I had the following conversation with my financial advisor over email over the last couple of days. He suggested something that completely blew my mind. Completely. The basic conversation is below.
Me: Is there a way I can invest the profit from the sale of a house that would make it so I would: 1. Not have to buy another house? 2. Not get killed on taxes on the profit from the sale of the house?
Cary: Have you been in the house for 2 years?
Me: I have. It is going on 3 years.
Cary: Since it was your primary residence you shouldn't have to pay anything on the gain (unless it exceeds $250,000). This is a "homeowner exemption" if you'd like to research it on the web. What would you like to do with the money that you make? Will you want to use all or a part of it within the next few years? What's the timeframe for the money?
Me: The profit would be about $xxK - I believe. Maybe more in this market. I would like to put 1/2 of it in investments and use the other half to "buy myself a year to write" and pay myself on a monthly basis. If I don't have the mortgage, my monthly expenses go down dramatically. So, I've been thinking about this a lot. I want to follow MY dream instead of the classic American Dream (which I've already succeeded at). I want to give myself a year to write to see if I can make it that way. But, at the same time, I don't want to completely muck up the stability of my future.
Cary: Sounds great! Let's do this: Get me a list of your monthly expenses, make sure it's accurate. Give me a good idea of additional expenses that will now be an issue - IE: health insurance coming out of your pocket, etc... Let's figure up a monthly "income" for you based on the previous expenses and I'll come up with an investment strategy to make it happen
Me: That sounds scary/good! I'll try to get it to you by the end of the month.
Cary: You'll never know until you try. I'm all for it, would love to have a big time author as a client. Have you considered keeping the house and taking a home equity loan?
Me: *Brain Explodie* Taking out a home equity loan to pay my mortgage and bills for a year?? No. I had not. Is that legal?
Cary: As far as I know it's legal. Can't think why it wouldn't be. I'm just thinking from the standpoint of how much your house might increase in value over the next year, are you in a hot area? Not saying that's a better option just wanted to throw that out as another possibility in case you want to hang on to your home.
So, yeah, I have a lot to think about. Part of me is giddy with the idea of it. This wouldn't happen until I finished my current contract (scheduled to end in Jan 2007) which would allow me to sock more money away. I wouldn't have to move. The yearly budget that I'm thinking of is about half of the equity already in my house. If I decided after 3, 6, 9, 12 months that being an 'at home' author wasn't for me, I could immediately go back to looking for work again without a problem. If, for some reason, I couldn't find work and couldn't keep up payments, I could sell the condo. It would go for enough to pay off the mortgage, home equity loan and still give me a nice chunk of change to walk away with.
However, the thought of doing the home equity loan to stay home and write makes me feel a little like I'm robbing Peter to pay Paul. Except, I'm Peter... and Paul... in this case. It's a scary idea to this for lots of reasons. Health insurance. A steady paycheck. Putting my money where my mouth is... Yeah, I would have to stop talking about MY dream and start living it. Do I have the talent, skill, discipline, desire? What if I don't make it? What if I do? What if people think I'm frivolous because I'm taking that year out of the rat race and won't be able to give a company I work for when people ask because people are so wrapped around work as an identifier?
What if they do? Do I really care about that? No. Not really. The 'what if' I'm most afraid of is "What if I take this year, write my heart out... and fail? What then?"
I don't know. But, I want to try. I really do. If I can take out a home equity loan based on the value of my home and finally follow the dream that I have wanted for more than a decade, it will make everything I have gone through to get this condo and all the heartache around it worth every penny and more.
Tarot Card for the Day: King of Pentacles