Case Study: To buy or not to buy...

[bicoastalblues]

To buy or not to buy...help us weigh our options. I was introduced to Mustachianism at the beginning of this year and I'm learning so much! My husband and I got married a couple months ago and are trying to decide what is the best short/long term option for us, whether to stay in DC and buy a small condo in DC or to move back to LA and live with my mom for a couple years and buy a single family home in CA. He is 30 and I am 29 and we would like to retire at 50 so hoping that's not too far of a stretch. It's hard to decide what should be given the most weight at this point: house, kids, or career?

Income: I am staff in a top ten law firm and make around 60k/year gross, and he works for the US Chamber of Commerce and makes 55K/year gross. I get an annual bonus of around 3k and a yearly cost of living increase. He will possibly get a promotion soon to 65k/year but it's not certain.
Our monthly income: $6,000/month

Rent : $1,750/month. We are renting a 1 BR basement in central DC. The rent is a good deal for the area especially since we have a covered parking space included in the rent.

Current monthly expenses: around $2,000/month depending on travel costs
Transportation : $120/month.  He is able to walk to work and I ride my bike to work. He has a 2005 Toyota CR-V that is paid off but insurance is about $90/month. We drive occasionally on weekends to visit friends or to buy larger goods. We are debating if it's worth getting rid of the car since we only drive it about once a month but it is nice to have for driving to see his family in NC.
Utilities: $50/month for electric, everything else is covered by the landlord
His cell phone: $150/month for him and his parents
My cell phone: $125/month for me, my mom and my brother
groceries: $400/month
eating out: $300/month - this is a lot and we are working on cutting it down more
misc: $400 this includes household items and clothes
travel: $600 We have been to 5 weddings this year and have one more that should be the last one this year. Since most of the weddings haven't been close to where we live, there have been a lot of hotel, flights and car rentals. We also used points for our honeymoon, we are conscientious about using freq flier miles and cc reward points but with so much travel there's only so much we can do. We would also like to take some international trips next year before we have kids.

Savings: We currently save $2000 per month or 30% of our paychecks. Previously it had been going to a wedding fund but now it's going towards our down payment fund. This comes out before expenses and we don't dip into it. I'm not sure I see our travel lessening especially with the holidays coming up later in the year. We don't have a separate savings account set up for travel. We just budget it into our normal expenses.

Assets: 35k down payment savings in CDs that will mature in one year, 25K in brokerage accounts, 60K in retirement accounts. My work contributes 10% of my salary into my 401K and he gets a 6% match on his. We have maxed out both of our IRAs.

Liabilities: 50k student loan at 6% APR that we will begin making payments on in December from a MA degree. The payments on the student loan would cut into our savings but hopefully if he gets a promotion that will balance the loan payments out. No other debts.

Specific Question(s): We don't have enough savings now but hopefully in a year's time we will add 25k to our down payment fund bringing our total to 80k which would be 20% of a 400k condo and it's possible we may be able to get another 20k from our parents. There is a also a down payment assistance program that we can take advantage of that offers a 10k loan for down payment that is forgiven if we hold the property for 5 years. We are thinking about having kids in the two to three years so trying to decide what is the best strategy for the next 5 years or so since we will need to buy a place big enough for my mom to live with us once she retires.

Option 1 - Stay on the East: We could buy a 2 bed condo/townhouse would be an investment property that we would rent out when we decide to move out of the District. My husbands job prospects are much better if we stay out in DC but if he gets a job that pays significantly more, but in order to get a single family house we would likely move to VA and buy another house there which would increase our commuting costs. My mom plans to live with us once she retires but she is very much opposed to moving out of Southern CA. We might be able to convince her to sell her house in CA and move her out to live in VA with us, but the majority of my friends and family live there as well so if we were to stay in the VA/DC area, I would likely have a couple trips per year back to LA. We don't have a strong network in DC so the appeal of staying is the proximity to our jobs and that we don't have any commuting costs/headaches but since our priority once we have kids will be a good school district we would have to move out of DC anyways. We would want to hold on to our condo in DC for at least 5 years to get the benefit of the down payment loan.

Option 2 - Move back to LA: My mom wants us to move to CA next year once our lease is up and live with her in her house since she has a 4 bed house by herself on which the mortgage is only $1,000/month. Her reasoning is that once I get pregnant I would probably quit my job anyways until the kids are older and can go to school. She currently makes around $70,000 per year at her job and she wants to work for another five years until she is 62. At that point she would retire and take care of the kids and I would go back to working. I don't think it would be difficult for me to get work at a law firm with my background, but since my husbands contacts and network are in DC I think it would be more difficult for him to get a job that builds on his international policy work background. I'm assuming his income would not be as high as DC, but my mom's income would keep us at a two-income household.  We would both need cars in LA so that would increase our expenses, but we wouldn't need to pay rent while living with my mom. Her neighborhood isn't in a good school district so we would want to move to a better school district later on as well. With the added savings of my mom as a third household member we would be able to put down a larger down payment, possibly 150k and get a bigger single family home in Southern CA. We could also sell her house that is worth about 400k right now and invest that equity into a house in a better school district.

Help, is this too much to take on? I think that conventional wisdom would be to wait and continue renting, because there are so many variables but seeing the growth potential due to gentrification in the areas we are looking to buy in and the long term stability of the rental market in DC, I think it would be a good investment to buy property in DC. I just worry that we are stretching ourselves too thin and that it will be difficult to manage from the opposite coast. My husband and I don't mind staying in DC for the next five years but the pressure from my mom is the issue and she's making us an offer that seems difficult to refuse. Am I thinking too much into this when we aren't going to be ready to do anything for a year? Thanks for reading this long post and I welcome any guidance or suggestions for improvement.

[mrgrump]

I love my mother. But the very thought of moving in with her made me gag a little. Throwing in a grand baby and the dual finances, well, I would just soon live under a rock. Moving across the country, babies, living together is way to many stressors and time to hear all the motherly wisdom mothers pass out....

I would probably move back but rent a small apartment. It's awesome to be close to family. Just not to close.

[Chrissy]

Yep, this is too much to take on, too many unknowables, too early in your marriage.

If you're not having babies for 2-3 years, then there's no reason to move back to CA right now.  This gives your husband 2-3 years to research getting a job in CA.

I can't see you buying any property with $50,000 in student loans at 6% hanging over your head.  Pay those off using the money in CDs.  Then, save up for that international travel you want to do sometime in the next 3 years.  Have a plan for these trips; have a budget.  IF he gets a promotion, you can save it for a down-payment for either rental property or a home, and by the time you've got enough, you'll know a lot more about where you're headed.

You and your husband are paying for 6 cellphones.  I'm not going to ask why at least 3 of those other adults aren't paying their own way, I'll just tell you you're paying way more than you need to for 6 cellphones.  There's tons of info on MNVOs on this site.  Start here:  http://forum.mrmoneymustache.com/share-your-badassity/communications-tech-discussion-thread-1/

[matchewed]

Ignoring the pressure from your mother you should sit down and talk it over with your husband. Ask yourselves some questions like - Where do you see yourselves raising kids? What is more important to you being a full time mother or a developing your career? Is having a grandmother close by important to either of you? Either plan can work with FIRE, FIRE is just controlling your expenses to a reasonable level, that can be done anywhere.

[bicoastalblues]

I love my mother. But the very thought of moving in with her made me gag a little.

Totally agree with this sentiment, but my husband seems to be okay with it oddly. We've talked about if he's okay moving away from his family and he says it's fine because his older sister will take care of his parents so that leaves us free to take care of my mom. My mom and I get along fine most of the time but it's a totally different situation to be living with her. I don't want her to also later on resent the idea of childcare even though she is volunteering for the job. We've considered getting a house with an in-law suite but housing prices in either LA or DC metro area are pretty high, so neither are ideal places to raise a family. Having the family close but not too close is an important consideration but I'm not excited about the lifestyle in LA. We are both okay with me quitting my job once we have kids even if it means having a single income for a couple of years but it's again my mom that will be difficult to handle. She already talks as if us moving in with her is a given so it feels like it's not a matter of if but moreso when and how long I can push it off for.

We are hoping to combine the cell phones into one plan but it's not easy. His parents live in an area where they can only get Verizon so he's stuck with that and i'm going to try and talk my family to see if they're willing to switch to a cheaper plan.

[Chrissy]

They're stuck with the Verizon network, but not with Verizon.  Page Plus uses the Verizon network.  A lot of people who aren't particularly tech savvy have Kitty Wireless set up their Page Plus phones for them.  Don't know why you'd pay more for the same service.

[bicoastalblues]

hmm, I looked at Kitty Wireless and it seems like reception where his parents live is spotty. I'm thinking that if we can switch the other phones at least we would reduce the monthly amts we are paying unless there's a more reliable network? They live in North Carolina in the Smokey mountains. 

I probably should admit that I would prefer to stay in the DC area and buying property is my strategy for forestalling moving in with my mom. Mostly it just seems like a lot to think about too fast but I think for my husband's job prospects it should be better since he just got his MA so that should open more opportunities for him in DC. I would love to move to the Pacific Northwest eventually and raise a family near Portland or Seattle, but need to wait for the right opportunity. Denver and Austin are cities that I wouldn't mind moving to either but grandma is definitely going to be tagging along no matter where we go, would love to hear if anyone has made the living with mom/MIL work?

I worry that if we use our existing funds to pay off his student loans then that puts us back several year to be able to pay off the loan and save up another down payment. I wish we were contributing to our own equity instead of someone else's. Can we pay less towards the student loans so that we can still add to the down payment fund or is it better to pay the student loan off all at once?

[SunshineGirl]

For goodness sakes, tell your mom you're staying in DC for at least five years and then probably moving to the Pacific NW, and that living together isn't what you want to do no matter where you live. She's welcome to move closer to you or not, but what the hell? Just say, "I appreciate the offer, but I don't want to move back to CA." End of discussion. It's not her business whether you work or not once you have kids. And if she keeps bringing up the living together situation, then say, "I don't think that's going to work. I want my privacy. If you want to get a little townhouse close by or something, that would be cool."

[Chrissy]

Okay, you want to stay in DC, own a place, potentially moving somewhere on the West Coast someday.  Your mom doesn't want to move to DC.  Those are the facts today, and that's what you have to work with.

First, can you get the loans refinanced/consolidated at <5%?  If yes, pay the minimum, and focus on buying a place.  If not, any loans >5% should be attacked aggressively, because they're eating up the profit you're making in the stock market.  However, you don't have to use the CDs or brokerage account to pay off the student loans.  Instead, you can temporarily back off your retirement accounts.  He should still contribute enough to get the match.  Everything else is available, at your discretion, to be thrown at the student loans.

This solution has you paying off the student loans aggressively, WHILE buying a place, WHILE saving for retirement.  Win/win/win!

Try to avoid taking a loan from family for the down payment.  You've got enough family in your business as it is.

[theSchmett]

Page Plus = VZW Prepaid, which is good I guess but not the same.

[DocCyane]

Having lived in LA the past 23 years, I don't recommend you move here. Jobs are scarce and the cost of living is quite high.

Housing is over the top expensive. There's no such things as a cheap, little apartment. Poorly built, aging homes are a half million dollars.

Traffic is unreal and getting worse by the day. You will spend your life on the freeway.

Our school systems are horrible and gravely dysfunctional.

The California your mother knows is very different than the one you will experience. She has her home and a steady job she can ride to retirement. You will have to deal with a much harder existence.

I would choose a place that has a much lower cost of living and a slower pace of life, especially if you want to raise children. Don't let your mother's wishes override good decision making.

[bicoastalblues]

@Chrissy: I think your solution just might be genius! I already asked him to double check how much the interest on the loans were since I thought 6% was high and will see if he can get it down to <5%. I think dealing with the family pressure will be okay once I can more clearly figure out my financial goals and I think I can definitely work with your strategy.

Don't let your mother's wishes override good decision making.

@DocCyane: Wow, agree w/ everything you said times a million, except I wouldn't have been able to articulate it so succinctly. It's nice to hear a perspective from someone other than my friends and family. Thanks for the validation, I think it's exactly what I needed to hear!