Case Study - Married couple toying whether to rent or buy in Boulder, CO

[olliecjb]

Evening all. My wife and I have been debating back and forth since the latest MMM post regarding whether to rent or buy. I've listed our details/financials below and we believe we're largely on the right track despite being slow starters. We live in Boulder, CO both with jobs downtown. We both cycle to work every day. We want to stay close to where we work. I commuted for four years (30 minutes each way) and not having that drive any more has been huge for my mental (and physical well being).

Life Situation: Married filing jointly. Me = 30. Her = 24.
Gross Salary/Wages: Me = $75k. Her = $52k
Pre-tax deductions: Both contribute 10% to 401k. Hers comes with a 5% match, mine doesn't match at all.
Current 401k accounts: Me = $7.5k. Her = $5k (both slow starters here).
Other Ordinary Income: Both have a Roth IRA with Vanguard maxed out for 2015 ($5500 each).
Checking Account = $5k
Emergency Fund = $15k
Downpayment Fund = $7k
Car Debt = $20k (5% paying $510 a month. Will be paid off February 2019. Bought when we weren't financially savvy at all).
No Credit Card debt nor Student Loans.

Typically we have $2-2.5k per month to add to our downpayment fund. We're happy with where our savings rate lies (though it could of course be better) but with property pricing being so high in our area we're seriously considering renting just what we need.

Rent in our existing 1 bedroom 700 sq ft apartment is $1.3k including all utilities. It'd be nice to have a second bedroom but in the area they would likely increase rent in Boulder to $2k per month. We love the area, the schools in the area are fantastic (we plan on having two children in the next 3-5 years) but we aren't necessarily tied to staying here. With Google bringing many employees to the area and the housing market largely being a bubble, it is hard to find good housing in the area for less than $400k (and likely looking to $500k). The areas in the surrounding communities aren't cheap either (Longmont is still somewhat affordable) and we definitely don't want to commute.

I have the flexibility to work remotely though the wife has to report in to the office every day (loves her job and is in a good position for future growth and increased salary in her field). We haven't ruled out moving elsewhere down the line/should a better work opportunity crop up. We do worry though if we don't purchase in Boulder in the near future then there would be no chance we could buy in this location in coming years.

It leaves us two options:
1) Save harder and aim to have 10%/40k ready for purchase a year away from now.
2) Continue renting what we need/rent a larger place when we have kids (i.e. just rent what we need).

It would be nice to have our own place though with her family in MN and mine in the UK we can't 100% commit to being in CO forever due to possible family circumstances such as illness and the like. The wife would like a garden to grow her own produce though a community garden would work too.

The pros I see with renting would be that we aren't tied down and we could only rent what we need. The money we're saving every month for a downpayment could then be invested right away and we would build our net worth a hell of a lot quicker. We just worry that renting is throwing money away (everyone says you need to buy and it's preached to us by family members and society all the time).

Irregardless we have to rent for the next year whilst we save but what would you do? Continue renting and start investing or keep saving for a downpayment and try to live in the city or just move elsewhere despite promising career paths?

Thanks!

[Able was I ERE]

I'd suggest continuing to rent, since you appear to be uncertain whether you'll live here long-term and the numbers appear to be favorable towards renting.   Have you looked at the numbers from a Rent or Buy calculator?

We just worry that renting is throwing money away (everyone says you need to buy and it's preached to us by family members and society all the time).

You're trading your money for a place to live.  Here are some links from another thread about why you might want to stay renting.    If you want a real estate investment, buy an REIT or buy a property in a location where the numbers make sense to be a landlord. 

there would be no chance we could buy in this location in coming years.

Possibly.  But also possible that the market will tank and you'd be unable/unwilling to move due to being underwater on your property, reducing your flexibility to move elsewhere for better job prospects. 

[Scarter]

I agree with Able was I ERE.  Rent until your family grows and you decide to stay in Boulder. 

Just a question, if you both cycle to work, why have a car with a car payment.  Wouldn't a used, but still reliable car, be good enough?  I assume you need the car for longer trips but not for the everyday commute.  That may just reduce your expenses by $510 a month.  You will look much better, financially, on a loan application without car payment (debt ratio will be much lower) when you are ready to buy a home.  Sorry for that punch to the face!

What a great dilemma to have!   

[2Birds1Stone]

100% for the rent option. Especially since you don't plan on staying here forever.

[thedayisbrave]

Rent! I'd look at re-financing or trading down or aggressively paying off that car loan though, yuck.

[olliecjb]

Thank you for the feedback Mustachians. We will likely look to pay the car debt down and also open a college fund for our future sprogs.

In the mean time, would you recommend continuing to save for a downpayment in case we choose to purchase in the future or simply go ahead and invest the downpayment fund (likely increase 401k contributions/try to max out for the year or get close to)?

[Easye418]

Evening all. My wife and I have been debating back and forth since the latest MMM post regarding whether to rent or buy. I've listed our details/financials below and we believe we're largely on the right track despite being slow starters. We live in Boulder, CO both with jobs downtown. We both cycle to work every day. We want to stay close to where we work. I commuted for four years (30 minutes each way) and not having that drive any more has been huge for my mental (and physical well being).

Life Situation: Married filing jointly. Me = 30. Her = 24.
Gross Salary/Wages: Me = $75k. Her = $52k
Pre-tax deductions: Both contribute 10% to 401k. Hers comes with a 5% match, mine doesn't match at all.
Current 401k accounts: Me = $7.5k. Her = $5k (both slow starters here).
Other Ordinary Income: Both have a Roth IRA with Vanguard maxed out for 2015 ($5500 each).
Checking Account = $5k
Emergency Fund = $15k
Downpayment Fund = $7k
Car Debt = $20k (5% paying $510 a month. Will be paid off February 2019. Bought when we weren't financially savvy at all).
No Credit Card debt nor Student Loans.

Typically we have $2-2.5k per month to add to our downpayment fund. We're happy with where our savings rate lies (though it could of course be better) but with property pricing being so high in our area we're seriously considering renting just what we need.

Rent in our existing 1 bedroom 700 sq ft apartment is $1.3k including all utilities. It'd be nice to have a second bedroom but in the area they would likely increase rent in Boulder to $2k per month. We love the area, the schools in the area are fantastic (we plan on having two children in the next 3-5 years) but we aren't necessarily tied to staying here. With Google bringing many employees to the area and the housing market largely being a bubble, it is hard to find good housing in the area for less than $400k (and likely looking to $500k). The areas in the surrounding communities aren't cheap either (Longmont is still somewhat affordable) and we definitely don't want to commute.

I have the flexibility to work remotely though the wife has to report in to the office every day (loves her job and is in a good position for future growth and increased salary in her field). We haven't ruled out moving elsewhere down the line/should a better work opportunity crop up. We do worry though if we don't purchase in Boulder in the near future then there would be no chance we could buy in this location in coming years.

It leaves us two options:
1) Save harder and aim to have 10%/40k ready for purchase a year away from now.
2) Continue renting what we need/rent a larger place when we have kids (i.e. just rent what we need).

It would be nice to have our own place though with her family in MN and mine in the UK we can't 100% commit to being in CO forever due to possible family circumstances such as illness and the like. The wife would like a garden to grow her own produce though a community garden would work too.

The pros I see with renting would be that we aren't tied down and we could only rent what we need. The money we're saving every month for a downpayment could then be invested right away and we would build our net worth a hell of a lot quicker. We just worry that renting is throwing money away (everyone says you need to buy and it's preached to us by family members and society all the time).

Irregardless we have to rent for the next year whilst we save but what would you do? Continue renting and start investing or keep saving for a downpayment and try to live in the city or just move elsewhere despite promising career paths?

Thanks!

Well, if you aren't sure you will be there long, continue to rent.  $1.3k is really expensive (in my opinion).

Why would you start saving for a college fund before maxing out your 401k contributions to $18k a year?

[olliecjb]

Good point. I wasn't aware if there was a college fund that would bring a tax break. Maxing out 401k account goes to the top then.

$1.3k is very cheap for Boulder particularly as that includes all of our utilities and we are in a great location. The sheer number of tech jobs and students here mean our price is undervalued in comparison to other similar rentals.

[abo]

Bump.

[jjcamembert]

I've recently been debating the same question (in Boulder). If you move out of "downtown" Boulder you can find some rentals for cheaper. I rent a 2BR 1000 sqft for $1300 in north Boulder, and I take the bus or bike to work every day to south Boulder. I imagine you could get a 1BR for about $1000 or less further from the center.

If you are ok with living in a condo, I think buying in Boulder is possible. Otherwise, even after running the http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/ numbers, my FIRE date is still closer buying a cheaper house outside Boulder. I said "cheaper", not "same price as Boulder but enormous" ;)  The reasons I went with a cheaper house are 1) I don't have all my investment money tied up in the house, and so I can access it when I need it for FIRE 2) my mortgage payments are lower, so I can live off less each month (and save more), and 3) lower property taxes. So even though I'm now looking at buying a car and commuting (and crying a little inside at my non-mustachian decision), the overall difference gets me to FIRE faster, which eventually means less commuting in general.

And finally, to better answer your question, when I was running my calculations it was actually preferable or at least break-even to keep renting for several more years (because of the higher savings rate). So no rush, get your finances together and then see what your situation is. The buying experience in CO sucks right now anyway; expect to be outbid by people paying 10% more than you in all cash.

[olliecjb]

Thank you JMJ for your response. We'll keep saving and keep an eye on the housing situation.

[robartsd]

I would not be saving for a possible down payment before maxing out retirement accounts - you can raid the Roth for the down payment if you change your mind later; but you can't make up the missed opportunity to contribute to tax advantaged funds if you you were saving for a down payment and later decide not to buy.