"Cost" of upgrading your home?

[bsanders11]

I currently have an adequate home that could easily fit all my needs for many, many years to come.  Although much of what I what I do financially matches with many on this board, I find myself wanting a slightly nicer home. I’ve been working towards FIRE for just over 10 years but still have some work to do and I was looking at the “cost” of buying a nicer home.  I put “cost” in quotes because I thought it would be interesting in look at in terms of additional years worked instead of the actual financial cost to purchase, pay taxes, and maintain the home.  In my case if I was to purchase a home for 150k more that my current home, I have calculated:

$150,000
$56,250 = $2250x25 (taxes)
$56,250 = $2250x25 (increased maintenance)

$262,500 (total increase in networth to FIRE)

When adding this to my new FIRE goal, in my case, I need to work another 14 months.  I then asked myself if having this nicer home is worth working 14 more months until I retire.  I found this to be an interesting way to view the purchase.  I think this different view offers some real value any making the decision.  Any thoughts?  Anything I am missing?

[ysette9]

I think that is a really good way of thinking of it. We did something similar when looking at houses to buy. I made a spreadsheet of cost versus time to FIRE because it was more real than monthly payment or something else obscure. It really is a cost, but you are viewing it in terms of cost of fewer years of freedom rather than money.

[anotherAlias]

I currently have an adequate home that could easily fit all my needs for many, many years to come.  Although much of what I what I do financially matches with many on this board, I find myself wanting a slightly nicer home. I’ve been working towards FIRE for just over 10 years but still have some work to do and I was looking at the “cost” of buying a nicer home.  I put “cost” in quotes because I thought it would be interesting in look at in terms of additional years worked instead of the actual financial cost to purchase, pay taxes, and maintain the home.  In my case if I was to purchase a home for 150k more that my current home, I have calculated:

$150,000
$56,250 = $2250x25 (taxes)
$56,250 = $2250x25 (increased maintenance)

$262,500 (total increase in networth to FIRE)

When adding this to my new FIRE goal, in my case, I need to work another 14 months.  I then asked myself if having this nicer home is worth working 14 more months until I retire.  I found this to be an interesting way to view the purchase.  I think this different view offers some real value any making the decision.  Any thoughts?  Anything I am missing?

I did the same calculation last week.  In my case, the current house does not fully meet our needs.  We could really use a little more space and a less awkward layout.  Unfortunately in this area, awkward layouts dominate.  SO and I are talking about building what we want. I was reluctant until I realized that it would only add 2 years to my working timeline.  I think it's worth it in our case.

[fuzzy math]

You are missing the real estate fees from selling home 1, and all of the purchasing associated costs with buying home 2. Easily another 15k or much more depending on the value of your original home.

You're also missing the amortized interest charges that would be much higher again in years 1-10 of a new loan.

[mcneally]

I'm certainly not saying don't do it, but in my opinion what you're probably "missing" is making really rosy assumptions about investment returns, like 7% after inflation or something. Unless you save $150K+ per year from your working income, in which case I'd definitely work the extra 14 months.

[bsanders11]

Good points about the interest on your loan and/or the missing 7% return on your cash that is locked up in the house.  So in my case I would use $150k in cash to pay for the house but would miss out on my 7% return over the length of time until I would have retired.  I would have to update the math, but it would deffinitely be more than 14 months but maybe not by a alot.  Certainly something I had overlooked though.

[KungfuRabbit]

Opportunity cost on 150k is big. However the house will appreciate in value too, it's not like you spent it on a depreciating asset like a car.

Maintenance cost vs house cost does not directly correlate, and timelines need to be considered as well. What is the current shape and age of windows / HVAC / appliances on old and new houses?  is the extra $150k for location, size, lot, age, newly remodeled? 

[lbmustache]

What is in the nicer home that you cannot get out of your current home? For example, is it the location (impossible to change in current home), or things like a nicer/bigger kitchen (doable in your current space, theoretically)? This might help put things into perspective too.

[HawkeyeNFO]

.....However the house will appreciate in value too, it's not like you spent it on a depreciating asset like a car.

Not always.  Many people have lost a significant amount of money on their homes.  Sometimes the value goes up, but sometimes it goes down.  Even if it doesn't change much at all, when buying or selling, there are numerous transaction costs, so you could end up losing money there.

[Tabaxus]

Opportunity cost on 150k is big. However the house will appreciate in value too, it's not like you spent it on a depreciating asset like a car.

Maintenance cost vs house cost does not directly correlate, and timelines need to be considered as well. What is the current shape and age of windows / HVAC / appliances on old and new houses?  is the extra $150k for location, size, lot, age, newly remodeled?

Not necessarily:/  I put a downpayment on a $640k townhouse in the summer of 2016, and paid another $10k to install updated flooring on the house.  Zillow says the house has declined in value to $585k.  Not going to bankrupt me, but suffice to say, it's a really good thing that I really like the townhouse and love the area I'm living in, because if I think about this in dollars-and-cents terms, I want to proceed to the closest bridge.

[boarder42]

It's a great way to look at it my wife and I made the same choice around 2 years ago to postpone FIRE by 1-2 years to upgrade to a house that's lake front. I think it's been worth it for us this house is amazing and allows us to walk out the back door and drop a paddle board in. Her family lives 4 hours away but visit much more frequently bc our house is like going on vacation. 1-2 years of work was worth the upgrade for us but everyone must make that choice themselves. If it's just a nicer house I don't think I'd do it for that. If it buys you a location as ours did I can say it was worth it for that reason.

[partgypsy]

I am wrestling with this, but haven't put it in terms of work life cost, just, preserving sanity benefit. I have an old house a gentrifying area. I love the neighborhood, and have a love/hate relationship with the house. Ex and I bought it cheap, and renovated it as minimally as possible to live in it. Now that I work full time, and have the kids most nights, I need the house to be more functional. Specifically the kitchen. It has no dishwasher, no garbage disposal, an awkward layout, lots of nooks and crannies for dust/hard to sweep, and almost no counter space. So I am prepping on the kitchen table, then having to clean the table again before eating, and also feel like I'm in a constant cycle of doing dishes. Kids now have 1 night a week they do dishes, but feel if I had a dishwasher would be more functional.
Iwent to home depot, and said I was on a strict budget, and they said well, if willing to cut and sacrifice, could keep it 20K or less. OK, I basically have no money to do this, but am willing to cash flow maybe 3-4K. Am I asking for impossible? 19 years ago we redid the entire kitchen including buying new appliances and putting new flooring in for 4K, so I guess I am shocked at what they are quoting.

[boarder42]

I am wrestling with this, but haven't put it in terms of work life cost, just, preserving sanity benefit. I have an old house a gentrifying area. I love the neighborhood, and have a love/hate relationship with the house. Ex and I bought it cheap, and renovated it as minimally as possible to live in it. Now that I work full time, and have the kids most nights, I need the house to be more functional. Specifically the kitchen. It has no dishwasher, no garbage disposal, an awkward layout, lots of nooks and crannies for dust/hard to sweep, and almost no counter space. So I am prepping on the kitchen table, then having to clean the table again before eating, and also feel like I'm in a constant cycle of doing dishes. Kids now have 1 night a week they do dishes, but feel if I had a dishwasher would be more functional.
Iwent to home depot, and said I was on a strict budget, and they said well, if willing to cut and sacrifice, could keep it 20K or less. OK, I basically have no money to do this, but am willing to cash flow maybe 3-4K. Am I asking for impossible? 19 years ago we redid the entire kitchen including buying new appliances and putting new flooring in for 4K, so I guess I am shocked at what they are quoting.

you are when you're walking into HD and asking for them to do it for you - we're going to redo our kitchen and its likely much larger than yours.

cabinets - check out cabinets to go or cliq studios or one of the many other online ones that work like this - they'll design it for you
then either install your self or hire a cabinet installer yourself
floors - DIY or hire your self

appliances shop the deals and closeouts on these or craigslist

counters - probably going to have to spend some here but again shop around. 

basically GC it yourself and you can get your costs down- we're going to spend around 15k-20k and as i said we likely have a much larger kitchen than you do so our costs are higher - plus we're covering up some windows and adding new which adds costs.

[Greenback Reproduction Specialist]

I find myself doing this on most big purchases now... The term "Just One More Year" keeps ringing in my head and the reminder of how easy it is to fall into that trap. But, really its a nice problem to have, really makes you consider if it is something you REALLY need or not : )

It becomes more difficult to make purchases when you understand the real sacrifice, its not just the piece of paper you hand over, its so much more than that.

[ysette9]

Partgypsy: do you have an Ikea anywhere near you? If so I’d recommend checking out their costs for kitchen remodels. They seem to be much more affordable than a more traditional route, and quite frankly I like the look of their designs more. My sister and my parents both went this way for their kitchens. My parents managed to do enough upgrades to make it very pricey, but my sister got a great looking kitchen for a very reasonable price.

[partgypsy]

I went into home depot just to see if they could draw up a plan, not to necessarily shop from there. But while they took my info and my dimensions didn't even do that, so I will do on my own. 
Well, the guy I'm seeing, he's done this multiple times before, buying cabinets, counters etc from reuse places, GC himselves, and also has relatively inexpensive but skilled people for demo, plumbing, etc. He feels he can do it for around 3K, keeping the original flooring and some of original cabinets. And he is incredible about finding amazing deals on high end but very discounted appliances. BUT- it means a tons more legwork on my part and being OK with using what's available versus getting to pick materials out. My other worry is that he is super busy. Iworry what about being midway through the project and hitting a snag... I guess I can price it both ways (using new cabinets versus used), and see what the difference is.  I am probably insane for even thinking about doing a kitchen remodel at this time in my life situation lol.

[boarder42]

I went into home depot just to see if they could draw up a plan, not to necessarily shop from there. But while they took my info and my dimensions didn't even do that, so I will do on my own. 
Well, the guy I'm seeing, he's done this multiple times before, buying cabinets, counters etc from reuse places, GC himselves, and also has relatively inexpensive but skilled people for demo, plumbing, etc. He feels he can do it for around 3K, keeping the original flooring and some of original cabinets. And he is incredible about finding amazing deals on high end but very discounted appliances. BUT- it means a tons more legwork on my part and being OK with using what's available versus getting to pick materials out. My other worry is that he is super busy. Iworry what about being midway through the project and hitting a snag... I guess I can price it both ways (using new cabinets versus used), and see what the difference is.  I am probably insane for even thinking about doing a kitchen remodel at this time in my life situation lol.

seriously go to Cliq studios send it to them give them your idea and they will draw it up for you in a nice program.  it can pretty much be transferred to anyone else even if you dont go with their cabinets.

[nurseart]

I really like this way of thinking. Thanks for sharing!

[boarder42]

I really like this way of thinking. Thanks for sharing!

in reality this way of thinking should be applied to all purchases - with homes the magnitude is just very large. but lots of small purchases can have the same effect.

[NorthernBlitz]

I really like this way of thinking. Thanks for sharing!

in reality this way of thinking should be applied to all purchases - with homes the magnitude is just very large. but lots of small purchases can have the same effect.

I agree. One of the big take home message of FIRE to me is that money is really just a proxy for time. Everything we buy is a decision to work longer. It's OK if we do it intentionally, but there is so much out there pulling on us to spend without thinking about it.

[boarder42]

I really like this way of thinking. Thanks for sharing!

in reality this way of thinking should be applied to all purchases - with homes the magnitude is just very large. but lots of small purchases can have the same effect.

I agree. One of the big take home message of FIRE to me is that money is really just a proxy for time. Everything we buy is a decision to work longer. It's OK if we do it intentionally, but there is so much out there pulling on us to spend without thinking about it.

the counter side of this is once you've frontloaded accounts and become ok with your spending levels you cannot speed up time so as you get closer to FIRE spending 1k on a new widget thats a one time purchase has minimal impact compared to buying that widget in year one of your path to FIRE.  Its all about compounding for me at this point spending 2k here or there in any given year creates not noticeable difference in my FIRE calculations. its a shitty point to get to - i call it the mid-FIRE crisis.

[TVRodriguez]

Opportunity cost on 150k is big. However the house will appreciate in value too, it's not like you spent it on a depreciating asset like a car.

Maintenance cost vs house cost does not directly correlate, and timelines need to be considered as well. What is the current shape and age of windows / HVAC / appliances on old and new houses?  is the extra $150k for location, size, lot, age, newly remodeled?

Not necessarily:/  I put a downpayment on a $640k townhouse in the summer of 2016, and paid another $10k to install updated flooring on the house.  Zillow says the house has declined in value to $585k.  Not going to bankrupt me, but suffice to say, it's a really good thing that I really like the townhouse and love the area I'm living in, because if I think about this in dollars-and-cents terms, I want to proceed to the closest bridge.

Have patience.  The idea of real estate "always" increasing in value is the same as the stock market.  Over the short term there might be a drop in value, but over the long term there will most likely be a rise.   Summer of 2016 is yesterday.

[Fomerly known as something]

I am wrestling with this, but haven't put it in terms of work life cost, just, preserving sanity benefit. I have an old house a gentrifying area. I love the neighborhood, and have a love/hate relationship with the house. Ex and I bought it cheap, and renovated it as minimally as possible to live in it. Now that I work full time, and have the kids most nights, I need the house to be more functional. Specifically the kitchen. It has no dishwasher, no garbage disposal, an awkward layout, lots of nooks and crannies for dust/hard to sweep, and almost no counter space. So I am prepping on the kitchen table, then having to clean the table again before eating, and also feel like I'm in a constant cycle of doing dishes. Kids now have 1 night a week they do dishes, but feel if I had a dishwasher would be more functional.
Iwent to home depot, and said I was on a strict budget, and they said well, if willing to cut and sacrifice, could keep it 20K or less. OK, I basically have no money to do this, but am willing to cash flow maybe 3-4K. Am I asking for impossible? 19 years ago we redid the entire kitchen including buying new appliances and putting new flooring in for 4K, so I guess I am shocked at what they are quoting.

you are when you're walking into HD and asking for them to do it for you - we're going to redo our kitchen and its likely much larger than yours.

cabinets - check out cabinets to go or cliq studios or one of the many other online ones that work like this - they'll design it for you
then either install your self or hire a cabinet installer yourself
floors - DIY or hire your self

appliances shop the deals and closeouts on these or craigslist

counters - probably going to have to spend some here but again shop around. 

basically GC it yourself and you can get your costs down- we're going to spend around 15k-20k and as i said we likely have a much larger kitchen than you do so our costs are higher - plus we're covering up some windows and adding new which adds costs.

Also check out any Habitat for Humanity restores.