Author Topic: Blank Canvas  (Read 3236 times)

Wire-E

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Blank Canvas
« on: September 29, 2013, 11:59:13 AM »
Mustachians,

Good afternoon.
I am standing at a crossroads at current and have some exciting (and maybe a little daunting) prospects to which you might direct your thoughts/advice.
A little background:

I am a 30 year old electrician, full time employee, making $45k+ per year gross.
My wife, same age, works part time from home. She earns our full health care coverage and $20k+ per year gross.
We have a 1 year old baby, and another bundle coming in 8 months.
2 years ago, we paid off all our debt except our mortgage.
3 months ago, we sold our house because it was too far away from my work, too far from our friends, and too expensive.
We're currently renting an awesome beach house month to month for $1000/month including utilities, and are saving $1500/month.
We have two very reliable cars, a 2009 and a 2004...both in great shape, fully paid for.
We have $40k in the bank.
We have $25k in retirement/ira savings.

Here's the crossroads:
We're looking for a house potentially 2 or less miles from where I start work everyday. If we can live that close, I can keep the company vehicle at home, or bike to work, resulting in a low to zero commute cost.
Our target house price is between $150k to $275k...depending on whether it's a single family or multi-family.
I'm extremely handy, having built several log cabins, owned a 4-plex for 2 years in my early 20's, and work everyday as a trade professional. So getting something that needs work is viable and cost effective.
However, here's my question:

What's the best thing to do with this position we're in? I could see doing several things:

1. Keep renting for awhile and build up some serious savings...potentially we'd be at over $55k by May (after tax return and monthly savings accumulate. But what then?

2. Buy a duplex and force appreciation, living in one side, and renting out the other.

3. Buy a single family that doesn't need much work and accumulate overtime pay (I can typically work as much as I want) to boost income.

4. Something else...


Frankies Girl

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Re: Blank Canvas
« Reply #1 on: September 29, 2013, 12:15:03 PM »
I honestly don't know what would be best, but wanted to say good for you that you're in such great shape financially that you have this sort of decision to make. Good job!

I think as far as your choices, if it was me in the same position, I'd locate a fantastically priced and well-located fixer-up (since you have the skills) and get a super deal on a house that you can improve on yourself (looking at the low end or even under what your range is). Then you could really ramp up your savings/investing rates and maybe in a year or two, purchase another fixer-upper as a rental (again, since you've had that experience and have the skills as well).

I also think the duplex idea is a strong front-runner as well.


Kira

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Re: Blank Canvas
« Reply #2 on: September 29, 2013, 12:59:18 PM »
I'm assuming that with two small children, you're not going to want to move into a house that needs serious work - work that has to be done while you're living in it! I see a middle path here - buy a duplex that needs some work, and live in whichever side needs less work while fixing up the worse side. Then switch sides (much easier moving from one side to the other than from miles away!) and fix up the second side. At that point you can live in the side you like better and rent out the other.

You mentioned that you can work pretty much as much as you want - so I might think about how much work you expect to put into the house and whether that works out to be better for you than just putting in more overtime. If you live in the house you fix up for long enough, you won't owe taxes on the increase in value, which is also something to consider. It sounds like you think that fixing up a house will net you more than just working more hours - I tend to think more about quality of life than just dollars though and if this were me, I'd lean more towards fixing up the house because you can do that on your own schedule and be home (or at least around) more.

MsSindy

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Re: Blank Canvas
« Reply #3 on: September 30, 2013, 08:48:47 AM »
Since you haven't bought the house yet, I would ask you to challenge yourself a bit on WHY you want to OWN a house?  What are your goals?  Is it to reach FI?  or just be comfortable (low debt, nice chunk of  savings)?  Are you buying a house because that's what you're suppose to do - get married, have babies, buy house.

The reason I ask you to think about your goal, is that your down payment and closing costs will suck up just about all of your savings and you will need to rebuild your 'stache from zero - how many years will you have lost that your stache is no longer working for you, how far does that push out FI (if that's your goal).  Play with Excel a bit and look at different scenarios.

Having your goals clearly in your mind will help you make a clearer decision, and one that is based less on emotions, but more in line with what you want to accomplish in the next 5 - 10 years.

Kira

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Re: Blank Canvas
« Reply #4 on: September 30, 2013, 01:06:15 PM »
The reason I ask you to think about your goal, is that your down payment and closing costs will suck up just about all of your savings and you will need to rebuild your 'stache from zero - how many years will you have lost that your stache is no longer working for you, how far does that push out FI (if that's your goal).  Play with Excel a bit and look at different scenarios.

I would argue that in fact the 'stache is working even harder than it was, as part of home equity that's allowing him to purchase a home that he can fix up and either rent out or sell for a tidy profit in several years. It will take some time to get a good amount of cash in the bank again, but I think that this is actually quite a good investment since he has a ton of skills to bring to the table and can do a nice renovation without a lot of labor costs.

MsSindy

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Re: Blank Canvas
« Reply #5 on: September 30, 2013, 01:53:54 PM »
The reason I ask you to think about your goal, is that your down payment and closing costs will suck up just about all of your savings and you will need to rebuild your 'stache from zero - how many years will you have lost that your stache is no longer working for you, how far does that push out FI (if that's your goal).  Play with Excel a bit and look at different scenarios.

I would argue that in fact the 'stache is working even harder than it was, as part of home equity that's allowing him to purchase a home that he can fix up and either rent out or sell for a tidy profit in several years. It will take some time to get a good amount of cash in the bank again, but I think that this is actually quite a good investment since he has a ton of skills to bring to the table and can do a nice renovation without a lot of labor costs.

Possibly, yes!  That's why I asked what the goal is - once the OP is clear on their goal, then it makes the decision a bit more focused.  Meaning, are you looking at your forever home, or as a way to make money (flip after a year or two); would you hate living in a duplex, do you want to be a landlord (with your tenant living next door), or do you stay renting and buy a rental with the stache?  Lots of options, all depends on what the goals is.

Wire-E

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Re: Blank Canvas
« Reply #6 on: September 30, 2013, 02:48:21 PM »
MsSindy and All,

These are great comments/questions. Thanks for them.
As I mull these things over (and define my goals), I at least want to incorporate into the discussion speculation on what alternatives you have in mind for my 'stache.

What else could I do with $40k and counting that would be even better/more profitable than owning?
A couple parameters I'd insert are that I can potentially put off owning for 2 years from now, so I can tie up the 'stache in an investment for that period, but at some point (possibly during that 2 years) I'd like to have the liquidity to move quickly when the right property, investment or otherwise, comes down the pike.

More after I end the working day.

Thanks.


SunshineGirl

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Re: Blank Canvas
« Reply #7 on: September 30, 2013, 04:22:28 PM »
Since you already have a great living situation, I'd just keep accumulating money for a few years and not change it.