universalistanthony
New member
Hi! 28(f)/35(m) married couple with 300K HHI (pre bonus, 340-350K with bonus) - smaller Florida city, not Miami. MCOL/HCOL. We have a good "problem" that we're trying to work through.
The background:
The background:
- Wife has premarital home (current primary residence) with a great 3% rate and about 300K left on the mortgage. Monthly payment is $2400 (w/ taxes & ins.). Location is ok, not great, but not terrible either. It's pretty dated, so we do need some renovations soon, including a new floor throughout due to a water leak (now replaced) that damaged the flooring in several rooms.
- I have an old 80-year old small home (850 sq ft). A couple years ago (before we were married), I entered into a lease to own arrangement with a family member. My current payment is about $2500 (w/ taxes & ins.). Under the agreement, I need to take a traditional mortgage in the next year or so (when rates drop a bit). It needs a lot of upcoming renovations (roof, plumbing, A/C, windows) I am financially responsible for all work while in possession. My goal has always been to eventually tear it down and build new or do a significant remodel to fit a family. The value is 100% in the location. The old house cannot fit our current family.
- The old home is in an excellent, very desirable location. Lots alone on my street are going for 600-700k. The new builds in the neighborhood are selling for 1.8M to 3.5M (depending on size).
- Due to some life changes for us both during COVID and house downpayment, we don't have as much as we would like in savings. We have about 160K in a mix of retirement accounts, brokerage accounts, and HYSA.
- We have about 250K (maybe more) in equity in our primary residence (could sell for 550K-650K) . As part of the lease to own arrangement with the old house, we have about 250-300K equity as well. My price lock is 315K. If I were to try and buy that now on the marketplace, I would pay 600K plus.
- Only debt is student loan debt, wife's 60K will be forgiven in 4 years. Mine (75k remaining) will be paid off in the next 5 years or so.
- As renovations are coming due with the old house and the primary residence, we're starting to consider what to do with our housing situation. Ideally, long term we would like to tear down the old house and sell the primary residence and use about 200K from the sale as a downpayment for a new build on the lot. We've received some quotes for a build with our (basic, non luxury) specs for about 700K. The total mortgage would be about 1 million, less the 200K downpayment, so right around 800K mortgage out the door. I calculated about 6k-6500 per month in monthly payments (w/taxes & interest). I expect the value of our new home once complete will be about 1.7M (probably a bit conservative), so our equity would increase at the end.
- If we were to take the traditional mortgage and rent out the old house, my main concern is that likely rental rate for the old house would result in neutral or negative cash flow (definitely negative once repairs are considered)
- Pros with the new build: less complicated with one beautiful home in an amazing location (5 min commute for work and 10 mins from some of the best beaches in the world). Both homes will need a lot of renovations ($) in the coming years, so this scenario avoids that.
- Cons: higher monthly payment, losing the 3% mortgage, headache of a new build.Of course, if we went with the new build, we would love to keep the primary residence as a rental with the low rate, but I don't think it's feasible.
- One option is to keep the primary residence (low payment, low rate, house is ok), and not exercise my purchase option in the lease to own agreement. We could essentially walk away from the old house. However, we worry we'll seriously regret this in the next 5-10 years when we're permanently locked out of that location and values are likely even higher than they are now. Truth is, we're locked out of that location right now but for the lease to own arrangement.
- One thing to consider - we have two school age children and a baby on the way. Thankfully, childcare is minimal because we have a lot of family support in our town (yay grandma!) and wife works 100% remotely.