Hi all, I would be grateful for all input and even a few punches from the crowd. Here goes:
Just starting our FIRE journey -- to buy or not to buy a house VERY soon?
About us:
We are a married couple in our early 30s. Both of us are highly educated with student loans to match. A few years out of grad school, we’re living in East Coast City where our industry is hot and jobs are plentiful. However, cost of living is high. With real estate prices increasing close to 5%/year, and one of the lowest risk markets in the country even if the economy tanks, we were seriously considering buying soon (even with our debt). Bidding wars and open house stampedes for mediocre houses in “good school districts” have been demoralizing (exactly the kind of rat race we want to leave…).
We’ve VERY recently found MMM/FIRE and had the epiphany that we may not need to work into our 70s like our parents IF we can get into the right place with our money. But now we aren’t sure if the life we pictured in the suburbs of East Coast City are even possible if we want to get to FI. We think of ourselves as living pretty simply, we don’t shop or go out on the town much, but we’ve now found out our savings rate is not great. Feeling lost on how to proceed. Our dream would be to live on a nice, wooded piece of land in the middle of nowhere and not have to work.
Current Status:$100k Savings + $100 401k = $200k
-$116k student loans
=Net worth $84k
The $100k savings is in a checking account (I know!!! 0.1% interest…), as a potential house down payment nest egg. We have no other accounts/investments.
Income:Household income: $200k gross combined, a couple years into career, each of us making a similar amount. Combined take home pay is around $10,500 per month, and we are putting ~6% contribution to our 401ks with ~2-3% company match.
Monthly: Net Pay plus 401k matching = $12175
Debts:Combined student loans of $116k. Luckily we locked in rates of <4.3% except for ~15k at 5.5%.
We’re paying everything at the minimum but maybe should increase on the high interest one(s)? We currently have around 6 years of payments left at this rate.
We spent a good bit on a wedding and dream honeymoon, which was important to us - no debts but it took a fair chunk of our earlier savings.
Transportation:One of us drives an early 2000s Honda sedan, bought used in cash, 10 miles to work
The other takes bus/subway/walks [in the opposite direction], free with company provided pass
Monthly costs:Rent 2400
Loans 1600 (this is the minimum payment)
Groceries/Restaurants 600 (yikes!!)
Fuel 100
Elec/Gas/Water Util. 180 average -- can double in winter
Cell Phones 100
TV/internet/netflix 150 (another yikes!)
Personal/health/pet stuff: 150
Travel: 200
Yearly junk like AAA, etc paid in January….
-Somehow comes out to $6500 negative cash flow in Jan.
Now, our savings rate is not quite 50% if I calculated correctly. And if we bought a house, it could likely be worse:
Even with 20% down, a mortgage would probably be more like 3000/month at least.
We also might have to get a second used car or wagon that can fit our dog and hopefully soon a baby, not to mention if we move further out of town for more reasonable house price we may both need to drive to work or at least to commuter rail.
Already feeling trapped with our options...But that little voice inside our heads is saying, is all this worth an extra 5, 10, 15 years of working? On the other hand, what use is not working if we can’t live where we want or see the people we care about?
Stepping back, here are the options I see and I welcome all input:
- Remain in our current rental, reduce dumb expenses like groceries, TV, cell service. Stay and save as much as possible even though we really don’t like the neighborhood. Schools don’t matter anyway until hypothetical kid gets older. We could also focus on paying off our loans rather than buying (BUT housing prices almost certainly continue to rise and mortgage rates increasing too).
- Buy an ok house in a crappy neighborhood..up and coming to put it nicely. Pros: distance to work around the same or slightly shorter, mortgage slightly higher than rent but at least we’re paying for an asset with house value very likely to increase. Cons: Won’t be in a nice peaceful neighborhood, even an ok house is $400-500k
- Buy a great house in a great neighborhood Pros: maximum satisfaction at home! Good for kids. House will not lose value, although we wouldn’t plan to sell anytime soon. Cons: commute - already 45 minutes to an hour each - will increase
- Buy the worst/smallest house in a great neighborhood. Pros: keep the monthly housing cost close to current levels, desirable neighborhood. Cons: maybe a bad real estate idea to buy the worse house around, commute still sucks
- Outside the box options…
-Buy a house with in-law apt or separate living area, combine costs with in-laws (yes we all get along, they sold their house to downsize, but this would be a new arrangement…)
-Press the reset button on our life plan. Move to Midwest City, away from our lifelong friends, but close to some family. Housing costs decrease dramatically, job prospects are worse but with a lot of effort we could probably find something similar to our current income. FIRE sooner, but maybe suffer more along the way.
If you've made it this far, what do you think?