Escape from the money pit

I suffer the occasional bout of buyer’s remorse.   There are times that I really wish we were still living in our first house, the tiny ranch-style bungalow that I bought when I was single.  It’s only natural, considering we are now living in a money pit.  But we can’t go back in time and these waves of nostalgia usually go as quickly as they come.  However, as we are looking down the barrel of a six figure renovation, I like the idea of divesting ourselves of our current abode and downsizing.

When we uncovered some of the major problems ten years ago, a friend suggested we slap up some drywall, throw down some carpet and sell.  Legal considerations aside, I just couldn’t do this for ethical reasons.   I have a conscience.  But for a brief time, there was the opportunity to get out while the getting was good.  Instead, we stayed, and I poked around further, uncovering more and more problems.  We were now trapped.

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After my dad passed away in 2008, we used part of my inheritance for a major renovation that fixed the structural issues and upgraded the living space in the original part of the house.  However, money ran out and we did not have enough left to tear down and rebuild the addition then.  We are now ready to pull the trigger on that project.

As you might imagine, I have some reservations about spending north of a hundred grand.  For starters, that kind of money could pay for some seriously nice vacations.  But I have resigned myself to the fact that the addition must be rebuilt, whether we stay here or not.  Lately, I have been contemplating our options after the renovation and downsizing actually makes a lot of sense. Here’s the math (in case you find yourself in a similar situation and are looking for a means of escape:

  • First of all, it is necessary to ignore how much has already been invested in the house.  That money is gone.  Poof!  Forget about breaking even or getting back to zero.  This is about liquidation only.
  • The numbers to look at are the value of the house after renovations – (mortgage balance + cost of renovations).   That amount needs to be more than, or at least close to the cost of an appropriate replacement property (unless renting is the more attractive option).
  • Let’s look at some sample numbers:  If our mortgage balance sits at $100,000 and we spend $100,000 on improvements and we are able to sell the house for $400,000, we would have $200,000 in pocket after the sale to buy a more affordable house.  These aren’t the specific numbers we are dealing with, but you get the idea.  The math finally works in our favor, where we could potentially end up mortgage-free after all is said and done.
  • Getting to this point took years of penny-pinching and completely paying off our credit cards.   We still have to go through the hassle of the renovations and hope we stay on budget.

Reality check:  we ain’t goin’ nowhere!

As much sense as downsizing makes, chances are pretty good that we will be staying exactly where we are.  I mean, good luck convincing my wife and kid to move from this house which, despite all of its problems, has been our home for more than a decade.  Attempting to lure them with promises of European vacations may prove to be futile.  But they wouldn’t be the only ones hesitant to start over in another house.

I would be very nervous about starting over in a house that needed any amount of work, considering that I now know first hand how easily even a seemingly minor project can spiral out of control.  How likely is it that we would be able to find a fully turnkey house in the lower price range?  The possibility of finding ourselves in another money pit drops to zero if we don’t move from the one we are living in now.

Besides, after the addition rebuild, we will finally have the house we dreamed of when we first moved in.  I rather think I would like to be able to enjoy it, especially after living with all the stress of the last eleven years.

If you were in my situation, what would you do?

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