I've been considering lately whether it's a good idea to hold onto my house (which is further away from downtown Portland than I want to be) or whether I should sell it and move on. With that in mind, I asked a local realtor to come out to my house last weekend to take a look and give me her advice.
Although I won't receive the formal market evaluation until next week, the realtor seemed optimistic----more optimistic than I am, for sure! I know part of that is the fact that the realtor is a businesswoman---she needs to list houses in order to sell them, in order to make a commission and ultimately feed her family. So of course she's going to tell me that my price requirements are reasonable (I simply want to pay off what I owe, not make a profit) and that my house "shows well" compared to the competition. Actually, I do know how to make a house look attractive and cozy, so that last part isn't so far from the truth.
Yesterday, I sat and worked out the one thing I've been avoiding: If I sell my house and end up renting, how much more will I pay in taxes, without my mortgage interest and real estate tax deduction? Turns out, my taxes will double (disclaimer: I'm not a tax expert, nor am I particularly great at math, but generally I try to be more conservative when I'm inputting numbers that will lead to a tax estimate).
At first, I blanched at the thought of paying more taxes. Then I considered that, with my relatively low salary, I really don't pay THAT much in taxes anyway, compared to people like my brother and his wife. Then I wondered how I could offset those taxes. Well, I could increase my contributions to my 403(b) plan. I had been putting between 10-12% of my salary into my 403(b); in April, I cut that to 1% until my debt is paid off. Without a mortgage to pay, I could put a whopping 25% or more into my 403(b)---with money left over for travel and other fun pursuits---and reduce my tax bill quite a bit. Not as much as my mortgage interest would, but the savings would be substantial, AND I'd be investing in my retirement at the same time. By the way, I use an incredibly useful tool called Paycheck City, with which you can play around with your withholdings and view your net pay under all sorts of different scenarios.
So the inner dialogue continues. I'll revisit this next week, once I've received the formal market evaluation. My parents are coming for a visit the week after next, and I'm sure I'll bounce some of these ideas off them as well (they're not known for financial 'astuteness', but it's always nice to hear a second opinion).
Have a lovely, relaxing, Labor Day weekend, everyone!!
Friday, August 29, 2008
My housing slump. . . .
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3 comments:
I love Dave! I wished I had read his books 20 years ago. However, becoming debt free later is still better than never. I've been working very hard at applying his theories and have made significant progress. Good Luck to you.
Have you taken into account your actual cash flow difference? Will you be paying less for rent?
If you subtract the deduction for the property taxes, then add back in what you are actually having to pay out for the property taxes, does that make a difference?
I think I'd be more worried about my actual cash flow, than what I would be paying for taxes.
And whether or not you decide to sell I think should be based on other factors than what you would pay or not pay for taxes... my opinion only :)
Dave is GREAT! I know others think he's too simplistic and they don't like his method of repaying debt, but his message kick-started my new frugal ways and credit card debt repayment plan.
As for my cash flow, I've created a 'hypothetical' zero-based budget, with three different scenarios: keeping the house, selling the house and renting something ese, and renting out my current house while also renting a small apartment closer to downtown. I'm loving the amount of extra cash I'm seeing in my budget with the sell house/rent an apartment option, but am still not sure if selling is a great idea (I'm meeting with the realtor again tomorrow night).
I've also never been a landlord, and I'm not sure if I'm forgetting some crucial expenses that would kill my budget if I decided to rent out my current house---I definitely couldn't get as much rent as I owe on my mortgage each month, so I'd have to cover that, too. Sigh!
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