwaway5734098 https://ift.tt/32G3CPt
