My wife and I live ‘average life’ in the Bay Area making $320K. Last year, we bought a house for $200,000 without asking for it; Now we don’t want to live in it. Should we get professional help?

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Ask: I was FOMOed during the real estate craze and bought a house for $200,000 over the asking price. Now home prices are coming back to reality and I feel like I lost my hard earned money. I don’t know what to do as I live in constant stress thinking I made a big financial mistake and I’m not sure if I should consult a financial advisor for better decision making and long term investment planning. (Looking for a financial adviser too? This tool can help you find a financial advisor who can meet your needs.)

My wife and I are 30 years old, we work in the Bay Area, and we make about $320,000 combined a year. We live an average life and watch every dollar we spend. We bought our first condo in an average neighborhood in 2016 because we didn’t have kids at the time and wanted to be close to our workplace since we both had to go to the office almost every day.

In 2021 we had a son and we started to think that we needed more space. We wanted a good/safe neighborhood, good schools, and a good work/life balance with a hybrid work option. I started looking for a place with these needs in mind knowing that the real estate market was crazy and we would have to exceed the asking price. We found a house (good neighborhood and schools, but too far from where we work and not as big as we wanted) and submitted an offer that was $200,000 above the asking price (we were disappointed that our few previous offers weren’t selected). We closed the deal in March 2022 and went on vacation because we really wanted to recharge.

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After returning from vacation, we didn’t end up moving into the new house, because I wasn’t sure I could move that far from my current job location and circle of friends. We decided to continue our stay in the condo we bought in 2016 and rented out the house we bought this year (monthly mortgage is $4,450 with everything included, yet we only get $3,250 in rent). I feel like I made a very bad financial decision and am doubting my abilities to manage finances/investments effectively. What should we do?

Reply: First, know that you’re not alone: ​​This has happened across the country as tight inventory forced bidding wars. And congratulations on knowing that it’s time to face the music and figure out what to do next by looking at what’s going on and considering hiring a financial professional to advise you. (Looking for a financial adviser too? This tool can help you find a financial advisor who can meet your needs.)

The first step is to “do a complete financial evaluation of the house,” says certified financial planner Chris Chen of Insight Financial Strategists. “Now it’s a business, so what does the profit and loss look like? We know you’re losing $14,400, but is this a full accounting or just the mortgage, minus the rent? Chen says. In fact, Regency Wealth Certified Financial Planner Timothy Parker says, “Given depreciation expense and perhaps interest, you can be cash neutral in your monthly cash flow.”

Parker adds that you’ll need to “look at your cash flow and current rental home value and the outlook for future home values. It could be that the investment works or that it makes sense to sell,” says Parker.

Since this is a rental property, if you sell at a loss, you may be able to write off part of the loss from the sale of the property for tax purposes. That said, “it is important to review your tax situation. Real estate is one part of an investment portfolio, and an adviser will likely weigh in on your other savings and investments, taking into account your risk tolerance,” Parker adds. (Looking for a financial adviser too? This tool can help you find a financial advisor who can meet your needs.)

Selling is not your only option, and it may not be the right one. “What is the probable future of the property? With skyrocketing inflation, you would be justified in thinking that rent will increase over time and eventually take the property past breakeven on a cash flow basis. At that point, at least the investment won’t be a waste of cash,” Chen says.

Once you have these elements in place, Chen advises thinking about what you want out of your life and financial plan. “How does expensive rent fit into his future? What would you do with the money if it was sold? Chen says. It sounds like he could use a real financial plan to figure out some of the answers to these questions.

Do you need a financial planner to help?

It can certainly help, but if you think you can do it on your own, you don’t have to.

“Working with a financial planner to carefully weigh the different considerations before taking your next step would give you an expert outside perspective,” says Kate Wood, home expert at NerdWallet, who believes her instincts for talking to a financial planner are good. . “You could also potentially talk to a local real estate agent to get a sense of what’s happening in your market right now, giving you more data to inform your planning,” Ella Wood says. (Looking for a financial adviser too? This tool can help you find a financial advisor who can meet your needs.)

If you just need someone to help you get started, you may want to find an hourly financial planner with real estate experience. Garrett Planning Network has a feature that allows you to search for qualified financial planners using areas of expertise. “XY Planning Network has people who work under a variety of models and some of them offer hourly services. When you look at an advisor’s profile there, you can see if they offer advice by the hour,” says certified financial planner Justin Pritchard of Approach Financial. This may also be the cheapest way to hire an advisor to your advantage, as hourly, fee-only financial planning typically costs $200-$500 per hour, depending on the advisor’s experience.

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Questions edited for brevity and clarity.

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