What US$500,000 in the Walls Could Send You Each Month
One evening she took it out and asked her son Dan a question.
Picture a woman named Marian, 69, widowed for four years. Her house is paid off and worth about US$500,000. She keeps the deed in a blue envelope in the hall closet. One evening she took it out and asked her son Dan a question. "If this were money, how much would it send me each month?"
Dan likes numbers. He used a common planning idea: 4% of a sum each year. On US$500,000 that is US$20,000 a year, or about US$1,670 a month.
Then he stopped. "Selling costs about 6%, Mom. Let's start from what is left." Six percent of US$500,000 is US$30,000, which leaves US$470,000. At 4%, that is US$18,800 a year, or about US$1,570 a month.
Marian lives in the house today. So Dan asked what each choice would cost her to live in a home. He used the house's own bills, US$14,900 a year, or about US$1,240 a month, for tax, insurance, upkeep and utilities.
| Per month | Keep the house and live in it | Sell, rent a home like it | Sell, rent a one-bedroom |
|---|---|---|---|
| Money from the sale, at 4% | US$0 | +US$1,570 | +US$1,570 |
| The house's bills | −US$1,240 | US$0 | US$0 |
| Rent and utilities | US$0 | −US$3,200 (US$3,000 rent, US$200 utilities) | −US$1,050 (US$900 rent, US$150 utilities) |
| Left over | −US$1,240 | −US$1,630 | +US$520 |
Dan did the sums out loud so she could follow. Selling and renting a home like hers would cost her about US$390 a month more than living in the house. Selling and renting a one-bedroom would leave her US$520 a month ahead, which is US$1,760 better than staying.
Marian pointed at the last column. "A one-bedroom in a town I like rents for about US$900 a month."
"It does," Dan said. "It is also a smaller home than this one. Most of the US$1,760 comes from choosing a smaller place."
Marian looked at the blue envelope for a long time. The house had held her marriage and her garden. It also sent her a bill for US$1,240 every month. She said she was glad to see both numbers on one page, along with the cost of the home she would live in instead. She would sleep on it before she called anyone.
You could…
- Take the value of your house and subtract about 6% for selling costs. Multiply what is left by 0.04, and divide by 12.
- Put that figure beside the monthly cost of living in the house, and beside the rent and utilities for a home like it, and for a smaller one.
- Ask yourself how much home you would be happy with.
What would you want your house to send you each month? Add your monthly figure in the comments. A reader putting a first number beside their own could see how far apart houses can be.
Figures are estimates for planning, based on public data, before income tax, with prices held flat.
Tell us in the comments