I get a lot of interesting email questions through The Pete the Planner® Radio Show but sometimes I come across one so interesting I have to dig deeper. This time I even invited the emailer to be on my radio show! Kim and her husband own a home in Fishers but they both work downtown. The time and fuel costs connected to their commute are weighing them down. Her question is, should they sell their house and rent downtown, or should they keep their house in Fishers as a rental and rent a place for themselves to live downtown?
I got really into this question. You can listen to my answer below courtesy of 93 WIBC.
I could tell pretty quickly Kim and her husband are smart people. They have a low interest 15 year mortgage and their monthly mortgage payment only takes up 14% of their budgeted 25% housing amount. They are in a good position, but a long commute and the associated fuel costs are affecting their stress levels as well as their transportation budget.
There are several scenarios to play out here. First they could stay where they are and use their excess budget from the housing slice to cover any extra transportation costs, but this isn’t a good option because it would affect their quality of life. The second option would be to sell their house and rent a place downtown. This is a safe option. They limit their risk with this option and I’ve said it before but the common conception that renting is throwing away your money is false. A third option would be to keep their home in Fishers as a rental property while they rent downtown for a few years. The only problem with this option is that being a landlord isn’t for everyone.
There is one thing in these scenarios that we are forgetting to consider though, interest rates. Kim’s house was purchased at a low interest rate, in the 3% range. That is great range to be in and it may be hard to match in the next few years, or even months. If their home was purchased in the 5% interest rate range I would recommend selling, but since it is a lower interest rate I think that Kim and her husband should keep the house as an investment property. Even if they decide to buy a house in a neighborhood closer to downtown keeping the first house with such a low interest rate and a 15 year mortgage is a good idea. Buying a second house or renting an apartment sound like dumb ideas but when you dig a little deeper they may be the better options. Here is the after school special morality moment: Not all dumb ideas are actually dumb. Boom.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.