Q. We own a home in a suburb of Seattle. We paid $475,000 for it in the summer of 2006. We still owe $350,000. It has 2,300 square feet, was built in 2000, and needs updating. My husband took a transfer to Texas in 2008. I stayed with our kids for almost a year trying to sell it, but the market dropped so much we were going to lose all our equity if we sold it.
My mom and sister said they would help us out. They rented it from us this past year. But they need to move out this summer, and housing hasn't recovered at all. Our realtor says we would be lucky to get $390,000. You can now get a brand new house the same size as ours with all the new upgrades, for the same price.
Our mortgage is $2,200 (including home insurance and taxes). If we rented it, we might clear $1,800 after paying the property management co. Our rent here is $2,600. So we would be paying around $3,000 a month in rental and mortgage — almost half of his take home pay. And strangers would put more wear and tear on the house.
Our other option is to sell it and walk away with nothing. If we do that, we will have no down payment on a house here. Ideally, we would like to move back to Seattle, but my husband has been searching for over a year. Nothing has come up.
We don't know what to do. I said I would move back with the kids and he can stay here in an apt until something comes up, but he doesn't want to separate the family again. I feel we may have no choice at this point.
What would be the best thing for us to do financially? Sell the house? Rent it until the market recovers? Split the family and move back? We need some objective advice. —C.W., Austin, TX
A. I’m sorry you’re surrounded by such tough and stressful choices. If $3,000 is nearly half his monthly take-home pay, the prospect of NOT renting the house would commit more than $4,800 of his take-home pay, or about 75 percent.
That can’t be done. But you know that.
Renting the house is not a good option because it is so far away. A single tenant-from-hell could put you into bankruptcy. The best, but still very painful, path is to price the house to sell and, if necessary, get the lender to accept a “short sale” where they accept that the sale proceeds will be less than the mortgage debt. That won’t be easy.
The prospect of continuing to rent in Texas may not please you, but it isn’t all bad, either. If you really want to return to the Seattle area, you should not be buying anyway. And if you stay in Texas, home prices are enough lower than the Seattle area that you’ll be able to save up a new down payment pretty quickly.
Q. We have the bulk of our IRA's with Edward Jones, mostly in American Funds. About one-fourth of the money is elsewhere, in Vanguard Balanced Index. We need to take a Required Minimum Distribution (RMD) this year, for the first time. How do we select a fund(s) for this distribution? Do we pick out the losers, the winners, or just diversify and get a little from each account? With the recent tumble, we are really in a quandary. —V.S., Pasadena, TX
A. Here’s a pretty simple solution. You can use the annual RMD as one of the tools for the rebalancing of your retirement portfolio. So if the equity portion of your portfolio is lower than it was before the 2008 market decline, then you would make a distribution from the fixed income fund side of the portfolio. And when the stock market is strong and equities have become a larger part of the portfolio than they should be, you’d take the distribution from the equity funds. Your Vanguard Balanced fund is always a 60/40 mix of stocks and bonds so you would leave that alone.