Should I Sell My Home and Rent???

Question

I purchased a 4 bed, 4 bath 2100 sq. ft. home in Oct. 2017 ($298k...Allen, TX). Since then, I have had a couple life changes (grown daughter moved out and broke off my relationship). I am now paying $2300 (w/HOA) per month by myself and I'm only using 1/4 of the house. After listening to Dave Ramsey and several FIRE pod casts, blogs, etc. including this one...I have realized that bigger is not always better (unless it's your pockets). I have a 6 year goal to retire at the age of 50. I am STRONGLY considering selling this home and moving into a 1 bed, 1 bath apt. for $1000 per month. I have a rental property that I could move back into once the lease expires in Oct. 2019.

***Caveat - Since I have only been in my house for less than a year, I don't have much equity. Should I stay in my home and try to get some roommates to help with mortgage cost until I gain more equity? Or should I just bite the bullet and sell the home now? My plan is to use the extra $1000 to build up a 3 - 6 month emergency fund, then build up my 401k and other investments. However, I keep hearing that we are about to have another financial crisis....so I'm not sure if that is the best route. I'm also considering keeping the home and just renting it out....if possible, and still moving into an apartment. Another reason why I would like to move is because I have a 1 hour commute to/from work (2 hours total)...plus rising gas costs and frequent oil changes. I would plan to move within 5 miles of my job (Downtown Dallas).

I can feel the grey hairs growing on my head as we speak (or as I type). I'm pretty much debt free outside of my 2 mortgages so I'm not in a financial bind...but it just seems like a bad idea to pay so much for space I'm not using. HELP!!!! Please let me know your thoughts and what you think it the best route for me to go.

Thank You!!!!

Nik Moushon · Answer

If I were in your shoes I would sell. But I would buy, not rent, unless I wanted an option for a quick move or if an affordable small house is too far away from your current work location. Renting builds someone else's equity and profits not your own. If you buy, instead of rent, I would suggest looking for at least a 2 bed 1.5 bath house. The reason being is for re-sell. When you do decide to move again, for what ever reason, it will be easier to sell and better price. 1 Bed/1 Bath houses just dont have that much demand...maybe Allen, TX is different IDK. Another option is to look into a duplex or a tri-plex or maybe even a quad-plex. If you are already looking into a serious down sizing this would provide a serious opportunity to house hack. You would move into to smallest unit and rent the rest.

As for the investing part I think you need to make a decision to either following the Dave Ramsey way of investing in your retirement but not your current income or  invest in real estate as a ways of bolstering both you retirement as well as your current income. Both have their pros and cons. I'm not here to bash one or praise another. You just need to decide for yourself which is better for you. They are two different camps and, IMO, you can't do both equally. At least not at starting out. I will say though that if you have a employer that has matching 401k plans then at least do the minimum for that. Its free money and would be stupid not to.

Bill Regan · Answer

Hi Danielle, welcome to BP, lots to learn here!

Given what you stated I'd say best to move on from the big house in the burbs.  The savings both economically and in time from that commute will be worth breaking even or a short term loss by selling the house.

Sorry to hear about your daughter, best of luck to you!

Thomas S. · Answer

I would sell and downsize. Paying down the mortgage with your own money is gaining nothing. Additionally we are likely on the brink of a market shift and selling would likely be prudent just in case.

As for retiring in 6 years unless you have a sizable employment pension and significant investments (1M minimum) I would not count on it. Remember aging brings about increased medical expenses and a lot of unknowns. Having enough to get by on at 50 will not be enough when older and needing to be in a nursing home.

Had you invested for 30 years in preparation to retire at 50 that may be realistic otherwise you will need a ton of investments to live off of.

Danielle Felder · Answer

Greg, Thanks so much for your advice. I will research those classes further.

Greg Scott · Answer

Danielle:

In your story you seem to indicate that you need the money to invest more than the large home.  In that case, you should sell the large home.

You also indicate that you want to build wealth through real estate, which is probably the best wealth-building vehicle available to most people.  So, yes, I would suggest you consider using the proceeds from selling your house to buy rental real estate.

Going from a house to a 1BR seems like it could be an uncomfortable down-sizing.  There are plenty of small houses in DFW, in nice areas that rent for well below the $2300 you are paying.   Most of my rentals are in the $1200 to $1500 range.  So, I think you have more options available to you.

Dave Ramsey offers some good advice for budgeting, but he seem deathly afraid of real estate.  I wouldn't look there for investing advice.   I suggest you consider Lifestyles Unlimited which offers great classes on buy & hold real estate investing.  They have a huge office right there in Las Colinas.   I live in Michigan and my wife and I have been flying down to DFW for years to attend their events and take their live classes.  (They have online classes too.)

Our net worth and passive income has grown substantially through real estate investing, so your thinking is on the right track.

Good luck