My wife and I live ‘an average life’ in the Bay Area making $320K. Last year, we bought a house for $200K over asking — now we don’t want to live in it. Should we get professional help?

Living in the Bay Area can come with a hefty price tag, and it can be challenging to find an affordable home in a good neighborhood. This leaves many couples like us scrambling to find a deal in a tight market, which often leads to overpaying for a property. We recently found ourselves in this situation, having spent $200,000 over the asking price of a house that we now do not want to live in. Should we get professional help?

The Financial Evaluation of the House

The first step in handling our situation is to do a complete financial evaluation of the house. We need to determine our profit and loss by analyzing the rental property. Certified financial planner Chris Chen of Insight Financial Strategists recommends, “It’s now a business, so what does the profit and loss look like?” Is the $14,400 loss (the difference between the monthly mortgage and the rent we receive) a complete accounting, or just the mortgage less rent?

According to certified financial planner Timothy Parker of Regency Wealth, it’s crucial to look at the cash flow, the current value of the rental home, and the outlook for real estate values in the future. We may be cash neutral on the monthly cash flow, given depreciation expense and maybe interest. It could make sense to sell the property if we’re consistently losing money, but this decision should take into account our tax situation and tolerance for risk.

What Are the Options?

Selling the rental property is not the only option, and it might not even be the right one. Chen recommends considering the likely future of the property. “With inflation raging, we would be justified to think that rent will increase over time and eventually will make the property pass break-even on a cash flow basis. At that point, at least the investment will not be bleeding cash.”

Once the financial evaluation is complete, we need to think about our life goals and financial plan. How does an expensive rental fit into our future? What would we do with the money if we sold it? Chen recommends seeking a financial plan to help answer these questions.

Related Facts

• Overpaying for a home can be a daunting experience.
• An expensive rental property may not work out in the long-term.
• A financial evaluation and future planning is essential for any investment.

Key Takeaway

Buying a house is a considerable financial investment, which needs careful consideration. In the Bay Area’s fast-paced housing market, it’s crucial to take your time and find a property that meets your needs and budget. Overpaying for a property can happen, but it’s essential to conduct a complete financial evaluation before making any significant decisions. Seeking professional help from trusted financial planners can provide an objective viewpoint and help guide us in making informed decisions that will benefit us in the long-term.

Conclusion

While it can be nerve-racking to find ourselves in a situation like ours, it’s essential to tackle it head-on and evaluate our options. Seeking professional help from a financial planner can provide valuable guidance that can set us on the right path to a secure financial future. With careful planning and consideration, we can turn an overpaid investment into a profitable one.