I work in Boulder, CO, and I'm thinking about buying a house here. Am I making a mistake?
I'm 28, and I have about $200k in assets, mostly index funds, including retirement and non retirement accounts. My annual income is $95,000. I don't have any debt.
I found a townhouse for $450,000. It has more than enough space: 3 bedrooms, 1350 square feet, and a garage. Most smaller places are condos with insane HOA fees ($400 a month is common for condos here), don't have a garage, etc. Plus, condos haven't held their value quite as well as townhouses and detached housed.
That's insanely expensive (a friend in a suburb on the east coast bought a similar place for 1/3 the price), but prices have never fallen in Boulder in the past few decades, and the population of the front range of Colorado is expected to continue growing quickly. The open space, bike paths, and nice weather make it a desirable place to live, and the draconian building restrictions contribute to high housing prices. The only macroeconomic things I can think of that would cause it to lose value would be if interest rates rise significantly, if we have a period of deflation, or if incomes fall for some reason. And if I lose my job I'd be burning through savings quickly until I can find another source of income and/or sell.
If I buy this, my mortgage will be about $2400 a month (including property tax, HOA fee ~$200 a month, insurance), and let's say utilities are $200 a month (it should be less, but I'm not sure.). Deducting mortgage interest and property tax should save me about $300 a month on taxes compared to my current situation.
I'll have to run the numbers on savings rate later, but if I buy this my savings rate will fall to around 33%. It was just below 50% for a while, but I recently paid off my car loan and got a raise, and I haven't recalculated recently, so it is probably higher right now. 33% doesn't look good for FIRE, but there's no reason I need to retire in this house. If I'm not working I could easily live in Longmont or a similar area with lower cost of housing.
So in terms of cash flow, buying this house will be detrimental to early retirement, but can I justify it if I think of it as an investment?
Boulder vs Alternatives
The benefits of living here are a 10 minute bike ride to work, and I can easily bike to various stores. Living just outside of Boulder it's a 30-40 minute bike ride or 15-30 minute drive to work. Free time is important to me, so having an extra 40+ minutes a day is worth something, and being able to bike 3-5 days a week is really relaxing. Right now I'm living just outside of Boulder, and I've been able to bike less than once a week because of various things I need to do after work that are not near where I live
One alternative is I could find a job somewhere cheaper to live, but I do enjoy living here, and my job now is fairly good. Another alternative would be living in Longmont and working in Boulder, but that would be a commute of at least 30 minutes each way, which sounds miserable.
Rent vs Buy
Similar houses rent for $1900-2200 a month, and according to the NYT rent vs buy calculator, if I stay for 3 years, renting is better only if rent is less than $1900 a month. If I was renting I could probably live with a little less space, so I could rent a 1 bedroom apartment for $1300-1500 a month. If I stay for 5-9 years then buying is (slightly) better than renting at $1300-1500. There's a lot of uncertainty in the assumption about future appreciation, rents, and investment returns, but this is with reasonable values (not conservative or aggressive). So by that metric at least it's not a bad deal.