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A Smart Move (Maybe)

Smarty-pants clients of mine found a buyer for their four-year-old condo who was willing to pay $31,000 less than what they owed on their mortgage.  So Mr. & Ms. SP brought $31,000 of their own money to the closing and paid off their lender.

A condo unit across the court from their prior residence was available for rent at $2,500 month, so Mr. & Ms. SP signed a three year lease.  Why would they be going from owning to renting, you might ask? I asked the same thing, and got a detailed explanation.

It seems their monthly mortgage and common charges totaled $3,415 monthly, so Mr. & Ms. SP figured out that they’d be saving $10,980 yearly, and in slightly less than the three years in their rented condo, they’d get back the $31,000.  After that, they’d be mortgage-less, solidly credit-worthy, and not tied down to living in any one place.

There are holes in their plan, to be sure.  They know they lose the mortgage interest tax deduction, they know they can’t paint the walls of their condo any color they choose, and they sure don’t have the liquidity of that $31,000.  They also can’t know what interest rates will be in 2013 when their lease terminates, nor whether residential real estate prices will rise to the point where they would have been able to sell for what they “lost,” making all their maneuvering moot.

But the solution devised by Mr. & Ms. SP to make circumstances work in their financial favor felt comfortable to them, so who am I to argue?

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