Author Topic: Buy now and take sabbatical or wait to buy? Weighing options.  (Read 1532 times)

therethere

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Buy now and take sabbatical or wait to buy? Weighing options.
« on: January 17, 2024, 08:39:40 PM »
I am contemplating quitting my job and taking some time off maybe 12-18 months. DH is currently unemployed. My hope would be to not have DH or I return to our professions after the year off as we are both burned out. But rather find a way to make enough income to mostly Coast FI. My ideal life would be traveling a few weeks or months of the year while retaining a homebase.

Problem is, we rent and have always rented. We live in Colorado and the housing market here has gone nuts while we foolishly sat on the sidelines. I'm afraid that if we leave without owning any real estate that we will never financially be able to return. Now I'm not 100% this is our forever place. But we love Colorado and definitely make use of all the outdoors to make it worth it. I doubt property values here would go down significantly over the next few years but who really knows. So although there is major sticker shock (more than double our rent!) I feel like my spreadsheets are lying and it can't be a horrible move.

I have a two part question:
1. Should we consider buying a house now while I still have a W2 job. Then quit once we close and eat the extra expense while we rent it for a year or two while we travel? Rent minus PM fees would probably only cover 50-60% of the mortgage payment. But we'd be able to have the place upon return. This absolutely sounds nuts, but as I said I doubt we would have the salaries to qualify for houses in the area once we traveled as we're barely able to do so on one income as it is. Even still. I wouldn't know whether to look for a house we would want to be in or to just look for a place with high rentability that we'd be happy with. Lower end houses here would run 500-550k and need some work. We could find one sub-500k that would be tiny and need more work but I'm not sure quibbling over that amount would be worthwhile.
- Side question: Would we have any options to refinance to a lower rate with a low/no-income refinance in a few years provided the rates drop?
2. If we were to not buy. What options are there for mortgages with little to no income but backed by 401k's and brokerage? Or would we be stuck buying cash or multi-unit property or moving to a LCOL area?

Honestly, I'm not really sure which way to go. I'm terrified that quitting will put us permanently in a poorer spot without having secure housing. We did so well on the savings end of the game we ignored the housing aspect of FI. I've really been feeling the pressure the last 1-2 years to buy something, anything.

SilentC

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #1 on: January 17, 2024, 09:44:07 PM »
Your spreadsheets arenít lying. If your mortgage payment is double your rent that is your sanity check that your sheets are right. 

iluvzbeach

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #2 on: January 17, 2024, 11:34:01 PM »
I would not buy in the scenario you describe. Wouldnít even consider it. If you barely qualify on one income as it stands, it is too risky. Not to mention the thought of putting additional money into fixing a place up and then renting it? Please donít. With regard to the potential of re-financing while not working, if rates go downÖnope, wonít happen if you donít have the income or assets to support it. Retirement accounts wonít qualify you. Iíd keep renting.

spartana

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #3 on: January 18, 2024, 12:32:46 AM »
Agree - I wouldn't buy in your situation. Very financially risky and you aren't even including the many other costs associated with homeownership and/or renting it out. They can be money pits!

It's also highly unlikely you'll be able to re-fi or even take out a HELOC if you have a low income or no income despite having high assets. Lenders don't seem to loan in those situations although others here have done it. Heck after I sold my house to do.some travel and rent for awhile  I couldn't even find a place that would rent to me based on my lower FIRE income regardless of my asset level, high credit score and no debt (something to think about if you plan to rent somewhere during or after your travels). Same when I had a paid off house in a HCOL area and tried to get a fairly small HELOC based on my FIRE income. Denied!

So in your situation it's probably best to just go on your sabbatical and keep your "house" money invested. It will leave you worry free while travelling and maybe you'll find an exciting new place to settle eventually that is much less expensive. I ended up buying a place with cash this past summer that was a lot less expensive and a much better quality of life for me.

Freedomin5

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #4 on: January 18, 2024, 12:43:00 AM »
The decision-making process is different in HCOL areas. We were/are in a similar position as you, and we chose to buy so that we could get our foot in the market. It turned out to be the right decisionÖboth times.

In 2012, we were single income (DH was working; I had just graduated). We were planning to move abroad but were thinking of moving back to our HCOL city in the future. We knew DHís income was going to drop when we moved abroad, so we got a mortgage using his income (before he quit his job) and bought a 1-bedroom in our HCOL city. We rented out the 1-bedroom to cover mortgage and other costs related to the condo. Back then, I thought the condo ($250k) was ridiculously expensive. Fast forward 10 years, since this is a HCOL city, condo values have continued to skyrocket. Condo is now worth $600k.

Recently, the housing market has softened. We are planning to FIRE in two years. Once FIRE, we will have no/minimal income. So last summer, we decided to try to qualify for a mortgage while we are still high income. In the past four years, the real estate market in our city of choice has skyrocketed. Weíre talking about townhouses that sold for 300k four years ago, currently selling for 600k. But, the market is unlikely to drop back down to 300k levels, and once interest rates drop, prices are going to start to go up again, so we pounced when we found a property we liked. Due to the high interest rate, rent doesnít cover the mortgage, but our incomes are high enough to cover the mortgage many times over, so we are using this period of time while we still have income to pay down as much of the mortgage as possible. Plus, once we return, the plan is to sell the 600k condo and pay off the mortgage on the townhouse.

Tl;Dr Iím partial towards buying especially if you want to come back to this HCOL city later on, to avoid being priced out of the market.

You donít have to buy a large house. You can always buy a smaller condo thatís easy to rent out and less of a financial burden. Then when you return, you can trade up by selling the condo and using the proceeds to provide a larger down payment for a larger place. Again, this only makes sense if you know that you want to come back to this particular city.
« Last Edit: January 18, 2024, 12:44:36 AM by Freedomin5 »

spartana

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #5 on: January 18, 2024, 01:27:13 AM »
^^^ I went thru some of the same issues as you did @Freedomin5. I had bought my house at the bottom of the housing crash in 2012 very cheaply for a HCOLA in SoCal and sold in the beginning of the pandemic for ALOT more then I bought it for knowing I'd probably be priced ou of that area if I want to move back. Had some serious angst about selling but in the end I decided my desire to be free of any and all housing obligations for a couple of years was more valuable since I really wasn't sure where I'd end up.

Funny thing is that prices haven't really increased by much but my house money from the sale has grown quite a bit. So pretty much a wash.. If I had loved that area and knew I wanted to move back there someday I would have kept it.  Although if I was just buying to rent it out and maybe return I wouldn't have bought it.

Zamboni

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #6 on: January 18, 2024, 05:32:41 AM »
If you are seriously thinking of buying something to rent it out, then you need to make sure the numbers work as a rental.  That means educating yourself about the 1% rule and reading extensively about rental real estate management and accounting. Given that your rent is half of what a comparable mortgage is in your area, the numbers probably don't work as a rental right now.

And think about what would happen if you get a renter in there who is a deadbeat? Then you could really be in trouble, and that is a risk you are taking as a landlord although the more education you have about thorough due diligence, the less likely it is to happen. This may be why spartana unfairly had a hard time finding a rental: a lot of landlords were burned by evictions moratoriums during the pandemic, and now they have quite stringent and unflexible standards for tenant applications.

I don't know where you live in CO, but rents are falling year over year in Denver and they are projected to continue slowly falling. Selling prices and home values for real estate in Denver, Jefferson, Clear Creek, and Summit counties and surrounding areas are also trending downward year over year right now. Look at the red on the map at timestamp 7:51 here, for example: https://www.youtube.com/watch?v=NMI4mdam-H8 Please be aware a short term rental permit would be required in the mountain counties if that is what you think will pencil out for you. I don't know how easily approved new applications are for short term rentals at this point. Some of the advertisements for existing homes on these market note they already have this as a big perk to buyers, so perhaps it isn't that easy to be approved at this point?

It's understandable the you feel like you missed your window of opportunity in CO a decade ago, but these things do go in cycles, so another window might open if you are patient.
Meanwhile, given what you've stated as your plans I think if you buy now I think you will end up in a pickle. Just my $0.02.


reeshau

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #7 on: January 18, 2024, 07:37:57 AM »
You say you are burned out.  You want to take time off to decompress.  A lot of time.

This is not the time to make a significant money decision.  At least, not with a good outcome.

The market may go up, or it may go down.  The most important change in the next 12-18 months is that you and DH will have clear heads, and be more capable of going for what you want, rather than feeling outside pressure or dread.  Having the confidence to walk away from a bad situation is as important in real estate as having enough money.  If you are desperate, you can get yourself in a whole lot of trouble.

I will add to the chorus cautioning against counting on an asset-based mortgage.  You will not be able to count a 401k unless you are 59 1/2, under the explanation that is it "unaccessible."  We had enough outside that to more than qualify, but there were zero banks doing asset mortgages when we were looking in 2020.  We ended up buying a house for cash, and missing out on a sweet 2.x% mortgage.  Missed opportunity,  but we don't regret the decision a bit.  Finances are a detail; finding the right place with the right neighbors in the right town is what it's about.

Good luck with your time off, and I hope you find the rejuvenation you are looking for.

spartana

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #8 on: January 18, 2024, 10:02:01 AM »
If you are seriously thinking of buying something to rent it out, then you need to make sure the numbers work as a rental.  That means educating yourself about the 1% rule and reading extensively about rental real estate management and accounting. Given that your rent is half of what a comparable mortgage is in your area, the numbers probably don't work as a rental right now.

And think about what would happen if you get a renter in there who is a deadbeat? Then you could really be in trouble, and that is a risk you are taking as a landlord although the more education you have about thorough due diligence, the less likely it is to happen. This may be why spartana unfairly had a hard time finding a rental: a lot of landlords were burned by evictions moratoriums during the pandemic, and now they have quite stringent and unflexible standards for tenant applications.

I don't know where you live in CO, but rents are falling year over year in Denver and they are projected to continue slowly falling. Selling prices and home values for real estate in Denver, Jefferson, Clear Creek, and Summit counties and surrounding areas are also trending downward year over year right now. Look at the red on the map at timestamp 7:51 here, for example: https://www.youtube.com/watch?v=NMI4mdam-H8 Please be aware a short term rental permit would be required in the mountain counties if that is what you think will pencil out for you. I don't know how easily approved new applications are for short term rentals at this point. Some of the advertisements for existing homes on these market note they already have this as a big perk to buyers, so perhaps it isn't that easy to be approved at this point?

It's understandable the you feel like you missed your window of opportunity in CO a decade ago, but these things do go in cycles, so another window might open if you are patient.
Meanwhile, given what you've stated as your plans I think if you buy now I think you will end up in a pickle. Just my $0.02.
Nah I'm just a deadbeat lol. But seriously, I found the usual requirement of "income 3 Xs the rent amount" to be the issue in my case. Being in HCOL coastal SoCal where average one bedroom apts were around $2500/month meant I needed to be earning around $7500k/month (which I didn't even come close to via my FIRE income). And most landlords were very weary of a younger early retiree who was years from being able to access traditional retirement accounts and was living off savings and investments. Even when I offered to pay for several months up front (apparently that's illegal in Calif). So I was seen as too risky. I don't blame them as I wouldn't rent to someone like me.

I believe that same sort of criteria is used by lenders for mortgages so unless the OP plans on having a higher post-sabbatical income they may not be able to buy or even rent in a HCOL area. However buying now with their limited funds and a large mortgage, fixing it up, renting it and hoping to have no problems with tenents seems to risky to me if they are trying to avoid burn out and stress. I'd either quit, stash my money and go on a long sabbatical (this is what I did) and see where life takes me and make my home buying  decisions then or continue working longer if I wanted to buy a house.


 
« Last Edit: January 18, 2024, 10:04:42 AM by spartana »

therethere

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #9 on: January 18, 2024, 10:19:19 AM »
Thanks for being easy on me. I hit submit and thought I'd come back to a lot of replies telling me how incredibly dumb I am to even consider it! I guess I feel most like Freedom5 stated. I would see renting it out as a 1-2 year temporary thing. And maybe do 30+ day furnished rentals 1-2 times a year going forward and using it as our home base. It would be a loss in the short term but hopefully come ahead long term with leverage and stock market gains.

A no strings attached sabbatical sounds pretty good and was one of the main drivers for continuing to rent up until now. But unfortunately, you all are confirming my fears that our only option would be to buy in cash upon return. And well, we don't have 500k+ in cash, nor do we expect to, so we'd be stuck out of the housing market forever unless we moved out of state or went back to engineering jobs. Maybe I'm looking at it as too black and white. But in my head I'm convinced it is a now or never type of situation. Yes, this makes for horrible decision making (or rather permanent indecision).

For the numbers: Both 40YO, no kids. We have around 400k accessible right now between cash and brokerage. Then 1.1M in 401k's and IRA's (enough to support a 60+ retirement if untouched).  The reason why the payment would be so high because I'm looking at places for 500-550k with 5% down. We do have 20% saved in cash, but I would hope we'd come out ahead long term with minimal amount down once you take into account inflation hedge. A 4% conservative assumption on market return rate on my spreadsheet doesn't really account for this. Occasionally there are some interesting sub-500k townhouses that are in flipped and downtown and therefore highly rentable. I'm estimating this would be around $4034 PITI, and rentable for around 2650-2850 as a low end estimate (depending). Hopefully a refinance in a few years (or based on what everyone has said it's looking more like we'd have to pay for significant points upfront) would knock that down a couple hundred. Plus another 400 or so a month for maintenance and initial upgrades the first few years. Right now our rent is only 2250 because we've been there so long, but if we left and came back I'd expect we'd land in a place closer to 2850-3000.

There are near-zero properties that would be even remotely close to break even with rent in the area, let alone meet the 1% rule. That's the only reason why there are any low end houses for sale at all is they are all old rentals and in poor shape. We've been playing it safe not buying because rent was less than mortgage for the last ten years and in hindsight it really screwed us over. We followed the investment order and saved a bucket of money but now "can't afford" a house where we want to live. I do see the trend of falling rents and stagnation in the housing market. But I've also been OMY'ing since 2020 and many things are in upheaval in work/personal lives so all signs point towards taking a sabbatical now or else it will never happen. Maybe that's just my burnout talking. I am not super keen on becoming a FT landlord but I know we need to lock in housing costs at some point. 

iluvzbeach

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #10 on: January 18, 2024, 10:26:14 AM »
You are looking at it too black & white. This is not a now or never proposition. If you are burned out, the last thing you need is the stress of owning a rental and dealing with tenants. Take the sabbatical and make decisions on housing when you return. So much can change in a short period of time. Donít let the fear of what might happen in the housing market drive your decisions.

zygote

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #11 on: January 18, 2024, 11:49:05 AM »
Do you actually want to buy a house? Or do you just feel like you have to to stay there long term? Why not simply continue to rent when you come back?

Perhaps I'm coming at this from a different perspective, but I'm in NYC and renting wins over buying in my neighborhood every time. I've made my peace with being a long term renter. It makes the most financial sense for me, and I like the flexibility and the fact that repairs are someone else's problem.

reeshau

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #12 on: January 18, 2024, 12:18:17 PM »
I wouldn't know whether to look for a house we would want to be in or to just look for a place with high rentability that we'd be happy with. Lower end houses here would run 500-550k and need some work. We could find one sub-500k that would be tiny and need more work but I'm not sure quibbling over that amount would be worthwhile.

One point I can't reconcile: when talking about what you can buy, you talk a lot about fixer-uppers.  But in your recent update, you're hoping to put down 5%.  What about potential repair costs you would have to put into it, to make it rentable?  Do you anticipate elements that you must do, to get a local license, pass section 8 inspection, or what not?  Or are you shooting higher, to get someone who can afford shelling out more than you do per month?

It doesn't sound like a situation where preserving cash is necessarily the smartest move.  And I think the time it would take to get renovations done would cut into or delay your sabbatical time.

therethere

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #13 on: January 18, 2024, 12:28:33 PM »
Do you actually want to buy a house? Or do you just feel like you have to to stay there long term? Why not simply continue to rent when you come back?

Perhaps I'm coming at this from a different perspective, but I'm in NYC and renting wins over buying in my neighborhood every time. I've made my peace with being a long term renter. It makes the most financial sense for me, and I like the flexibility and the fact that repairs are someone else's problem.

We both have a strong crave to own a house to have control over our space and have more space in general. We've been renting the same place for 12 years. It drives us crazy to have to wait on someone else to fix stuff and then for them to do it poorly or not at all. Not having control over our environment and feeling like our ability to stay somewhere is dependent on others has taken it's toll over the years. Case in point, one year we were cast to a hotel for 2 months due to burst pipes. We had no authority to push contractors to get things fixed sooner. We weren't even informed of what work was to be done and when. But at the same time we were in charge of ensuring the work was done and reporting back to the landlord and PM. It was a nightmare. The furnace, which was the root cause of the issue, was never replaced. So now every cold spell it's on the back of our minds that it may fail again. Before this we rented a condo that got foreclosed on and our landlord would not cancel the lease because they were broke. We spent 11 of 12 months of our lease with constant showings to buyers and no privacy. So yeah, we could just move to a nicer place and pay more rent. But eventually we'd run into the same issues. Now that we have enough money in the bank that repairs wouldn't break us, my tolerance for BS regarding housing is low.

The biggest driver is the past 3 years has shown me how blind I was to the need to have long term stability on housing costs for effective Coast FI. Our "need" number has increased significantly due to inflation and projected housing costs. Over 12 years here our rent has gone up more than 50% (and we are about $600 under market value) with the house only going into further disrepair. Had we bought any time prior to 2020 we'd be completely FI by now just from having a lower payment alone, ignoring any equity.

I realize a lot of my push is based on our previous non-action and the regret that goes along with it. Everyone is right though that I do feel desperate.

spartana

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #14 on: January 18, 2024, 01:14:36 PM »
^^^ OP I understand your desire to have stable housing pre-sabbatical and pre-FIRE but maybe you can find a different solution. Work X amount longer, put down a larger down payment, get the house in good shape to rent, and then, once you find a suitable renter who's rent covers your costs, take the sabbatical. It might add a few extra years to your working life but if Home ownership is a long term priority over taking a break then thats likely what you'll have to do as I just don't see how your housing costs, plus repairs, plus costs to live/travel elsewhere while not earning any income (and cover extras like health insurance etc) will be doable. Unless you plan to tap deeply into the stash.

I've been in both situations - gave up my rental and my job to take a two year sabbatical (which morphed into FIRE). Loved it but wanted more stability for the long term so depleted much of the stash to buy a house with cash and then lived pretty lean FIRE but with enough left over to fund extras like longer term travel. Sold a couple of years ago, travel/rented but in the end owning was much more secure for me. So I Recently bought a better house in a mountain town for about a third of what I sold my tiny ancient beater house in SoCal for.  I like the security of owning my own place as I get older but damn it's a huge expensive headache and I often long for the house-Free days.

But I am EXTREMELY glad I took my first long sabbatical before I bought a house. It gave me a better understanding of what I wanted long term, cost very little, and I was no worse off financially (actually better off) then if I had bought then.
« Last Edit: January 18, 2024, 01:30:54 PM by spartana »

Zamboni

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #15 on: January 18, 2024, 03:52:55 PM »
I want you to think about it this way:

You're DINK engineers with no kids and a lot of money, which all means you are in an unusually good situation financially. And we are still mostly telling you that we think buying in the current market will cause you financial stress. Banks have also tightened lending dramatically, and mortgage rates are up.

So, exactly how many people are going to be able to be buyers in Denver right now? It's the depths of slow real estate season right now and there are still tons and tons of active listing in the Denver metro area . . . and a lot of those listings just aren't moving. Because of a lack of buyers. Some are delisting without having sold, as it's common for sellers to do that in Denver and re-list and try again in spring. Denver's population has also been slowly declining since the pandemic, which is a new trend. All of this is why asking prices are starting to come down. Sellers can be stubborn and slow to come to terms with reality, so buyer's markets develop over a series of years, usually, and I think it's just starting to head that way in Denver. There could be a rapid rebound, but I just don't see it.

So here's an idea: you have below market rent in a place you've been for a dozen years. So for now keep it as your home base and sublet it out while you travel to other places? Just a thought. I've had success doing this by renting to grad students for a semester, so that might work depending on your location. At least then you have a home base to come back to and you aren't bleeding money every month.

I'm assuming you have family in Denver and that's why you are anchored to the idea of buying there instead of finding other great places to live (including other areas in CO if you love the state.)

Freedomin5

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #16 on: January 18, 2024, 04:04:59 PM »
Do you actually want to buy a house? Or do you just feel like you have to to stay there long term? Why not simply continue to rent when you come back?

Perhaps I'm coming at this from a different perspective, but I'm in NYC and renting wins over buying in my neighborhood every time. I've made my peace with being a long term renter. It makes the most financial sense for me, and I like the flexibility and the fact that repairs are someone else's problem.

With no income upon FIRE-ing, landlords are unlikely to rent to OP. OP is also unlikely to qualify for a mortgage because mortgage lenders look at your previous two years of income, and OP will have no/minimal income during their sabbatical.

Freedomin5

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #17 on: January 18, 2024, 04:29:18 PM »
I like @Zamboni ís idea, coupled with @spartana ís idea.

Keep your low rent situation as long as possible while also saving up money and keeping an eye on the property market. Be ready to buy when a suitable property comes up. Buy in a rentable location. Pick something thatís well-kept and easy to manage. Be very selective with your renter. You only need one good long-term renter.

We have pretty much the same situation going on here, which is why I bought last year (prices will probably go down further this year, but I wanted a specific street in a specific neighborhood, and houses donít come up for sale often, so we bought when a house came up for sale). In HCOL areas, rentals are unlikely to meet the 1% rule (ours meets the 0.5% rule). However, weíve made up for it in appreciation. Weíve had our renter since 2015; she is amazing and completely hassle-free. We also bought a condo so if anything goes wrong, the condo management fixes it. After all, thatís why I pay them a monthly condo management fee.

I think itís partly about knowing yourself. Are you the kind of person who can throw caution to the wind and enjoy your sabbatical not knowing where and how you will find a place to live when you come back from your sabbatical? Or are you the kind of person that needs to know that at least you will not be homeless when you come back, before you can truly go and enjoy your sabbatical?

If you need the security of knowing you have housing, want to live in a specific location, and you like knowing approximately how much your housing will cost (Iím like that), then sort out your housing situation before you go on your sabbatical. If youíre comfortable with ambiguity and flexible with where you live, then locking in your housing before your sabbatical is not as critical.

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #18 on: January 18, 2024, 04:32:11 PM »
For the numbers: Both 40YO, no kids. We have around 400k accessible right now between cash and brokerage. Then 1.1M in 401k's and IRA's (enough to support a 60+ retirement if untouched).  The reason why the payment would be so high because I'm looking at places for 500-550k with 5% down. We do have 20% saved in cash, but I would hope we'd come out ahead long term with minimal amount down once you take into account inflation hedge. A 4% conservative assumption on market return rate on my spreadsheet doesn't really account for this. Occasionally there are some interesting sub-500k townhouses that are in flipped and downtown and therefore highly rentable. I'm estimating this would be around $4034 PITI, and rentable for around 2650-2850 as a low end estimate (depending). Hopefully a refinance in a few years (or based on what everyone has said it's looking more like we'd have to pay for significant points upfront) would knock that down a couple hundred. Plus another 400 or so a month for maintenance and initial upgrades the first few years. Right now our rent is only 2250 because we've been there so long, but if we left and came back I'd expect we'd land in a place closer to 2850-3000.

I am just here to learn as someone also interested in the Colorado housing market. I'm wondering how the mortgage cost comes out "double" the rent. When I run NYT rent vs buy calculator with your numbers (550k house, 7% mortgage, 5% down payment, all else left at defaults) it tells me the break-even point is $2783 in monthly rent. Which is way more than you are paying now, but you are planning to leave for a while and come back, and expect rent to be higher than that when you do.

I don't know enough to advise on whether buying a place to rent it for a few years is a good idea, but if we just treated it as a simple case of you moving, it sounds like buying and renting are pretty financially similar, with buying having a slight edge. What am I missing?

SilentC

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #19 on: January 18, 2024, 04:57:24 PM »
Tass, is your calculator factoring in tax, insurance, HOA?  A downtown HOA of $500+ is very possible.  Also PMI at 5% down.

My situation, we sold in 2021, renting for $2500/mo duplex and to buy the place I’m renting with 20% down the payment would be in the $3500 range including $280 HOA.  I’m seeing rents stable and my realtor thinks they are softening but hard to tell exactly as it’s slower rental season right now.  Property values are definitely falling in real terms right now in central CO, no one can know exactly what comes next but it definitely doesn’t feel like a fat pitch buying.

Edit, I’ll just say I feel sorry for someone with 5% down and that’s most of their net worth right now, because if you have a lot of dough in the bank or you are rolling a huge downpayment you can likely get paid to wait (investing downpayment) even if prices go up modestly, but if you can barely get a foot in the door on a starter home and it’s important to own then your hand is kind of forced as nothing says there couldn’t be some +7% appreciation year that kicks you in the teeth. 
« Last Edit: January 18, 2024, 05:06:07 PM by SilentC »

lhamo

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #20 on: January 18, 2024, 06:38:11 PM »
Buy a condo in Longmont.  This one looks decent, doesn't have awful management fees, and no restrictions on renting out.  You can always sell to somebody in the MMM crowd if you decide not to go back.  Or rent out to MMMers who want to cycle through.  If I didn't already have a friend's place to crash when I visit the area I'd sublet from you. 

https://www.redfin.com/CO/Longmont/50-19th-Ave-80501/unit-22/home/35299436

No, it's not downtown Denver.  But it would give you a place to land if you do decide you want to be back in Colorado long term.
 

A possible strategy:

1)  Buy now, move to Longmont.  Negotiate mostly work from home schedules at current jobs.  If you can't get that, one or both of you quit. 

2)  Make friends quickly -- join MMM HQ and the NoCO Fire groups.  Find people who would like to stay at your place for the length/timing of several trips you would like to make this year.  If you still have your jobs, you can schedule your time off around these trips, and maybe do a bit of working from the road assuming your jobs have indeed agreed to let you work remotely.

3)  If at any time during the next year you think the jobs aren't worth keeping, ditch them -- you have plenty of reserves especially if you bought your condo with cash.

4)  See how the lifestyle works for you. If you don't like it, adjust.  Use your growing network in the MMM/FIRE community to explore alternative work/money earning opportunities.
« Last Edit: January 19, 2024, 07:52:51 AM by lhamo »

Tass

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #21 on: January 18, 2024, 07:34:13 PM »
Tass, is your calculator factoring in tax, insurance, HOA?  A downtown HOA of $500+ is very possible.  Also PMI at 5% down.

The calculator does handle all those things, although the default HOA payment is $0. But OP didn't mention any HOA in their calculations.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

spartana

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #22 on: January 18, 2024, 10:50:18 PM »
I like @Zamboni ’s idea, coupled with @spartana ’s idea.

Keep your low rent situation as long as possible while also saving up money and keeping an eye on the property market. Be ready to buy when a suitable property comes up. Buy in a rentable location. Pick something that’s well-kept and easy to manage. Be very selective with your renter. You only need one good long-term renter.

We have pretty much the same situation going on here, which is why I bought last year (prices will probably go down further this year, but I wanted a specific street in a specific neighborhood, and houses don’t come up for sale often, so we bought when a house came up for sale). In HCOL areas, rentals are unlikely to meet the 1% rule (ours meets the 0.5% rule). However, we’ve made up for it in appreciation. We’ve had our renter since 2015; she is amazing and completely hassle-free. We also bought a condo so if anything goes wrong, the condo management fixes it. After all, that’s why I pay them a monthly condo management fee.

I think it’s partly about knowing yourself. Are you the kind of person who can throw caution to the wind and enjoy your sabbatical not knowing where and how you will find a place to live when you come back from your sabbatical? Or are you the kind of person that needs to know that at least you will not be homeless when you come back, before you can truly go and enjoy your sabbatical?

If you need the security of knowing you have housing, want to live in a specific location, and you like knowing approximately how much your housing will cost (I’m like that), then sort out your housing situation before you go on your sabbatical. If you’re comfortable with ambiguity and flexible with where you live, then locking in your housing before your sabbatical is not as critical.
The bolded is what I would do if I was in the OPs situation but if I really wanted to take a break from work I'd continue living in the current place rather then letting go of the inexpensive rental.

They could still travel part of the year but still have a home base in a low rent place. That would not only give them time to test out the sabbatical-life or even the FIRE-life without having the worry, expense or the hassle of trying to buy a new place asap or of having to qualify for another rental (that may be a much more expensive place) with no or low income.

I like the "try it before you buy it" aspect of testing out a lifestyle before uprooting everything and spending huge amount of money on something that you may not end up enjoying. It will also give the OP a lot of free time to look into new areas for possible relocation. If you can sublet all the better. Or shorten your trips to a month or 2 at a time. I found that I actually prefer going somewhere for a couple of months or so a few times a year and having the option to return home whenever I want. Plus they could leave asap. Just quit the job and go! No looking, no moving, no big out lay of money,  no dealing with lenders, no checking out potential renters, just ... go!

Otherwise I'd continue working and living in the lower cost place and put myself in a better position.
« Last Edit: January 18, 2024, 11:01:43 PM by spartana »

therethere

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #23 on: January 23, 2024, 01:06:19 PM »
Thanks for the feedback so far. I used this as a catalyst to once again take a step back and think outside the box over the weekend. But still feel stuck with no clear answers. A lot of talking out loud hereÖ.

Like I mentioned earlier, we have outgrown our current cheap rental. Our lease ends May 31 (decision looming at the end of March), and we are fairly certain we will give it up and move regardless. Hence the feeling of crunch time. If we could fix up the place (HVAC is primary issue) we would stay long term. We have already offered to buy it from the landlord multiple times and have been turned downThere is a 2.5x month lease break fee, and they'll do the customary 3% raise, so it does not seem like a great idea to resign the lease with anticipation of breaking it after a few months for whatever reason. I do not believe they would let us sublet or Airbnb it, nor could we in  current condition. We donít have family or any huge ties in Denver. But the access to mountains, easy winter, and sunshine are hard to fathom giving up just to have a cheaper place to live. Colorado also has $18 minimum wage which would benefit us in Coast FI.

Now the job. They have recently added on call a few times a year with no increase in income. This is a dealbreaker to me. So either way Iím up for a job change sometime this year. I do not forsee any extra allowances on working remotely. The most I think I could swing would be a month unpaid leave of absence to combine with my vacation time to get 8 weeks off. Another option would be to use intermittent PTO to effectively work PT through the summer months and then take off. But crunching the numbers, this is pretty much a break even scenario. It would just buy us a little more time to get a better deal in the housing market and maybe reduce the consecutive amount of time off.

I get the suggestions of saving up more money and hanging onto our cheap rental. But frankly, we've been doing that since early 2020 if not longer. We have 3x month long trips under our belt and they have been so nice. So in a way we've already tried the lifestyle while having FT jobs. On our longest trip we were ready for some home base time 6-7 weeks in. This would be my ideal way to travel in our 40's, 1-2 month stints traveling for 1-2 times a year. The idea of a 12-18 month sabbatical is mainly to make it worthwhile on quitting my job and provide some conservatism in any calculations on how long it would take ramp up some income again. I'm also feeling the mid-life crisis of nearing 40, and I don't anticipate we have many more years left where multiple month long trips would be physical doable or appealing. This is why I was thinking of a townhome or small house with a garage, that we could either offer 30-day Airbnb rentals or trustedhousesitter swaps to subsidize some of the mortgage while traveling and still allowing us to keep most of our "stuff" and cars. And well if we never wanted to come back to Denver after time off, well we would at least have a hold in the RE market here, with some leverage tied up in a house. We'd run negative for a few years but I doubt house prices in metro Denver will drop significantly over the long haul. I feel more driven by life timing right now rather than getting the best deal. I've waited on the sidelines for a good deal for years and now regret it.

Otherwise I'd continue working and living in the lower cost place and put myself in a better position.
This feels a bit too much like OMYíing which weíve been doing since at least 2020. I still see the main issue as the fact that we will likely never be able to qualify for a mortgage here again after quitting unless we both return to the grind. No amount of savings in the next 1-2 years would change that.  I mean, we have nearly 400k in liquid assets. So other than locking in housing, I'm not sure what "better position" to strive for. We could easily put 20-30% down now to lower the monthly payment if we wanted. My suggested 5% was intended to give us the most leveraged position, more liquid assets, and leave open the potential for savings on taxes down the line.
Moving to a lower COL area and paying in cash would completely wipe out all our liquid assets and tap into our Roth IRA contributions. And we'd be hoping to Coast FI, so we'd really be in crunch time with no real way to build up savings again. With a mortgage, we'd could be running ~10-20k negative a year on renting it out, but we'd be able to retain our brokerage fund of 275k to temporarily live off of and then hold as an emergency fund. 

I suppose we could come back and/or land somewhere else, then have one of us secure an offer and work for a few months just to get approved on a mortgage (with more like 40-50% down to qualify), and then quit once weíre settled or sick of it. Doing so would probably draw our liquid assets down to around 100k (assume 100k sabbatical spend, 250k downpayment) Honestly, thatís the most out of the box solution I could come up with. And maybe the most practical. Weíd probably have to apply to jobs while still traveling or pay for a short term rental for a few months.

Mainly where I'm at... I know I need some extended time off. But I'm terrified of doing it and then not being able to meet our current standard of living again. I'm also afraid doing so would force us into being lifelong renters. I'd feel most at ease taking a sabbatical knowing how we would generate income post-sabbatical and how we plan to afford to own somewhere desirable.
« Last Edit: January 23, 2024, 01:09:23 PM by therethere »

Freedomin5

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #24 on: January 23, 2024, 04:37:16 PM »
Is it just you and DH in your family? Why a townhome/house and not a smaller 1-bedroom condo, if you just want a landing place between month-long travels? It would be cheaper to own and finance and less of a financial burden. Also, the people who would want to rent your place would more likely be adult singles/couples who tend to treat your place better, which means there would be fewer repairs. The people who tend to rent townhomes and houses are young families, and kids can increase the wear and tear on a home. Then, when you return from your sabbatical, you can trade up and buy a townhome/house if you want, once you are employed again.

Given what youíve written, it sounds like the security of knowing you have a place to live is important to you. I get it. Itís why we bought our place this past summer even though itís not the best investment from a ROI perspective. And if housing security is what is driving you, then it makes sense to buy something while youíre still able to get a decent-sized mortgage.

therethere

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #25 on: January 23, 2024, 04:52:49 PM »
Is it just you and DH in your family? Why a townhome/house and not a smaller 1-bedroom condo, if you just want a landing place between month-long travels? It would be cheaper to own and finance and less of a financial burden. Also, the people who would want to rent your place would more likely be adult singles/couples who tend to treat your place better, which means there would be fewer repairs. The people who tend to rent townhomes and houses are young families, and kids can increase the wear and tear on a home. Then, when you return from your sabbatical, you can trade up and buy a townhome/house if you want, once you are employed again.

Given what youíve written, it sounds like the security of knowing you have a place to live is important to you. I get it. Itís why we bought our place this past summer even though itís not the best investment from a ROI perspective. And if housing security is what is driving you, then it makes sense to buy something while youíre still able to get a decent-sized mortgage.

We're kind of bursting at the seams right now in a 2bd+den (800sqft) with a full 2 car garage. I'm skeptical but optimistic that we could make a slightly smaller townhome work for us. Part of our travels would be traveling US via our current camper or a van so a garage or secure offstreet parking is a must, plus I figured that would give us storage space to allow us to short term rent. But maybe I should at least consider what that would look like as an in-between temporary measure. The less maintenance would be the real draw here. Maybe there would be enough savings that we wouldn't need to rent it out. Honestly, I've always written off anything with an HOA.
« Last Edit: January 23, 2024, 04:57:16 PM by therethere »

Freedomin5

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #26 on: January 23, 2024, 05:35:06 PM »
Is it just you and DH in your family? Why a townhome/house and not a smaller 1-bedroom condo, if you just want a landing place between month-long travels? It would be cheaper to own and finance and less of a financial burden. Also, the people who would want to rent your place would more likely be adult singles/couples who tend to treat your place better, which means there would be fewer repairs. The people who tend to rent townhomes and houses are young families, and kids can increase the wear and tear on a home. Then, when you return from your sabbatical, you can trade up and buy a townhome/house if you want, once you are employed again.

Given what youíve written, it sounds like the security of knowing you have a place to live is important to you. I get it. Itís why we bought our place this past summer even though itís not the best investment from a ROI perspective. And if housing security is what is driving you, then it makes sense to buy something while youíre still able to get a decent-sized mortgage.

We're kind of bursting at the seams right now in a 2bd+den (800sqft) with a full 2 car garage. I'm skeptical but optimistic that we could make a slightly smaller townhome work for us. Part of our travels would be traveling US via our current camper or a van so a garage or secure offstreet parking is a must, plus I figured that would give us storage space to allow us to short term rent. But maybe I should at least consider what that would look like as an in-between temporary measure. The less maintenance would be the real draw here. Maybe there would be enough savings that we wouldn't need to rent it out. Honestly, I've always written off anything with an HOA.

Our condo has an HOA, but it includes snow removal, grounds care, HVAC, the buildingís exterior, etc. Itís about the same (well, cheaper, since itís a smaller space) as if we had to pay to maintain our own house.

spartana

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #27 on: January 23, 2024, 08:39:53 PM »
Is it just you and DH in your family? Why a townhome/house and not a smaller 1-bedroom condo, if you just want a landing place between month-long travels? It would be cheaper to own and finance and less of a financial burden. Also, the people who would want to rent your place would more likely be adult singles/couples who tend to treat your place better, which means there would be fewer repairs. The people who tend to rent townhomes and houses are young families, and kids can increase the wear and tear on a home. Then, when you return from your sabbatical, you can trade up and buy a townhome/house if you want, once you are employed again.

Given what youíve written, it sounds like the security of knowing you have a place to live is important to you. I get it. Itís why we bought our place this past summer even though itís not the best investment from a ROI perspective. And if housing security is what is driving you, then it makes sense to buy something while youíre still able to get a decent-sized mortgage.

We're kind of bursting at the seams right now in a 2bd+den (800sqft) with a full 2 car garage. I'm skeptical but optimistic that we could make a slightly smaller townhome work for us. Part of our travels would be traveling US via our current camper or a van so a garage or secure offstreet parking is a must, plus I figured that would give us storage space to allow us to short term rent. But maybe I should at least consider what that would look like as an in-between temporary measure. The less maintenance would be the real draw here. Maybe there would be enough savings that we wouldn't need to rent it out. Honestly, I've always written off anything with an HOA.
Sounds like you have a too-much-stuff problem lol. Maybe looking at what you can get rid of to get into a smaller more affordable place first and also consider changing to a place close to Denver but far enough away that you aren't paying city prices. @lhamo suggestion of Longmont was great and you'd likely be able to find mustachian types who are Fired and highly flexible for short term rentals (me!!). That way you lock in a place pre-sabbatical without breaking the bank or having to worry about jobs when you return. You can always move back to a more expensive place like Denver if you decide you want to and after you land jobs. Or just FIRE and enjoy a lower COL area and have the freedom and finances to visit Denver and all the other cool CO areas whenever you want.

Otherwise, like I said above, if it's really important you have a larger SFH in a HCOL metro area then you'll likely have to work longer either before or after your sabbattical and/or put down a much larger down payment or forego some higher sabbatical expenses. No on can tell you the best option since a lot of it depends on your personal risk tolerance.

spartana

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #28 on: January 23, 2024, 09:09:37 PM »
Thanks for the feedback so far. I used this as a catalyst to once again take a step back and think outside the box over the weekend. But still feel stuck with no clear answers. A lot of talking out loud here….

Like I mentioned earlier, we have outgrown our current cheap rental. Our lease ends May 31 (decision looming at the end of March), and we are fairly certain we will give it up and move regardless. Hence the feeling of crunch time. If we could fix up the place (HVAC is primary issue) we would stay long term. We have already offered to buy it from the landlord multiple times and have been turned downThere is a 2.5x month lease break fee, and they'll do the customary 3% raise, so it does not seem like a great idea to resign the lease with anticipation of breaking it after a few months for whatever reason. I do not believe they would let us sublet or Airbnb it, nor could we in  current condition. We don’t have family or any huge ties in Denver. But the access to mountains, easy winter, and sunshine are hard to fathom giving up just to have a cheaper place to live. Colorado also has $18 minimum wage which would benefit us in Coast FI.

Now the job. They have recently added on call a few times a year with no increase in income. This is a dealbreaker to me. So either way I’m up for a job change sometime this year. I do not forsee any extra allowances on working remotely. The most I think I could swing would be a month unpaid leave of absence to combine with my vacation time to get 8 weeks off. Another option would be to use intermittent PTO to effectively work PT through the summer months and then take off. But crunching the numbers, this is pretty much a break even scenario. It would just buy us a little more time to get a better deal in the housing market and maybe reduce the consecutive amount of time off.

I get the suggestions of saving up more money and hanging onto our cheap rental. But frankly, we've been doing that since early 2020 if not longer. We have 3x month long trips under our belt and they have been so nice. So in a way we've already tried the lifestyle while having FT jobs. On our longest trip we were ready for some home base time 6-7 weeks in. This would be my ideal way to travel in our 40's, 1-2 month stints traveling for 1-2 times a year. The idea of a 12-18 month sabbatical is mainly to make it worthwhile on quitting my job and provide some conservatism in any calculations on how long it would take ramp up some income again. I'm also feeling the mid-life crisis of nearing 40, and I don't anticipate we have many more years left where multiple month long trips would be physical doable or appealing. This is why I was thinking of a townhome or small house with a garage, that we could either offer 30-day Airbnb rentals or trustedhousesitter swaps to subsidize some of the mortgage while traveling and still allowing us to keep most of our "stuff" and cars. And well if we never wanted to come back to Denver after time off, well we would at least have a hold in the RE market here, with some leverage tied up in a house. We'd run negative for a few years but I doubt house prices in metro Denver will drop significantly over the long haul. I feel more driven by life timing right now rather than getting the best deal. I've waited on the sidelines for a good deal for years and now regret it.

Otherwise I'd continue working and living in the lower cost place and put myself in a better position.
This feels a bit too much like OMY’ing which we’ve been doing since at least 2020. I still see the main issue as the fact that we will likely never be able to qualify for a mortgage here again after quitting unless we both return to the grind. No amount of savings in the next 1-2 years would change that.  I mean, we have nearly 400k in liquid assets. So other than locking in housing, I'm not sure what "better position" to strive for. We could easily put 20-30% down now to lower the monthly payment if we wanted. My suggested 5% was intended to give us the most leveraged position, more liquid assets, and leave open the potential for savings on taxes down the line.
Moving to a lower COL area and paying in cash would completely wipe out all our liquid assets and tap into our Roth IRA contributions. And we'd be hoping to Coast FI, so we'd really be in crunch time with no real way to build up savings again. With a mortgage, we'd could be running ~10-20k negative a year on renting it out, but we'd be able to retain our brokerage fund of 275k to temporarily live off of and then hold as an emergency fund. 

I suppose we could come back and/or land somewhere else, then have one of us secure an offer and work for a few months just to get approved on a mortgage (with more like 40-50% down to qualify), and then quit once we’re settled or sick of it. Doing so would probably draw our liquid assets down to around 100k (assume 100k sabbatical spend, 250k downpayment) Honestly, that’s the most out of the box solution I could come up with. And maybe the most practical. We’d probably have to apply to jobs while still traveling or pay for a short term rental for a few months.

Mainly where I'm at... I know I need some extended time off. But I'm terrified of doing it and then not being able to meet our current standard of living again. I'm also afraid doing so would force us into being lifelong renters. I'd feel most at ease taking a sabbatical knowing how we would generate income post-sabbatical and how we plan to afford to own somewhere desirable.
What kind of expenses do you plan for during a longer sabbatical if you have no home base and no other expenses? Above you said $100k and a 12-18 month sabbatical which seems extremely high to me (check out some of the journals here like @2Birds1Stone for a their expenses which are much less) but wondering if that includes paying for a home base too.  I've done both the long term homeless travel thing (very cheaply) as well as the 1 to 2 or 3 month a year a couple of times a year travel thing with a home base (again very cheaply) for many years now and there are ways to have lower expenses.

Also don't assume you only have a short window to do long term travel and you won't be able to do it after a few years. Lots of us have been doing that for a decade or 2 and still going strong (often stronger) well past our 30s, 40s, 50s, and beyond. You are not going to hit 45 or 50 and be too old for long term travel, even extremely hardcore adventuring, unless you have health issues. So I wouldn't worry to much about that. Although I couldn't wait to quit my job and hit the road and had all kind of irrational thoughts and fears that something would happen before I pulled the plug on my job (a meteor was gonna squash me ;-)) so I get it.



« Last Edit: January 23, 2024, 09:13:58 PM by spartana »

Dicey

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #29 on: January 23, 2024, 10:35:34 PM »
You say you want to Coast FIRE in CO? Several resort towns have amazing programs for employees. Move there, take fun jobs, qualify for the housing programs and buy something CRAZY affordable. I believe Aspen, Vail, and Breckenridge have programs.  Google "APCHA".

spartana

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Re: Buy now and take sabbatical or wait to buy? Weighing options.
« Reply #30 on: January 24, 2024, 12:48:57 AM »
You say you want to Coast FIRE in CO? Several resort towns have amazing programs for employees. Move there, take fun jobs, qualify for the housing programs and buy something CRAZY affordable. I believe Aspen, Vail, and Breckenridge have programs.  Google "APCHA".
Ooohhhh I'm moving there! Not really but after going down the Aspen, Breck, etc wormhole one too many time looking at places I've always wondered how locals manage. Calif ski towns aren't nearly as expensive as CO ski towns, and can be fairly inexpensive compared to places like the Bay area and LA metro area,  but no jobs except seasonal. My sister lived and worked in Mammoth for years and housing was always an issue. My current digs in a Calif ski town cost less then half the big city Metros costs and it's much nicer if you are FIRE and don't need to work or can do the coast FIRE thing like the OP does.