What would you do?

[Josephhgoins]

Ok, I so rarely find myself unable to make a decision, but I need input from like minded folks.

My hope (yes, just a hope at this point) is to buy my own place this summer when my lease comes up. I miss having my own place, growing my own food and just generally not having people above me making noise at 2AM.

I called the bank yesterday for some informal information. My Credit report which I had been working very hard on is a shoe in for the best rate they offer. my Debt to income ratio is in the single digits. No problems there. I am looking for houses in the 100K mark although the bank really wanted me to look more into the $150 range. I don't want to be house poor, so that ain't happening. A 100K house will be just fine, I can also build on or upgrade it as I have cash in hand.

So, here lies the issue. I need about 10K for down payment and closing. BF says that in this market the sellers would pay closing as they did his. Right now I am in the situation that I have almost no cash.

I have a rental property that I own outright that I should be able to sell for a decent down payment. Doing so would cut my income by $350.00 a month. I have a 401K loan that I pay $400 a month that I could pay off with the proceeds as well. So my Debt to Income would still be great, I would just loose the $350 a month income. Also, don't really care about paying off the 401K loan as I am paying the interest to myself not wasting it to a third party.

What would you do? Sell everything I can, work really hard and then when my lease comes up sign a 6 month lease at a higher rate to save up enough for a house in 2012 or go ahead and sell the rental and buy a house in 2011?

My rent is currently about $650 a month and a 6 month lease would probably be $700 a month.

[2ndGenGranola]

I think I would hold on to the rental property right now if it is working for you. If it is a pain, then and only then would I consider getting rid of it.

[madhen]

Have you gone out and toured any houses yet? I'd do that first, to make sure that the 100K fits. I had the same idea, but being in CA, I had more of a $200K in mind, but honestly couldn't find a house in that range that was in good condition and/or in an area I'd consider living. (And I am NOT picky. Not where I want to live included deep in a canyon that never saw sunlight and right next to the freeway, where I would hear traffic all day and night.)

Once you check out a few homes, if that 100K target still seems realistic, then I'd probably do what I could to make it happen.

If, after looking at 100K houses, you decide that you need to go a little higher to get a house you will be happy in, then you can make the decision to stay put and save a little more, or start moving money around to make it happen.

I stopped renting about fifteen years ago, when I bought my first little house in Sacramento for $104K (moved, because of the job, twice since then), and I've never regretted it.

(BTW, I ended up paying $350,000 for my current home (with 20% down from the sale of a previous home), but it sits on 10 acres, and is currently worth over $600,000, so I'm happy.)

[Tess B]

as you own the rental property outright, what about moving in there where you would be rent free and continue saving for the DP? then when YOU are ready, and purchase your new home you can convert it back to a rental??? just a thought.........

[Vanilla]

Before you plan to sell the rental property, please research the capital gain tax law of on sale of rental properties in your state.

In Calif., there is capital gain tax on sale of property unless an equivalent property is purchased within a certain time frame. Replacing a rental property with a principal residence is not equivalent (with certain exceptions).

[Josephhgoins]

i did live in the rental for a while, but I really didn't like it there. I now live 135 miles away and really want a house here.

Thanks Vanilla on the cap gains tax. I think I will talk BF into asking his CPA.

[Greebo]

total debt: $21,996.98 updated 12/28/2010

I'd suggest you get this paid off before you take on any real estate debt.