"Should I Sell My House To Be More Financially Free?" (Listener Intervention)

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3:14One of my absolute favorite things to do on this show is to talk to you, my money rehabbers. So I am beyond excited today to do exactly that. You're about to hear a conversation I had with money rehabber Chelsea, who DMed me asking, should I sell my dream home to give myself and my husband more financial freedom? With the state of the real estate market right now, I know Chelsea is not the only one thinking this. So I'm taking you behind the scenes into what I told her. And spoiler alert, we have a major breakthrough here. Here's our conversation. Chelsea, welcome to Money Rehab. Hi, Nicole. Thanks so much for having me.

3:46I'm so excited to be here. I'm so excited that you're here. And I know you have an important question that you want to tackle today together. Can you share that question with our listeners? Of course. My question is, should I sell my new house and downgrade to have more financial freedom? It is a beautiful question. So not only did I know that that was your question, because of course you sent it to me before, but you also sent the purchase price of your house, photos of your house, your monthly expenses and income spreadsheet with charts and graphs. I am obsessed with you, basically. So thank you for doing all that.

4:23You went above and beyond. Let's follow the money trail here. Let's follow the numbers trail. I have a bunch of questions, but first, let's go over the purchase price of your house. Yes. So we purchased this home a year ago for $769 ,000. It's a new home. Okay. Happy house-aversary. Yes. Thank you. April of 2023. Okay, cool. And what was the down payment? It was$135 ,000. And your interest rate? 6.25%, which we bought some points to get it there. Nice. Okay, cool. And how much have you paid off so far? So the total paid off is$169 ,000. So we've made some extra payments a couple of times. So. Lovely.

5:10Toward the principal. Yes. Cool. Okay. And what is your monthly payment? So it's currently$4 ,250. But since it's a new home, the taxes don't really fully assess until June. So right now it's$42.50, but when the taxes come up, it'll be around$4 ,700. Okay. So$4 ,700 is inclusive of basically a pro rata share of what your yearly property taxes will be. Yes. Cool. I'm glad that you did that. Some people forget about property taxes and are like, damn it. So you split 4 ,700 roughly with your partner, right? Yes. Okay. And do you know approximately how much maintenance is going into the house? Or is the 4 ,700 inclusive of maintenance as well as taxes?

6:08Oh, gosh, no. There's nothing tied to maintenance that we pay on, I guess, a monthly basis. We haven't, you know, with it being new, knock on wood, We haven't had any real issues thus far, but I'm not sure what that number would be. Okay. But so far, it hasn't been significant. I mean, those types of things, unfortunately, happen usually at the worst times. Right. Yeah. Something to just think about, factor in. So your combined income after taxes with your partner is$11 ,600-ish, yeah? Yes. Yes, correct. So your mortgage is 40 % of your take-home pay. Correct. Okay. Can we go through a bigger checklist of your overall financial picture?

6:57Do you have an emergency fund? Yes, we do have$26 ,000 in a CD right now. Okay. And that is, it sounds like three months of expenses in the bank? Yeah, I would say. Okay. And you feel good with that? I mean, for both of us. Okay. I feel good about it. I definitely, I mean, obviously always wishing that it's more, but I feel okay about it. Okay. And you both have consistent jobs and skills where you could get another job if God forbid you lost your jobs. Correct. Sweet. What other expenses do you guys have right now? So we have our vehicles, older vehicles. My husband's is, well, he cares more about vehicles than I do.

7:44My car is almost paid off. I pay$5.50 a month for the vehicle itself. He pays around$6.50 for his truck. We have daycare that is around$800 a month. We have student loans that are around$800 a month. As far as other reoccurring things like home insurance, car insurance, obviously utilities for the home, things like that. And then the basics of groceries and maintenance appointments for ourselves and all the fun stuff. And do you have credit card debt? Well, I checked this morning. We have like$4 ,400 in credit card debt right now. Is that debt or is that just your statement balance? Just statement balance.

8:29Okay. And you pay it off in full every month? Mostly. Okay. Are you saving for retirement? Yes. We both have 401k programs. So I have an employer match of 8%, which is great. My husband has one of 4%. So we both contribute the matching amount. Do you know approximately how much is in there? I have about$64 ,000 and I think he has around$45 ,000. And how old are you guys? I am 33 and he is 32. And do you have any other kind of debt? Student debt is$45 ,000 for the two of us. But other than that, no. And why did you buy a house? Well, in the past, real estate has worked out for me personally. I've owned a couple of different homes in the last decade and was able to upgrade as I've owned the next house with the proceeds that I got from the previous home.

9:32We bought a house this go around because this is where we want to live and this is the school district we want to be in and I think we will be here for a long period of time and so it just made sense for us. I go back and forth because I think about it we were originally going to build a home and that would have required us to rent for a little while and I don't know why that just freaked me out like no we can't possibly rent and lose money, but I have been doing a ton of research in the last couple of years listening to you. And I'm a big fan of like Ramit Sethi. So definitely changed my mindset in that capacity.

10:17But yeah, it's also, you know, I hate that it's like the thing to do and I don't necessarily see it as a massive accomplishment as I used to, but we had been looking for a while. We wanted to be in this area. And it was, I guess, a rough market when we were looking. We bought this house specifically after we had made, I don't know, 20-some offers on other homes that just, you know, we were outbid. And it was for stuff that I really didn't love, you know. So that just kind of bugged me that we were going back and forth, like fighting so hard for these homes that just, to me, I was like, I don't even like the place.

10:59So I don't care. They can have it. Oh, yeah, we looked at this one. In the beginning of our search, it was a model home. And I was like, we just looked at it as a joke, honestly. But at the end of the day, my husband was like, the house is black on the outside. He's like, let's just get the black house. Let's just offer them what they want. Let's just do it. So we did. And here we are. And why was it a joke in the beginning because of the color? No, I love the color because of the cost. Oh, because it was out of your budget. What range were you looking at or hoping for? We were hoping to buy something around 600 ,000.

11:38And I think when you refer to some of our episodes and Ramit's episodes, he and I both agree that what people don't often think about when they're buying a home is all the stuff that you don't get back. The interest payments, the maintenance, the closing costs, the property taxes, all of the things that don't get factored into an equation. When you say like grandma bought a house for 50 grand and now it's 500 grand, you also don't factor in inflation and opportunity cost of what that 50 grand could have been doing in the stock market over that period of time. So is that essentially what you're referring to?

12:18like a perspective that you hadn't heard before? Absolutely. Yes. And so was the goal for buying a house, because it sounds like you want to stay there for a while, was it to make money? It sounds like you weren't even coming to it from that perspective at this point. It sounds like you wanted to nest your face off, live in that area, stay there for a long time, right? So you weren't looking at this as like a quote unquote investment. You were looking at it as a home for your family Right. I would say, you know, there is that part of me that, you know, years down the road, we'll be able to sell it for X amount.

12:56But when that will be or how the economy or market will be at that time, who knows? So yes, I think by the time we decided to buy this house, it was just love the house. We can make it work. So go for it. Okay. So this is all really helpful, Chelsea. You want to know basically if you should have more financial freedom than you have right now, which I think is super interesting because for some, having a dream home near family in great school districts in a place that you want to be in for a long time is financial freedom. So do you feel like you're not able to do things that you want to do right now because of your mortgage?

13:38Is it holding you back from doing something? And what is that something? Yeah, I think so. It's, you know, it's just kind of like moving into this beautiful home. And it's not like it's super large by, by any means, but it's, I mean, it's great, but it's not. I've lived in other homes that are not this nice and I had more money in the bank. And it seems like that time it was kind of just a little bit more of a relief. But the things that I want to do more of that I feel like the mortgage is holding me back, it's travel for sure. You know, my three-year-old has a passport. We want to make sure that he and we can see the world and travel a ton.

14:20And then just like overall wellness. I wish I had more money for, I said the other day, like, I just want to be financially stable enough where I can go to the chiropractor twice a week and not have to worry about what it costs. You know, seeing a personal trainer is on the top of the list. We eat grass-fed, organic, free-range food, which is very expensive. And I just don't love having to worry about that. And so those are some of the things, just overall quality of life, I think. Well, I love that you can really, really articulate what financial freedom is for you because it's different for everyone.

15:06Going to the chiropractor twice a week without worrying about it and being able to order as much or buy at the grocery store as much grass-fed, free-range, organic, artisanal, like whatever you possibly can and can consume is a really, really helpful baseline. So it sounds like by paying the mortgage every month of 47-ish hundred bucks, you know, I'd maybe round that up a little bit more because maintenance will happen. Where would you ideally like to be in order to feel comfortable enough to do the chiropractor, to do the traveling and to do all the meets your heart desire? Yeah, see, and that's the thing, because the mortgage we moved from was less than half of what ours is now.

15:56And I feel like even in that state, we were stressing about money, too. Hold on to your wallets. Money Rehab will be right back. And now for some more Money Rehab. The mortgage we moved from was less than half of what ours is now. And I feel like even in that state, we were stressing about money, too. And just, you know, not having, we didn't have a nest egg at that point. Of course, our careers have shifted a little bit. And we've gotten a few raises over the last couple of years. But I think it was just a big jump. And I mean, ideally, the mortgage would be around$3 ,000. Like, I think that's more reasonable.

16:45Like, if we round up and we say, okay,$5 ,000 a month, I feel like there's a knife in my heart. Like, it's just a big number to spend on housing, I think. So I think around that$3 ,000 would be great. And we moved in here and we did account for, okay, we have a six and a quarter percent interest rate and there's potential for that going down over the years, but you never know. I mean, if it did go down a percent or two, that would be wonderful and that would ease a lot of the pain, but you never know with that. So have you been already looking at other options? Do you think that you would want to downsize to another home you purchased or rent for a while?

17:34Would you want to be in the same area? Yeah, I would definitely want to be in the same area for now. And I, you know, I had, I had been looking at a lot of different options in the area. And that's what sucks the most is that, you know, you have, yes, there are really expensive, really nice houses, but then there are also really expensive, not so nice houses that are, you know I feel like even if we were in that$500 ,000 range to get us to$3 ,000 a month like that's probably as low as I would consider going just in terms of the quality of the house but then even then if I take you know all of the equity from this home and put it on that home work through the numbers now of interest rates it's like not that big of a difference in terms of monthly payments.

18:25Yeah. It sounds like the process of going through buying and looking at 20 homes and feeling just like deflated pushed you into this place that you feel as nice of a house as it is. You know, a house can never feel safe if it feels like a financial prison for whatever reason. And I say when people will tell me that they feel like they need for childhood trauma reasons or whatever reasons, like it doesn't matter to me. If you feel like having a home will give you safety, that's as good a reason as any, even though it doesn't make long-term wealth generating sense across the board, as some might think, and default to as like their idea that we've been told and brainwashed that homeownership is the ticket to long-term generational wealth.

19:19I mean, there's just so many holes in that argument. And I'm I'm really glad that you are now seeing it from different angles. But you're also not telling me that you are feeling like this is something that's going to make your heart happy, maybe in the way that travel would. I mean, I would for sure tell you if you couldn't afford this house. It's 40 % of your take-home pay. Ideally, it would be around like 35%. But I think you can afford it. You're just cutting out things that really do make life worth living for you, including the chiropractor, including the travel. You know, I told somebody to call off their wedding because they had too much debt.

20:01So I'm not scared to tell you what I really think about it. But I'm not sure if this home is providing that security that you had wanted and the experiences that you wanted. Yeah. And I think that's true most of the time. I mean, and then I think about, you know, I may, I have potential for a new opportunity that would give us a lot more financial freedom in the next three to four years, the way that it works out with the stock and bonus structure and, and things like that. So I think of it as, you know, if three or four years from now, we will be in like a much, you know, safer place financially, then is it worth it to give it up?

20:55Because I do still, I love the house. I love the community. I love the neighborhood. I have to put in there the pain in the ass that moving is and finding a new place. I was just about to say, yeah. I mean, yeah. Have you really thought through what that looks like? Yeah, I mean, I definitely don't want to do it if I don't have to. But again, my husband and I both come from families that were terrible at managing money. And we were both in situations where when we were in high school, our parents lost their home due to just financial instability. And it's not, I mean, financial stupidity is what it actually was.

21:40Like, there was no huge hardship. It just wasn't, they just weren't smart. So I think that we are just very cautious in a lot of the things that we do financially and just want to make sure that we're not putting ourselves in a bad spot ever. Well, thank you for sharing that. I actually feel very similarly. I saw my house got foreclosed on as a kid and I had never equated owning a home with financial freedom or safety because it wasn't for me. I would much rather personally have more money growing in the stock market over time and feeling like I have the ability to take out that money than having a pile of bricks or mortar or wood or whatever the fact houses were made of.

22:28But that's personal. And I've had to do a lot of soul searching and, you know, asking myself hard questions. And so it sounds like you're getting to that place, too. I think from a financial standpoint, you couldn't afford this home. You're going to probably make those other sacrifices. And this is not a cop-out. I can't answer that for you, what's more important in your life. Because, Chelsea, I don't wake up in your life every day. You have to wake up in your life every day. And you have to ask yourself, really, I think you're in a good position where you have the true choice. You're not doing this out of panic and fear.

23:06That's not a fire sale situation. You're doing it from a place of strength. You could go either way and make it work. You just have to really decide which path is going to make you most happy and most fulfilled. Look, money without meaning is just paper. I've said it many times. And so what meaning does it have for you? That's the biggest question. That's like time you get a bottle of wine, you, you know, look in the mirror.

23:34metaphorically or actually, I don't know, whatever you want to do and say like, what is the life I want to live? Because at some point, right, the sins of the father or the mother are not bestowed on the son or the daughter. And so just because you saw it play out a certain way, sometimes we overreact because we want something totally different. Or sometimes we follow in the same patterns as our parents because that's what we saw. And so it sounds like you and your husband saw, you know, similar behavior that I saw that was overextending for a home, ultimately losing the home. And so you wanted to be extra cautious.

24:12You have been cautious and you have been really responsible. So you've rightfully kind of maybe overcorrected even to a place where you now have the choice. So how are you feeling now that we've discussed those? Good, good. I feel better now that I've even just like said it out loud and laid it on the table and, you know, proud of the fact that I have this opportunity where we could be, you know, debt free aside from the mortgage and in less than a handful of years. And then also, I feel comfortable in the spot that I'm in because, Because in Minnesota, you have to live in a home for, I don't know if this is how it is everywhere, you have to live in a home for two years.

24:58Otherwise, you have to pay capital gains on any proceeds that you make. We have a year until the two year. And then also my son, he's three and a half. So we have a year and a half until he would potentially start school somewhere. So we wouldn't have to disrupt him in any way in that position. I think that you have another year to really think about whether or not you would want to make a change. You would probably do like a 1031 exchange like you did in the past, I'm assuming. So you would just roll that over to another home. Um, so maybe in the next year you take a look at some of the other houses in that 3k range and, and you're smart to really think through the interest rate and where you can get to that number every month that you feel good with.

25:49It sounds like you don't want to rent, but so for buying what, where you could potentially move that would be in that range, just like take a look and see what's out there. And, you know, I love housing porn. I look at it all the time for a variety of reasons. And sometimes like when you're unhappy with the job, you go on LinkedIn or another job site and you can just feel better knowing that you have something better than what's out there. So in order to really understand your values, take a look at the comp of the area and you, I don't know what you're going to find. You could either find a bunch of shitty options out there and you're like, okay, well, I got this out of my system.

26:31Or you could say, wow, there are great other options that I could be really happy with. And I have decided that my day-to-day lifestyle and being comfortable going to as much personal training and whatever else your husband wants to do is really important to us. And that's cool. And there are some great options. Maybe meet with a real estate agent. Do you work with one to see the state of the market? in your area yep for sure she's already called oh really like what happened three months she got like three months ago and was um we were dealing with something with this is a new build home sometimes things happen whatever but she was like oh yeah we could probably you know your house is at like 825 now if you think you know but you know we put on a deck and we put in fencing and So that was another 45 K.

27:24So I'm like, yeah. Okay. Now I understand a little bit more why you're feeling the pain because your payments weren't, you know,$4 ,700. If you amortize what those upgrades were and put it into your monthly payment. No, I paid cash for that. Oh, I know. I know. But like, but you, so you're saying you put in$45 ,000 over the last year, correct? Yeah. Yeah. Okay. So over 12 months. Yeah. So do you, so do you know how much that is a month? No, it's$3 ,750. So plus$4 ,700. I mean, you're, you're in essence paying on your house. If you take what your upgrades have been, And that's why I was asking for maintenance because maintenance, upgrades, you know, all of the stuff that you put in the house, it's like a money pit.

28:20So you've actually like been paying if you take the upgrades and amortize it over your payments, like closer to$8 ,500 a month. Don't even say it. Yeah. That's why you're feeling the pain. Yeah, I mean, we had, you know, like I said, I was, I'm somewhat comfortable with our emergency savings, but it was a hell of a lot more$45 ,000 more. And that, I don't know, I think that doing these things, I don't know, in my mind were necessary, but still, still definitely a pain point. Yeah. So interesting. And when I tell you that your actual home contributions were closer to 84, 8 ,500 bucks a month, if you divide 45 by 12 and add it on to your monthly payments, how does that make you feel?

29:20Not great. Are we unpacking a little bit more of why you feel like This is such a money sick, money pit. Because this is what homeowners forget is like, you know, you left out a huge part of this, right? You left out a huge home expense that seems like once I discovered it or once you were telling me about your call with your realtor, I feel like I hit on a nerd. Hold on to your wallets. Money Rehab will be right back. And now for some more Money Rehab. I feel like I hit on a nerve and like you didn't even tell me you told me like basically down to the dollar what you have and all these different accounts but that that was a huge home expenditure yeah and I didn't think I don't even you know I didn't even think about it I think about it as much as or in line with I think about the down payment you know and we bought this house knowing that we would do these two things immediately, the deck and the fence.