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Old 12-12-2008, 23:09   #46
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I don't think you should walk away from your family's home (and that's what it is - just ask your wife). BUT you're getting bad tax advice. Law change, from the horse's mouth:
Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form

Oh, and don't miss the name of the Acting IRS Commish!
Here is what I had written on the subject that porttack was referring to:

"Before you opt to just mail in the keys, however, you would be well-advised to discuss it in depth with a cautious accountant and/or tax advisor. While the entity holding your mortgage may not pursue you for the shortfall, don't be surprised if the IRS considers the "relief" you gain by abrogating your obligations under your mortgage contract to be imputed income.

"That is, if the present market value of the house is $525k when you walk away, and the mortgage balance is $600k, the $75k relief could be added to your $110k salary as additional ordinary income, and you could be taxed accordingly."

With all due respect, BobJ, I don't believe that constitutes "bad tax advice."

The article to which you provided the link pertains to mortgage workouts/debt forgiveness. That is an entirely different animal than a mortgage walkout/debt forsaking, and I doubt the IRS regards them equally.

I reiterate, seek the counsel of a cautious accountant and/or tax advisor before you ever commit to a bold step that you can't take back. "I'm sorry, I didn't know" won't garner much sympathy in tax court.

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Old 13-12-2008, 08:47   #47
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Ok....here's my story....35 yo male with 30 yo wife, 3 kids, ages 6,4, and 2. I make $110,00/year, my mortgage balance is $600,000, my house is worth $525,000. Neadless to say I'm upside down. My goal before the housing market tanked was to use my equity to purchase my live aboard and then sell the house. I DO NOT WANT TO GET LANDLOCKED in my house. I want to get out on the water with my family. I feel stuck now.....any suggestions????
I don't see any easy answers to get where you want to be......I would downsize the house (6 x salary? ) and swallow the $75k loss over a few years using the money saved from lower mortgage payments. I would be tempted to rent for a year or 2 until you can see how the market is going and how my work / income was looking - can't say I would want even half of $600k of mortgage payments at the moment.......and if not already I'd send the Missus out to work

Sailing into the Sunset on a yacht? I think you have to accept that ain't happening for a couple of years.
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Old 13-12-2008, 10:20   #48
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Wow I still can't get beyond how you afford a 600k mortgage and three kids on 110k per year without eating Ramen Noodles every day.... I don't know how a boat will fit your plans unless you get rid of that noose around your neck or quadruple your income...
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Old 14-12-2008, 15:50   #49
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I suggest you listen to TaoJones.

Bottom line... you took a risk, it flopped. Best bet is to hunker-down and wait for probable inflation. Cling to your house, cling to your job, send the wife to work, and forget about the fancy yacht until things improve.
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Old 16-12-2008, 15:02   #50
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this has been fascinating to read...
I have taken a 50K loss in a home when I was making 125k a year. Painful lesson- but myself, wife and 4 children survived. We had to rent for a while, and the next home was not bought until 4 years later...but we had a great time together. We moved out into the country and got close-kinda like what you are suggesting with your yacht.
How bout this:
1.sell your home and move into a boat close to your current job. Keep your job and pay off all your debt. Take your time finding the right boat- it won't cost much if your careful and you are good with your hands.
2. since your living so frugally on a yacht- you will have alot of time with your kids and improve on those relationships that are so important. But don't start cruising till you have met all your obligations. (as mentioned before- this is the only honest way)
The best times I have had with my family have not been idealic lay on the beach times...they have been the times we all faced adversity together (and overcame)
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Old 16-12-2008, 15:11   #51
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Fantasy Catamaran

I don't think cutting back is on his mind. It should be, but this is the boat he's searching. I think proper priorities have gone out the window. As I posted in the beginning...I WANT .. has gotten this country in a mess.
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Old 16-12-2008, 16:14   #52
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Imagine has it nailed. I dont believe there is that much wrong with "I want", "I want" drives America. It's "I'm owed" and "I'll just take out a loan" that are killing America. The fact that it's a "Fantasy Catamaran" sure seems fitting, doesn't it? I'm sorry, but you gotta EARN it. IMHO, C
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Old 16-12-2008, 16:16   #53
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Nobody mentioned that no bank on this planet is going to loan money for a boat with those numbers. Not one.

Chris
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Old 16-12-2008, 21:28   #54
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2. since your living so frugally on a yacht- you will have alot of time with your kids and improve on those relationships that are so important. But don't start cruising till you have met all your obligations. (as mentioned before- this is the only honest way)
Living + Frugal + Yacht = Does not compute...

If you start with a great boat and live "frugal" for 2 years you will have an ok boat at the end.

Certainly a $300k boat is cheaper than a $600k house but not by much.

He also has to get out from under a $75k upside down mortgage and find someone willing to loan him $300 or $375 if he has to borrow to get out from under the house.

Witzgall probably raises the most practical problem.

Even if an attempt at a boat loan is made before the home is in default, there is no equity in the home, a $600k note and now a payment on a $300k boat?

Danger Will Robinson...
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Old 17-12-2008, 12:27   #55
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I am surprised this thread has gotten so long (even though I'm adding to it). No real answer other than: pay your loans and make a new plan. If you took out a $600k loan and still make the same amount of money nothing should have changed as to your finances. Only thing that changed is that you were betting on taking a loan out aganist the house to buy a boat making the debt deeper. Look at how the change in market value has now saved you from having a $700k loan aganist a $525k current value.
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Old 18-12-2008, 09:54   #56
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My heart goes out to anyone who has lost home equity and is now upside down on their mortgage.

However, when I hear about people wanting freedom, not wanting to be tied to their home, and wanting to go cruising and at the same time turn around and spend 5 times their annual salary on a home, their logic confounds me.

I'm 10 years older than the OP, and make barely more than half as much money. Over the past decade I've routinely gone cruising between 4 weeks and 2 months per year. Despite the economy, I still hope to semi-retire at age 55 and cruise half time or more. I could do it earlier if I was willing to accept less financial freedom, but we all have our own break points.

I make cruising a financial priority. I have a simple home thats costs less than twice my annual salary. I've done most of the home improvement projects myself. I drive a 12-year old economy car. I walk or bike when I can. I chose a lower-paying job that gives me more free time to cruise. I choose affordable cruising options.

I'm sure the stories you'll hear from those here who cruise frequently or are full-time cruisers vary considerably, but I bet most have limited budgets and like me have made sacrafices and prudent financial decisions to do the cruising they do.

Skifinnatic: I wish you the best in getting things turned around and back on track with your cruising dreams.
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Old 18-12-2008, 10:50   #57
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Living + Frugal + Yacht = Does not compute...

If you start with a great boat and live "frugal" for 2 years you will have an ok boat at the end.

Certainly a $300k boat is cheaper than a $600k house but not by much.

He also has to get out from under a $75k upside down mortgage and find someone willing to loan him $300 or $375 if he has to borrow to get out from under the house.

Witzgall probably raises the most practical problem.

Even if an attempt at a boat loan is made before the home is in default, there is no equity in the home, a $600k note and now a payment on a $300k boat?

Danger Will Robinson...

Dan, that may all be true, but I think things change if you substitute the word "boat" for "yacht." Doing so results in very different figures from the ones you quoted.

According the sources I've read including poll results in cruising magazine articles and "The Live Aboard Report" the average liveaboard couple lives on an annual budget of around 20K and on average puchased their boat for well under $100K. My guess is that's a more frugal budget than many of them had in their land based lives.

From what I've read most full time liveaboards probably don't start out with a "great boat" and end up selling it as an okay boat. They are more likely to buy a boat that is okay at best and bring it up to liveaboard or full time cruising standards.

Perhaps "frugal" is a relative term, but regardless of how inexpensively one can live while cruising, I won't argue your end point: It's hard to purchase a boat and have a cruising kitty if you are in debt.
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Old 18-12-2008, 11:52   #58
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I think nautical62, Dan, witzgall and many others all have a clear view of the Original Poster's dilemma, and have provided sound advice. I can also appreciate the OP's desperate (if that isn't overly dramatic) feeling of being trapped in a very unpleasant situation.

Seeing the imputed market value of your most significant investment constantly dropping with no end in sight, but knowing that it's almost impossible to sell it given the current credit market conditions, has to feel like a "free" man's version of Guantanamo. And knowing that your wife and children are depending on you for their protection and welfare only adds to the pressure.

Those who have suggested that the OP will probably never obtain financing for a vessel purchase of any amount are correct. His best option, if he really wants to move his family aboard a vessel that could stand up to five full-time residents and a cruise from Southern California all the way to the Virgin Islands, is to sell his house for whatever he can get in the current market.

Once he has that major burden taken off his back, he can move his family into a rental while he looks for a suitable vessel - all the while saving every cent he can. Given the present conditions in the credit market, he may even find an understanding boat-seller willing to carry the financing, if that's what it takes to move his vessel. (Hint to OP: Don't mention that your dream is to quit your job and sail the vessel to the Caribbean.)

Most likely, the OP will have to lower his sights from a 40'+ catamaran to an older monohull. In addition to the significant cost savings on an older mono, the availability of suitable multihulls on the West Coast is vanishingly small.

Not to be overlooked in all this is the fact that the OP and his family are new to sailing. Starting out on a 40'+ vessel isn't impossible, of course, but all of his problems, and expenses, will be magnified on a larger vessel.

Taking the time to learn on a Capri in Ventura Harbor is a suitable step one, and the OP and his wife are doing that. Then doing some coastal cruising as volunteer crew aboard larger vessels to get some sea-miles is step two. If the OP still wants to cruise at that point, buying an inexpensive 27-30' Catalina might be the next step, with overnight family outings to the Channel Islands providing a good introduction to cruising.

More than anything, I believe, the OP should hold onto his (better than average) job. There are only two ways to get rich: Make more or spend less - preferably both - so his present employment gives him a leg up on the "making more" part. If he, and his family, can learn to get by while pinching every penny, they will have achieved the "spending less" part.

If he (and his family) can do that, skifinnatic will soon find that he can afford his dreams.

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Old 18-12-2008, 18:17   #59
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<snip>I think things change if you substitute the word "boat" for "yacht." Doing so results in very different figures from the ones you quoted.

According the sources I've read including poll results in cruising magazine articles and "The Live Aboard Report" the average liveaboard couple lives on an annual budget of around 20K and on average puchased their boat for well under $100K. My guess is that's a more frugal budget than many of them had in their land based lives.

<snip>From what I've read most full time liveaboards probably don't start out with a "great boat" and end up selling it as an okay boat. <snip>
Not trying to be argumentative but I think boat and yacht can be used interchangeably. Some of those liveaboard budget polls are older. I definitely agree you can live a lot more frugally cruising. However, looking at what it has taken to maintain a 26 foot boat for 2 years and keep ahead of the maintenance I think the liveaboard reports discount the "value" built into the boat. I pay about $6,000 a year on moorings, maintenance and insurance.

Some people have spent $300k on the boat before leaving the dock and it has inherent reliability and needs little maintenance. Eventually (7 years or so) the rigging, sails, engine etc. all need major money.

Just saying is all.

And to put the housing market in perspective in Los Angeles. 2 years ago buying a $600k home was absolutely normal. For a 3 bedroom frame built house. LA's housing market is cuckoo but it was driven by plenty of jobs in a high density area surrounded by mountains (the LA basin). If you don't want to drive 2 hours to work, you pony up big to live in Orange County.

Is it more cost effective to live somewhere else where living is cheaper?

That's for Californians to decide but don't beat up skifinnatic too much about his big mortgage. He is pretty normal for SoCal.

My brother has 2 houses, both with mortgages ofer $500k and he doesn't make a lot more that skifinnatic. He's praying rents don't soften.
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Old 18-12-2008, 21:26   #60
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Dan,

I appreciate your points and am not trying to be argumentative either. My point is just that there are a lot of people who are able to cruise either part time or full time a lot more frugally than you mentioned.

You make a good point about circumstances. I contrast for example a 26-footer I owned for 8 years to your current 26-foot situation. I bought the boat for about 10K, took it cruising about 8 weeks per year in SE Florida and Bahamas, almost always anchored out for free and stored it when I wasn't sailing it for $40/month. For a while I had liability only insurance for about $300/year. Maintenance was under $1000/year and I sold it for 7K which came out to a depreciation cost of less than $500/year to own the boat.

Your point about California prices is well taken. Fiscal decisions are certainly driven by the options before you. I'm fortunate to live where homes are affordable, but we pay for it with less equity and few options on the end side. Even with in those options, I chose smaller and less expensive to free up more funds for cruising. Long before that, in choosing my current job, I looked nationally and chose my current location based in part on cost of living as well as time off the job offered. I don't know what options Skiffinatic was faced with and my comments were more about choices in general than any he specifically made.

I still maintain we all have budgets and most of us need to decide on trade-offs. Few can have the expensive home and afford luxury cruising. I had almost as much fun cruising in that 26-foot, 1969 pocket cruiser as I've had on new mid 30s Benateaus. Sure, many people spend 300K on a boat to cruise on as you mentioned. However, there are many who can't afford that, who instead of giving up on their dream compromise by choosing a much less expensive option. I'm not disagreeing with the financial comments you made, just pointing out there are other, less expensive scenarios as well. Given recent economic times, considering the less expensive option may for many mean the difference between cruising and not.
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