Pay off house?

[psuicyde king]

A few years ago, I went through a divorce. No kids, but co-owned a house. We both moved out of state, and the house sat...and sat...for almost 5 years empty with us paying mortgage. Unfortunately, we were too fiscally responsible to get bailed out by the bank.

Last year, we found a local entrepreneur who's in the business of taking up 3-year lease-options with 100% of payments going to purchase credits, then sub-letting the property to tenants. Terms obviously weren't ideal, but it was lot better than having a lazy realtor list our house and do nothing. At list this guy was motivated, plus he signed it for about 15% over the market value of the house.

Everything is going great. He's made improvements to the house on his own dime, and found a tenants. So right now, he is paying us $750 per month, which we apply directly to the principal on the mortgage (so we don't get dinged later then he takes the option and applies the credits). The mortgage payment, which my ex and I split, is $920 per month. We owe $115k.

LIke I said...not the ideal situation, but by far the best we could make of it.

So here's my question - I have $120k. I'm debating whether or not I should pay off the house straight out or not.

As I see it, if I don't, I will keep paying my 460 per month, and I'll pay the 750 inbound directly to the bank to pay down the principal, and should get a little cash back after the option is taken. Or if it isn't, I have a bunch of principal paid down and still have the property.

If I pay it off, I figure I can pocket the 750, and still collect on the 460 from my ex (she won't have an issue with that). That would be 1200 incoming cash per month +120k when he option is (if) taken, or pay 460 per month.

Any thoughts?

(PS. Job security and cash flow should not be an issue, God willing. I net 9k a month, bank 4k of that, and put 1k into fixed life insurance.)

Thanks a million for all of your advice and recommendations.

[disneysteve]

I would have had this house on the market for whatever I could get for it 5 years ago. I would absolutely have it on the market today. If your realtor isn't accomplishing anything, get a new realtor.

You've spent 5 years paying $920/month. That's $55,200 that you've already poured into it. Even with it leased at a loss, it is still going to cost you over $2,000/year to hang onto it.

Sell it and use your savings to make up any shortfall.

I figure I can pocket the 750, and still collect on the 460 from my ex

As for this, why do you get to pocket the $750? Shouldn't that be split evenly between you and your ex so that each of you pays half of the remainder?

[psuicyde king]

I would have had this house on the market for whatever I could get for it 5 years ago. I would absolutely have it on the market today. If your realtor isn't accomplishing anything, get a new realtor.

You've spent 5 years paying $920/month. That's $55,200 that you've already poured into it. Even with it leased at a loss, it is still going to cost you over $2,000/year to hang onto it.

Sell it and use your savings to make up any shortfall.

We had it on the market the whole time. Used 5 different realtors, nobody could move it. After signing this lease-option, it was filled in 2 months. His tenants move in with the intention of purchasing after their credit is repaired. I agree with you completely, and feel this is the best option. The sell price in the lease-option is 120k, whereas we would have had to price it at 90-95k to sell, then pay closing costs and possibly realtor commission. I think we're in as good of a scenario as we can be in.

As for this, why do you get to pocket the $750? Shouldn't that be split evenly between you and your ex so that each of you pays half of the remainder?

She's out the $460 per month either way. She has no cash reserves. I would be fronting the entire 115k. If I take the risk, I believe I should get the reward. I would never put up 115k, allow someone else to put in 0k, and then split the payback 50/50. Makes absolutely no sense.

[Mr Tipps]

I would probably pay off the loan rather than paying the interest. I'm not sure how your mortgage system works over there, but in Australia we have the option to redraw any additional funds when ever we want to. So you could save on interest repayments by having the money in the bank and then withdraw the money if you ever needed it again.
Good luck either way and hope you can sell it soon also.

[jpg7n16]

I would never put up 115k, allow someone else to put in 0k, and then split the payback 50/50. Makes absolutely no sense.

Seems like a good question for a lawyer - "under the divorce decree can I still collect $460 if I pay off the house?"

Would really suck to lose $460 of support that you are owed as part of a divorce over something that makes no sense.

[Stump1000]

The house didn't sale because it was overpriced compared to current market value. If I were you, I'd sale it for low 90's and be done with the whole mess. She could pay you payments on the 30k that you'd have to pay to sale it. It would be hard for me to let go of 120k to pay off a house that is partially in someone else's name.

[bill123]

I wouldn't pay it off. Right now you are splitting the risk with your ex. If you pay it off then you have all the risk.

Let's say you pay it off, then the renters trash the house and your landlord skips town. Then your 90K house is worth 40K and you are out a ton of cash. Believe me, renters trashing a house happens all the time.

What if you loose your job and need the money? Lots of things can happen. But if you pay the house off, you are taking on more risk then your ex.

I would say keeping the risk split evenly is worth the extra interest you are paying.

[EEinNJ]

Don't throw good money after bad, as the saying goes. Doubling down on a losing investment doesn't work.

[jpg7n16]

Don't throw good money after bad, as the saying goes.

Not sure how this applies here. House has already been purchased. Debt has already been taken out. He's not buying more real estate, or building an addition to his real estate, or making improvements to his property - he's just considering paying down a debt he owes.

Would you tell someone looking to pay off their CC debt not to throw good money after bad??

Doubling down on a losing investment doesn't work.

Although this situation doesn't apply here (as OP is not doubling his real estate holdings), I actually have specific portfolio evidence to the contrary. Occasionally, the "double down" strategy can pay off. Each investment should be analyzed individually. But that would go way off topic, so that's all I'll say about it for now.

[EEinNJ]

Not sure how this applies here. House has already been purchased. Debt has already been taken out. He's not buying more real estate, or building an addition to his real estate, or making improvements to his property - he's just considering paying down a debt he owes.

Would you tell someone looking to pay off their CC debt not to throw good money after bad??

Although this situation doesn't apply here (as OP is not doubling his real estate holdings), I actually have specific portfolio evidence to the contrary. Occasionally, the "double down" strategy can pay off. Each investment should be analyzed individually. But that would go way off topic, so that's all I'll say about it for now.

The way I see it, the OP is putting a big chunk of money at risk in exchange for short term cash-flow. The advantage of a mortgage, after all, is leverage, so that money could be available elsewhere. If it's in the house, there's the risk the ex could claim a portion of it when the house finally sells. That, of course, depends on the law, whether they're on good terms- or stay on good terms if the ex thinks there's a pot of gold to be had.

I say this because I'm in this situation right now- I paid off my house with individual assets, the wife left, and is now trying to claim half the house, even though we are not in a community property state.

Credit card debt is not a relevant comparison, though I'm certainly in favor of not carrying any.

[jpg7n16]

I say this because I'm in this situation right now- I paid off my house with individual assets, the wife left, and is now trying to claim half the house, even though we are not in a community property state.

Then if the house is solely in your name, she has no claim. Besides, if you didn't pay off the mortgage, she could just as easily attempt to claim half your individual assets.

Either she tries for your assets while you pay interest on the house, or she tries for your house while you don't pay interest. Which do you prefer?


My point is, by paying off the mortgage, you didn't increase the amount of assets she could fight for. You just paid off a debt you owed.

Credit card debt is not a relevant comparison, though I'm certainly in favor of not carrying any.

How is paying off debt not a relevant comparison to paying off debt??

[ecoadapt]

We had it on the market the whole time. Used 5 different realtors, nobody could move it.

Then, try another realtor. There must be someone out there who could move your house!

I would never put up 115k, allow someone else to put in 0k, and then split the payback 50/50. Makes absolutely no sense.

Of course allowing someone else to put in 0k,and then splitting the payback 50/50.. makes no sense at all!