Bigger house (rental): splurge or not?

[mucstache]

Looking for some good / new perspectives... here's our situation:

- Married, 36/39 years old, 1 kid (5 years).
- Based in a HCOL area in Europe, real estate prices comparable to the Bay Area in the US.
- Net worth approx 1.75M EUR, consisting of about 1.05M in stock ETFs and 0.7M in an apartment that we rent out (at a low yield though).
- Net household income roughly 21.5k EUR per month (mostly from my job + a smaller contribution from DW + rental income). My salary is high for this region, so I would not want to expect this level of salary indefinitely, just in case.

Currently spending about 6k per month incl. rent for the place we live in, which is a 1100sqft (110m2) apartment. We are looking for a bit more space, more daylight, and a better build quality, so we were touring rental houses.

Found a really nice one close by - however, this would increase our monthly spending by 2k to about 8k EUR per month.

Doing some calculations I realized that with our current spending, we could be FIRE-ready in about 4 years. With the new house, it would be more like 7 years, assuming current income levels (hoping this would be feasible) and a 3% withdrawal rate. Additionally, on a 10 year horizon, our projected net worth could be 6% higher if we keep current spending levels, vs. move to the house.

Now, I realize this is all nitty gritty and various factors (income, market returns, ...) will have a bigger impact potentially. Trying to see this from the big picture - does it even matter financially in our situation whether we move or not? What about hedonistic adaptation - will we set ourselves up for perpetual higher spending? If yes, does it matter or can we easily afford it?
 
Are we spendypants if we move, or stingy if we stay where we are, considering the context above?

I know lots of rambling, just want to see though how you are thinking about this. Thank you very much in advance!

[Sibley]

-Good layout is often more important than size.
-Too much stuff often means you need to get rid of stuff, not get more space

Regardless if you stay put or move, go through and do some decluttering. You've likely got plenty of old kids stuff that you don't need anymore - get rid of it.

Then, evaluate if you need more space. If you do move, make sure to consider the layout. You might be fine with less space if the layout is excellent.

[Laura33]

Doing some calculations I realized that with our current spending, we could be FIRE-ready in about 4 years. With the new house, it would be more like 7 years, assuming current income levels (hoping this would be feasible) and a 3% withdrawal rate. Additionally, on a 10 year horizon, our projected net worth could be 6% higher if we keep current spending levels, vs. move to the house.

Now, I realize this is all nitty gritty and various factors (income, market returns, ...) will have a bigger impact potentially. Trying to see this from the big picture - does it even matter financially in our situation whether we move or not? What about hedonistic adaptation - will we set ourselves up for perpetual higher spending? If yes, does it matter or can we easily afford it?

Well, you've answered your first question.  Of course it matters financially if you move or stay -- it's a difference of 3 years to FI and 6% NW over 10 years.  And you can clearly "afford" it by any metric.

The question is whether the additional spending is worth that difference to you.  This is classic the "immediate consumption vs. long-term saving" choice.  Doesn't really matter what the "thing" is you want to; could be an apartment, a car, vacations, charity, etc.  It is simply something you want to spend money on because you perceive that doing so will improve your life now more than continuing your current savings rate will improve your life in the future.  So if you think a larger place is worth almost doubling your time to FI, then go for it.  If not, don't. 

Oh:  and yes, you do have hedonic adaptation to worry about.  That's pretty natural.  That's why you should always recalculate your FIRE timeline assuming that higher level of spending will continue.  And it's also why extra spending has a disproportionate impact on time to FIRE:  because it increases the amount you need saved and decreases the amount available to do so. 

[Freedomin5]

We are a family of 3 living in a ~1100 sq ft apartment for the past five years. It is more than enough space for us. We are very good at clearing out the clutter twice a year. We sell or donate things that we haven’t touched in the past 1-2 years, we make sure storage spaces are neat and tidy so we can find things when we need them. As mentioned by another poster, if space is an issue, it may be that you have too much unnecessary stuff.

What you described in your post is basically the definition of lifestyle creep and it absolutely has a negative impact on your ability to FIRE.

I think there was an MMM post on this. The solution was to cut things from your life until you got to a point of noticeable discomfort, then add the last thing you cut back in.

In the end, it doesn’t matter if you can afford it. But you said yourself that your high income is not stable and you cannot expect to always be making this high income. So why would you consider permanently increasing a stable expense (housing) if your income is not permanent?

[jrhampt]

You say you will be ready to FIRE in 4 years at current level of spending.  I would wait 4 years, achieve FI, and then re-evaluate whether to increase spending on a bigger house or RE. 

[Moonwaves]

Do you have a specific location you consider to be your 'forever' home? Do you plan to live in the apartment you currently rent out, or buy somewhere else? Or stay renting in your current town? Or rent somewhere else? At between four and seven years away from FIRE, it feels like these might be relevant questions to consider now.

[Metalcat]

Do you have a specific location you consider to be your 'forever' home? Do you plan to live in the apartment you currently rent out, or buy somewhere else? Or stay renting in your current town? Or rent somewhere else? At between four and seven years away from FIRE, it feels like these might be relevant questions to consider now.

This^

My biggest question would be if you even need to stay in such a HCOL after retiring?

[mucstache]

Thank you all for the comments, these are helpful to advance my thinking.
A few clarifying thoughts:

• I don't want to actually retire within the next few years - rather would keep working. I just like the peace of mind and flexibility associated with being FIRE-ready. Also I am a bit concerned about AI, wondering if this will make future job prospects worse - so accumulating capital now seems sensible to me.
• My current town is amazing, I like living here a lot. Trouble is real estate prices: despite high rental prices, purchase prices are even more insane (about 40x annual rent). The trend is reversing right now, but unclear how far down it will go. If there is a good opportunity in the future, we're open to buying, but otherwise will keep renting. I have family here and wouldn't mind staying "forever".
• As a result, we are looking for a long-term home, one that we would see ourselves staying in for 10+ years. Our current apartment always feels like a temporary solution - hence we are hesitant to invest in proper furnishing etc (you know, because we could be moving somewhere else in 6-12 months). Also would be better for our kid to have a stable neighborhood gang of kids to hang out with.
• The big point is: Right now the value of a bigger house is high to us (lots of kids stuff, maybe easier to decompress from a demanding job in the evening / on weekends with more space). Yes, we could wait 4 years until we are fully FIRE at the current spending level, then increase it and get in for another 3 years until FIRE-ready again -- or we move now and work roughly the same time (4+3 years), while living in a nicer and bigger house.
• In a SHTF scenario, we could downsize again, or even (in the worst case) move in to the apartment I'm currently renting out (small, but livable if needed). If we move there, we'd be immediately FIRE-ready already today.

I guess I am mainly questioning my quest for "FIRE-ready as soon as possible", as a trade-off with a better living situation / lifestyle. Enjoying the ride for 7 years, vs being more constrained but quicker to achieve FIRE-ready in 4 years. If I don't actually RE, does it matter? The last few years have felt like I was going all in with work, but not getting anything "nice" for it (except for a bigger portfolio). I wonder if I should slightly spend more to get to a better balance...

[Sibley]

Ok, you definitely need to declutter. You don't need more space. You need less stuff, and maybe a different space. But, right now you can't see that because you're just overwhelmed.

And, dial back a bit at work. You're out of balance, so adjust the balance.

[Metalcat]

This really is a pure lifestyle decision with no correct answer.

Simply put, what is more valuable to you, a larger home or more financial security than you already have?

I personally bought a full-on second house mostly to have a nicer view half the year, I am not one to judge prioritizing having a home you profoundly enjoy.

[mucstache]

Ok, you definitely need to declutter. You don't need more space. You need less stuff, and maybe a different space. But, right now you can't see that because you're just overwhelmed.

And, dial back a bit at work. You're out of balance, so adjust the balance.

Any advice, besides watching Marie Kondo? Maybe we'll actually just do that and throw away 30% of our stuff (as a goal) and see what it does :)
If we stay, we'll also need more smart furniture (adding some built-in cabinets etc) - just have been hesitating with this due to the perpetual "temporary living" feeling. Maybe that is actually our main problem...

[mucstache]

This really is a pure lifestyle decision with no correct answer.

Simply put, what is more valuable to you, a larger home or more financial security than you already have?

I personally bought a full-on second house mostly to have a nicer view half the year, I am not one to judge prioritizing having a home you profoundly enjoy.

That's a good point and I have not found my/our answer to this yet. I guess we are mostly "secure" for basic needs, but also feels nice if we can cover more than that.

[slappy]

I knew someone that had four kids in a two bedroom apartment. It was small! They rented a local storage unit to store their extra stuff, like holiday decorations or extra clothing for the kids. You could find a local storage unit and move all your extra stuff in there and see how it goes. Give yourself a timeline of a year or so and then revisit the decision. I haven't seen anything here about why you should move, other than you just want to, which is fine, but not exactly mustachian, if that matters.

[Metalcat]

Ok, you definitely need to declutter. You don't need more space. You need less stuff, and maybe a different space. But, right now you can't see that because you're just overwhelmed.

And, dial back a bit at work. You're out of balance, so adjust the balance.

Any advice, besides watching Marie Kondo? Maybe we'll actually just do that and throw away 30% of our stuff (as a goal) and see what it does :)
If we stay, we'll also need more smart furniture (adding some built-in cabinets etc) - just have been hesitating with this due to the perpetual "temporary living" feeling. Maybe that is actually our main problem...

Okay, but how much would useful furniture cost compared to renting a bigger place??

[Laura33]

I just like the peace of mind and flexibility associated with being FIRE-ready. Also I am a bit concerned about AI, wondering if this will make future job prospects worse - so accumulating capital now seems sensible to me.

. . . .

Our current apartment always feels like a temporary solution - hence we are hesitant to invest in proper furnishing etc (you know, because we could be moving somewhere else in 6-12 months). Also would be better for our kid to have a stable neighborhood gang of kids to hang out with.

The big point is: Right now the value of a bigger house is high to us (lots of kids stuff, maybe easier to decompress from a demanding job in the evening / on weekends with more space).

In a SHTF scenario, we could downsize again, or even (in the worst case) move in to the apartment I'm currently renting out (small, but livable if needed). If we move there, we'd be immediately FIRE-ready already today.

I guess I am mainly questioning my quest for "FIRE-ready as soon as possible", as a trade-off with a better living situation / lifestyle. . . . 

If I don't actually RE, does it matter? The last few years have felt like I was going all in with work, but not getting anything "nice" for it (except for a bigger portfolio).

Disconnected thoughts:

You do not "invest" in nicer furniture.  It's 100% consumption -- can be necessary consumption, can be $ or $$$$$ consumption, but it's still consumption.  Be careful how you talk to yourself about things.  Words matter.

Of course FI matters even if you don't RE.  As someone who had to sell the house she built and planned to live in forever because the economy crashed and the jobs went away, let me tell you:  getting to the point where I realized I would never have to move again if I didn't want to was unbelievably powerful.  FI is what gives you the freedom to decide whether you want to work, and if so, under what conditions. 

You're not getting "nothing" for your current efforts.  You're buying your family a huge security blanket, and yourself freedom from financial worries.  I'd call that pretty damn "nice" -- it's just not as tangible as all the consumer stuff we're enticed to "invest" in.  Again, words matter, so be careful how you use yours.  It's sort of like building a house.  No one gets excited by top-notch insulation, because we'd all rather look at pretty cabinets.  But boy does that insulation make your life better every single day. [AMHIK]

Wanting a neighborhood for your kids and a sense of permanence is an entirely valid goal that merits respect and consideration.  You need a place or way to feel like you're living your actual life, not just existing in a holding pattern on the way to somewhere else.  Maybe you can re-think things and find a way to be happy where you are now; maybe you really want to move to somewhere that will suit your family better for the longer term.  Look at all the options, choose one, then figure out how to make that happen.

IOW, you have two entirely valid, competing goals:  financial security; and a long-term family home and neighborhood to raise your kids in.  It sounds very much like you have been focusing on the former, and now you are feeling like you have ignored the latter for too long.  If so, it would be entirely reasonable to decide that you have built enough of a safety net for now; you've already said you're lean-FI now and so would be ok if the SHTF, which is a very good place to be.  So if you're feeling out of balance on reaching both of your goals, it's ok to divert some of that extra money toward renting a different apartment in the location where you want to raise your kids.  (Added benefit that, because you're renting, you can move and downsize again somewhere smaller/less expensive once the kids are out of the house).

[Sibley]

Ok, you definitely need to declutter. You don't need more space. You need less stuff, and maybe a different space. But, right now you can't see that because you're just overwhelmed.

And, dial back a bit at work. You're out of balance, so adjust the balance.

Any advice, besides watching Marie Kondo? Maybe we'll actually just do that and throw away 30% of our stuff (as a goal) and see what it does :)
If we stay, we'll also need more smart furniture (adding some built-in cabinets etc) - just have been hesitating with this due to the perpetual "temporary living" feeling. Maybe that is actually our main problem...

Very generally:

Clothing: if it doesn't fit, get rid of it.
Kid stuff: if its outgrown (development, size, interests), get rid of it.
Everything else: if you haven't used it in a year, do you really need it? If you forgot you had it, do you really need it? Is it working? Do you have multiples/need multiples?
Paperwork: some stuff you need to keep for legal/tax reasons, but even that has an expiration date. Are things available online? Can you digitize?

Beyond that, there's an element of what do you prioritize? You don't have to get rid of everything. But you should make conscious decisions of "I want this thing, so I will make sure it has a place".

And, try to reduce the flow of stuff coming in. Prevention is so much easier than the cure.

There's a bunch of different methods, do what works for you. There's a decluttering thread as well.

[Freedomin5]

What I am reading is that:

1. You want to stay long-term in this town.
2. You are looking to buy.
3. Housing is very expensive.
4. Renting the bigger apartment will cost an extra 24k a year.

So if your goal is to eventually buy, it doesn’t make sense to divert an extra 24k a year away from saving for your down payment as that moves you away from achieving your long term goal.

Also, it sounds like you have too much stuff. Spending some time decluttering would actually move you closer towards your goal in more ways than one. It would save you 24k a year if you can stay in your current apartment. Being able to live comfortably in a smaller place means that you don’t have to purchase as large a home. A smaller home costs less than a large home, requiring a smaller down payment, which means that you could afford to buy a place sooner.

And once you declutter, I suspect you will feel more comfortable and less stressed in your current space. Because it doesn’t sound like a larger space will solve your problem. What usually happens is that your stuff grows to fit the space you have.

Josh Becker wrote a book and has a website about becoming minimalist. Becoming Minimalist is designed to inspire people to pursue their greatest passions by owning fewer possessions. Articles that you might find particularly helpful is the one on 7 steps to decluttering your life and the one titled “Clutter-free with kids”.

https://www.becomingminimalist.com/becoming-minimalist-start-here/

[MaybeBabyMustache]

I've decluttered our house for every move we've made (two large moves) & have goals to get rid of X number of items each month, year, etc. Mostly because clutter drives me bananas. Here's how we approach.

1) Find the hot spots in your house, where clutter goes to die. Focus there as a starting point. Make it a goal to touch each item in these hot spots, and either put them in a correct location, toss or donate. Sell, if you feel up to it/they have value.
2) Kid items are typically a good source, as they grow, their needs change, their interests adapt. Same philosophy as above.
3) Ask yourself if you are storing the right amount of paper work. If not, shred, create a better filing system, etc.
4) Decorations. I'm not a decoration person, so we've donated everything except one small storage bin of Christmas decorations (plus artificial tree in the attic) & our Halloween candy bowl. These items can often take up a ton of space, and are they really adding any value to you?
5) Tools, cleaning supplies, etc. Same questions as above.
6) Then I take a room by room approach, and go deeper into every cupboard, drawer, closet, etc. I have asked myself about the utilization of basically every item in our house. If we are using it, fabulous. If not, I consider how to better use it, or how to get rid of it.

[Moonwaves]

I am currently following someone on instagram (she's based in the US) who is on about day 102 of decluttering and she is doing it by tacking one shelf or one cupboard or one box or whatever at a time, usually about 20 minutes every evening because that was the only time she felt she would consistently have. It is amazing what you can do in a short focused amount of time. And absolutely fascinating to me how much space she has. Like, she has a one-car and a two-car garage but is only now getting close to being able to maybe park one car inside again.

So that's another idea for decluttering. Set a timer every day for 15 or 20 minutes, choose one shelf or whatever and go through everything. Also a great way to get the spring cleaning done, since you'll be removing everything anyway so it's easy to then clean the cupboard or shelf or whatever.

You could move into the apartment you own and not have to work again so congratulations, you are already FI. Now you get to make decisions not necessarily based on the financial need to keep working. That means doing the hard work of deciding exactly what the values are you want to live your live in accordance with. You and your spouse need to decide what's important to your life and your family and that probably means having many long conversations.

Presumably you have a standard rental contract with three-months notice so even if you found the perfect place today you might not be moving for three months. That's definitely long enough to get some decluttering done. And honestly, if you can afford it, making your current space work for you instead of treating it as temporary is worth a lot. You don't have to do everything high-end, you could even DIY a lot if you wanted to, but making your space work for you is a skill that does need to be learned and practiced so even if you do end up moving, none of that effort will be going to waste.

[Sibley]

Also: moving is hard work. The more stuff you have, the harder the move is. More stuff means more time, more boxes, more tape, bigger truck, etc. It's more money. Which means, you WANT to declutter before moving.

Basically, you have EVERY reason to go through and reduce the stuff. Whatever ends up happening later on, less stuff will make it easier.

[Dee18]

You are seeking more space, more daylight, and a better build. You also want a "stable" place for your child, but seem to like the location as you say, "Found a really nice one close by." I have two conflicting thoughts. 

First, I over-saved for retirement by always making the cost efficient choice along the way, sometimes denying myself something I really wanted and could afford.  That leads me to advise people to spend more money along the way if it will truly make them happy.

On the other hand, I think 1100 square feet in a HCOL city is perfect for a family of 3.  More space often leads to more stuff, more to maintain, and more additional expenses than just the rent.  If the additional space you want is because of accumulated stuff, I agree with others that decluttering is a better solution.  The "more daylight" speaks to me, but I found in a previous house that investing in good/more lighting really made a difference for that. If you've tried that and it isn't enough, then this alone could be reason to move. "Better build" is something I cared about when owning a home because I didn't want maintenance issues.  When renting I've found that a few inexpensive purchases of my own could make a big difference in how a place felt.  Over my rental years I've: replaced shower heads to make the bath exactly how I want, added shelving to closets, added magnetic knife racks to my kitchen (using Command Strips which are totally removable but strong enough to do the job), purchased an IKEA "loft" bed for my 5 year old so there was room to play underneath, and painted rooms (with the landlord's permission).

Best of luck with your decision.

[lhamo]

In addition to decluttering, which will dramatically change how you experience the current space, maybe you could think about taking incremental portions of what you are prepared to pay in additional rent and use those toward things that will increase your quality of life without increasing the costs perpetually.  Those might include:

Furniture that is better quality/appropriately sized to your space (do not underestimate what you can get for cheap or free, though)

Better storage solutions for the things that you do decide are worth keeping

Perhaps off-site storage for less-frequently used items you still think are worth keeping

Splurging on more shared experiences that help you build relationships/community for your kid.  Maybe this is joining a local community or rec center/signing them up for classes there.  Or hosting picnics or potlucks in a local park. 

Personally I would probably start with spending 10% of what your increased rent would be, and see how that feels. 

[mucstache]

Thank you very much - this is why I love this forum. Great perspectives.
Most likely we will not take the bigger house and will try to make it work here (see below), while monitoring the market (if something absolutely stunning and perfect with reasonable price comes along, otherwise we just stay put).

@Dee18
We are trying lighting, but the things we've tried (Philips Hue lamps) don't feel like natural sunlight, just a bit artificial. Do you have any suggestions?

@lhamo
I like this approach a lot. We'll try that, it gives us about $200 per month to work with, which is a lot to fix things. Thanks!

@Moonwaves and @MaybeBabyMustache
Good idea, will try this approach. Some resistance from DW, but will get there :)

@Freedomin5
Thanks for the suggestions. I started reading one of Joshua's books and it is inspiring to try another way (vs more accumulation). Definitely the challenge is the attitude (all of us) - "what if we need xyz in the future again? We'll have to repurchase it". Need to overcome this, as for most things the cost to repurchase times the small likelihood it actually happens results in an expected cost that is usually pretty low. Much better to get the benefit of a cleaner home, which is worth much more.

@Laura33
Absolutely right regarding "investing" - it is not investing. Funny how I got sucked into this thinking, despite having read all of MMMs articles :) This is why I come here, a face punch is needed every once in a while I guess!

[jeninco]

More on the mechanics of decluttering:
Take out all your clothing and pile it on the bed. Get rid of anything that doesn't fit, that you don't like, that's worn out. Get rid of things that you just don't wear. Going forward, keep a bag in your close, and when you pull out something, look at it, and decide "nah" put it in the bag. That thing doesn't need to be in your life. Also, get rid of anything that makes you feel ugly, dowdy, or unattractive.

Institute a "one in, one out" (or "one in, two out" ) rule for most things. Only buy a new (whatever) if you're willing to get rid of at least one (whatever). You almost certainly already have enough of them.

The only problem with going through, say, a drawer at a time is that it doesn't give you a chance to see what you already have. So, for instance, if you're sorting through wine openers, make sure you put EVERY SINGLE wine opener you own in one place, and then make a decision about how many you actually need, and which one (or two) you're going to keep. I very strongly suggest sorting stuff by type and/or function, rather than by location. (This does mean that when you're sorting through, say, coats, you have to gather them up from all their locations -- front closet, bedroom wardrobe, wherever else you keep them -- so you can see them all at once.)

If you're really having a problem with lighting, you can look for a "SAD light" and sit by that in the mornings. Or go for a walk first thing!

[Freedomin5]

what if we need xyz in the future again? We'll have to repurchase it

The way I look at this is: How many xyz can I purchase with the extra $24k I’m spending each year to rent a bigger place to store xyz?

[beekayworld]

@Freedomin5
Thanks for the suggestions. I started reading one of Joshua's books and it is inspiring to try another way (vs more accumulation). Definitely the challenge is the attitude (all of us) - "what if we need xyz in the future again? We'll have to repurchase it". Need to overcome this, as for most things the cost to repurchase times the small likelihood it actually happens results in an expected cost that is usually pretty low. Much better to get the benefit of a cleaner home, which is worth much more.

Dawn, the Minimal Mom on Youtube said she gave away/threw out anything she wasn't sure she wanted to keep if it could be replaced for $20 or less.

She threw out 1,000 things! You might think "That's $20,000. That's a lot of money!" but she only ever needed to replace ONE thing out of the 1,000 not all thousand. They'd thrown away any chargers/adaptors if they didn't know what they went with. A couple of years later they wanted to sell a digital camera and realized they didn't have the charger to sell with it.

She was able to buy the correct charger (to sell as a set with the camera) for $12 on Amazon. It was worth the $12 to not have to keep mental inventory of the 1,000 things because there was no way of knowing which one of the 1,000 things she would later want to replace.

[leevs11]

1100 sq ft for 3 people is not bad. It's not great, but you'll survive. Can you move to a similar sized/priced place with better windows and storage?

Personally I'd vote to stay where you are and save towards being able to purchase the home you want instead of renting this nicer home. This is what I did. We lived in 1 br apartments for years and then paid for our dream home in a lower cost area in cash. Totally worth waiting. Plus now I get all the projects I want.

Rent is tough. It's totally worth it in HCOL areas if your income is also high. If not it isn't always worth it