Author Topic: Evaluating quality of commute + house cost  (Read 5035 times)

mandelbrot

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Evaluating quality of commute + house cost
« on: May 05, 2013, 01:36:10 PM »
I might be inviting some coarse criticism here, but will do my best to stay within Mustachian bounds. At 8 months old, I'm still a very young mustachian you see.

My wife and I are looking into buying our first home. We're in our mid 20s and have a small 'stache mainly built up from some generous wedding gifts. We're in an extremely fast and competitive seller's market here in Austin, where "good" houses will be gone in 8 hours or two days. Luckily my mother-in-law is our realtor and she's available to help us pounce on any house as soon as it comes available to view.

I've shopped around for lenders and have nailed what seem to me to be pretty good offers on 30yr fixed loans at around 3.25 or 3.3%, for home purchase prices ranging from $150k up to about $225k.

As an additional note, housing costs within the city limits of Austin are climbing like mad. One of the main reasons we're considering a home in this market is that (A) certain parts of the city are gentrifying / appreciating quickly, and might actually yield a decent return, and (B) our rental costs are going to keep going up and up.

Final note: my wife currently works from home, so her commute is immaterial right now. That could be changing, but for now it is moot.

That's the background, now for our quandary:
I've got a new job on the south-central side of town. At my old job I was expertly positioned to bike to it in 11 minutes, which was awesome. Now I have to drive 8.5 miles, and Austin rush hour traffic is bad. Average roundtrip time is about 1hr or 1.5 hrs. That's moderate by typical American standards, but of course we are not satisfied with "typical" around here.

Now -- my new job was a great find, and I could see myself staying there for 2-3 years easy, if not much longer. There's great room for growth, challenge, and income, so I think I'll be there for a while.

I'd like to move closer to work with our new home. Everyone here knows that a shorter commute is both cheaper and yields better quality of life. I'd *love* to be able to bike to work, aka a radius of say ~5-6 miles from our the job. Trouble is, the only parts of town that we can afford within that radius, we're either buying much less house, a much crappier house, or we have to get really lucky and beat the swarm of investors and other better-experienced buyers with which we are competing.

To demonstrate the difference we're looking at, here are some examples:
Within the bike-able parts of town
Best case scenario
Here's an example of a house we wish we could have pounced on, but it was gone just hours after it came on the market: http://www.trulia.com/property/3056397867-2535-Sol-Wilson-Ave-Austin-TX-78702

The bike ride from that place to my new office would be about 40 minutes one-way. That's a fair time investment, but of course the ROI from biking is, as we know, quite good.

The home is in great condition, is plenty big enough, sold for within our price range, and has a great yard with space for our dreamy aspirations such as a garden, chicken coop, or simply enjoying some green space for a change.

More typical scenario
http://www.trulia.com/property/1096311681-2953-Higgins-St-Austin-TX-78722

A bit cheaper but basically representative of the middle of our price range for the area of town we're looking at. Location is basically equivalent to the previous example, but obviously the home is nothing to be particularly excited about. It's simply okay, and basically all the value we'd be paying for would be the land / location. Suffice it to say it's far-less move-in ready than the previous home. Even just a simple upgrading of the space available in the kitchen would likely be necessary just to accommodate moderate Mustachian food habits like buying in bulk, lots of freezer space, etc.

So, with both of these examples, my commute would be just fine. 1.25 hours a day on a bike through the great River District of Austin to get to my office sounds fantastic.

Now, on the other hand ...

The Not-Bikeable (north-central) part of town
Further north we have frequent housing choices come up like this one:
http://www.trulia.com/property/1091555834-1315-Neans-Dr-Austin-TX-78758

To us, that house looks awesome. It has more than enough space for everything. So much space, perhaps, that we could even consider having some of our young-married-friends come share the space with us, and get significant rental cashflow out of it. We'd love to do that *anywhere* that we live, but within the aforementioned Bikeable Zone, I don't think we can afford a property large enough to yield rental cashflow.

#######

Discussion
Anyway -- personal or aesthetic taste aside, I think the disparity in value per location is pretty evident. The very first house (Best Case Scenario) in the bikeable zone is certainly possible, but we are just not sure we'll ever be able to win on a house like that. Such a house only comes along in the Austin market maybe 2-3 times a month, and it's gone almost as soon as it arrives. We're nervous and not optimistic about winning that battle, esp. since we're hoping to have a house under contract by early July, since our rental lease expires in August.

Transit from the north end
If I were to commute by car from the 1315 Neans house shown above, it would probably be 1hr minimum roundtrip everyday, likely closer to 1.5 or even 2hrs on the worst of days. Blech.

There is another option, though. Austin does have a (somewhat shitty) rail system in recent years, and from the north end I can bike to one of the rail stations and ride most-of-the-way south toward my office. In that case, my total time in transit would still be about 1.5 hrs, but none of it would be in a car. The total monetary costs associated with this transit option would be, sadly, about equivalent -- I drive a very gas-thrifty Honda Fit and Austin is not a huge city; on the other hand, taking the train would cost something like $3.50/day. So, the change between these two would purely be the quality of the commute, as opposed to the time or fiscal cost.

#######

Conclusion
Need some help sorting this out. As you can see there are several problems I'm considering here.

One of them might simply be: maybe we need to find a way to keep renting for a while, build the 'stache, and forget about the (possible) trap of homebuying in this current market.

Or, if anyone has any other brilliant ideas about *any* of this, I am down to listen. You may not answer the question that I intended to ask, but perhaps you'll provide answers to question(s) that I ought to be asking.

Have at it! Slaps are okay. Thank you, all, for reading this rather long post.

mandelbrot

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Re: Evaluating quality of commute + house cost
« Reply #1 on: May 05, 2013, 02:24:35 PM »
And I guess I could help myself out by actually articulating my question a little more explicitly:
Given these two areas of town and the various costs / benefits, how would you solve the dilemma? What tools would you use to assess the personal costs / benefits for your life and family, etc.? Which area of town would you choose?

And again -- if there are flaws in my thinking that precede the actual question itself, it's fine to consider those as well. Perhaps my presuppositions are faulty. Etc.

Thanks again.

Another Reader

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Re: Evaluating quality of commute + house cost
« Reply #2 on: May 05, 2013, 02:32:27 PM »
Can you find an inexpensive rental near the new job?  I think a year of being in the job and getting to know the area would serve you well.  If you can find a duplex or a back house you could rent while trying out the area and building up your down payment, that might be a good approach.

I don't know how much down payment you have saved, but I can tell you that in bidding wars, offers from buyers with low down payments go to the bottom of the pile and offers with FHA loans go in the recycling bin.

mandelbrot

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Re: Evaluating quality of commute + house cost
« Reply #3 on: May 05, 2013, 02:43:16 PM »
Thanks AR! That's a helpful perspective.

Once we put our assets together we'll have about $30k to cover down payment and closing costs, maybe a bit more but not much. Certainly not enough to make 20% down, but high enough to get above 10% easily, and the couple of lenders that I've favored so far have been able to give me (what appear to be) encouraging quotes even with the low down payment amount.

I'm not sure if 10% - 15% down means we'd get shoved to the bottom of the drawer in a bidding war. Our hope would be to win with speed, by being (perhaps) the first to make an offer, if we found a real gem.

As for the suggestion of renting somewhere close by -- this is doable, sure, but we'd probably fork out $900/month at least, even for a 1 bedroom apt. I do happen to know the area pretty well, since I grew up in Austin on the south side of town, which happens to be across the highway from my new office.

But still, the suggestion of at least staying with the job for a year seems sensible. Still curious for other opinions, of course.

(but thanks AR :-)

Another Reader

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Re: Evaluating quality of commute + house cost
« Reply #4 on: May 05, 2013, 03:09:25 PM »
In a hot market, being first is often irrelevant.  Multiple offers on every desirable property is the rule here in Silicon Valley, and in Phoenix, where I invest.  Smart listing agents are collecting offers and starting bidding wars by asking for highest and best from the best qualified buyers.  I'll bet the houses that sold in 8 hours in Austin were for all cash, well above the list price.  Your MIL may be able to look up the recent closed sales to see what type of bid "won" in each case.  She can ask listing agents how many offers there were and how many were cash or more than 20 percent down. 

In this type of market, if I were a listing agent, I would advise my seller not to consider your offer if there were others from more qualified buyers.  You are not a sure bet to close.  A 50 percent cash down offer with no appraisal contingency at the same price is more likely to go through with no problem. 

mandelbrot

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Re: Evaluating quality of commute + house cost
« Reply #5 on: May 05, 2013, 03:13:30 PM »
Now THAT is some useful information. Hmm.. hmm indeed.

So basically this means we are likely out of luck in being able to win that gem, that elusive unicorn of a house that pops up 2-3 times a month in the BIKEABLE ZONE of Austin that I am coveting.

I'll have to ask our realtor if she can do the research you suggested. This might just be the bit of information we needed in order to make a truly informed decision. Thanks!

Dee18

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Re: Evaluating quality of commute + house cost
« Reply #6 on: May 05, 2013, 03:24:19 PM »
I have no advice but you did make me feel a lot better about living in a totally uncool town where I could afford a great house within two miles of work.  I've also thought Austin would be fun.....

Another Reader

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Re: Evaluating quality of commute + house cost
« Reply #7 on: May 05, 2013, 03:29:01 PM »
If your market is behaving like other hot markets with which I am familiar.  If your MIL is an active agent, she should be able to find out what is going on in your market.  IIRC, Texas is not big on disclosure, so sales info may be difficult to come by, depending on what is shown in the MLS about closed sales.

olivia

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Re: Evaluating quality of commute + house cost
« Reply #8 on: May 05, 2013, 03:39:10 PM »
What part of town do you actually want to live in?  Your job may change so as long as you're not going to give yourself an insane commute, I would consider that first.  I value location the most when I'm house hunting for myself because that affects my quality of life more than anything else.  I would start from there and see if you can buy in that location now, or if renting and saving more money for a down payment will allow you to buy in that location in a year or two.  I'm renting right now and saving so we can buy a place in exactly the location we want. 

And you may just have to be patient-in my last city we looked for over a year and a half because we wanted to live in a very specific "hot" part of town.  We put in offers on 3 places and got beat out, but ended up with the perfect place for us.  (It was incredibly overpriced and we made a realistic offer which the owner turned down.  We made the same realistic offer several months later when the house was still on the market and the owner accepted it.) 

Plus since it was in a good location, when we had to sell it in a year and a half for a move for my husband's promotion, we actually sold it for more than we paid because we had done a lot of mostly cosmetic work to it ourselves.  (My husband's company paid the closing costs so we ended up not losing money at all.)

mandelbrot

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Re: Evaluating quality of commute + house cost
« Reply #9 on: May 05, 2013, 07:28:10 PM »
Olivia,
That's helpful as well.

Trouble is, we're really not quite sure. Part of the attraction of getting into the aforementioned Bikeable Zone is that it's rapidly appreciating land, close enough to most things (including my new job), and anything in that area has great potential as an occasional rental property when we want to pull out of town for a week, because Austin hosts so many major regional events like SXSW, ACL, football games, etc.

But to be honest, we don't need to live there for many other reasons. We are not actually big on the downtown scene ourselves, but are more interested in the ease of commute, and the land value potential, that the area offers. Maybe this means it's actually silly for us to bother trying to live in that area of town -- but there again, I feel stuck with a long commute.

In other words, perhaps this post boils down to what you're supposed to do when your job is in a different part of town than where you'd otherwise choose to live, and whether there's much to be done about it. Truth be told I don't see myself leaving this company especially soon, although it's possible that after a year or two I may have ample opportunity to work from home and/or manage my own hours in such a way that I avoid the bulk of rush hour traffic. But, that's all hazy prediction rather than a scheduled certainty.

mlipps

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Re: Evaluating quality of commute + house cost
« Reply #10 on: May 05, 2013, 07:44:33 PM »
it's rapidly appreciating land

Personally, I think you should just erase this idea from your head. Don't buy a house based on it appreciating. The housing frenzy, even in "hot" markets, will have to come to an end eventually, just as it did in the rest of the country. There's no reason for this to be a factor in your decision.

mandelbrot

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Re: Evaluating quality of commute + house cost
« Reply #11 on: May 05, 2013, 07:49:56 PM »
Mlipps,
I've seen this advice in various forms throughout real estate writers on the web. I take it this perspective is tied into the idea that a home ought to better be considered an expense than an investment -- would you agree?

If you say we shouldn't consider that as part of the package, is that because you view a house's appreciation as basically something that is little better than chance, and that's why it should be ignored? Or are there other reasons to disregard it?

Just trying to understand, thanks for the help.


And perhaps I should add (!) ...
... We are actually anticipating that whatever house we get a hold of, we may only stay there for 3 years (at minimum) or perhaps 6-8 at the most. We're not even sure we're going to stay in Texas or even the USA for much longer than that. So, this is part of the reason that being able to rent out a part of the property to friends, thereby either building up the 'stache faster or building equity in the house faster, is an intended part of the plan.

But, at this point perhaps several people will tell me I'm an idiot. Maybe at this point in our lives, with our limited resources, we should just aim for a house that's within the middle-range of our reach, save well, don't try to get the perfect property, and put the less-exciting everyday Mustachian practices into full play for a few years. Not sure whether it makes sense for us to be reaching so hard and trying to "beat" the market right now, given that this is our first house, in a crowded shark tank.

mlipps

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Re: Evaluating quality of commute + house cost
« Reply #12 on: May 05, 2013, 08:09:58 PM »
Mlipps,
I've seen this advice in various forms throughout real estate writers on the web. I take it this perspective is tied into the idea that a home ought to better be considered an expense than an investment -- would you agree?

If you say we shouldn't consider that as part of the package, is that because you view a house's appreciation as basically something that is little better than chance, and that's why it should be ignored? Or are there other reasons to disregard it?


Yes. I just think your personal residence should be an expense FIRST and an investment SECOND. It's primarily a lifestyle choice. If you save money over renting, that's great, but if the primary reason you're buying is because you anticipate appreciation, especially over a 3 year time span, you could really be in a pickle. If prices fall, they will fall fast.

I was looking up sales data in my neighborhood & found this gem of an example: 2 identical side by side houses, new construction (extremely rare in Chicago). One purchased first for $700k, $375k mortgage, presumably the rest in cash. House next door purchased 14 months later for $425k with $375k mortgage. You cannot count on the market going up forever. Eventually, houses will get too expensive for the average person to afford. I'm not saying that's likely or not likely in Austin as I know nothing about the city whatsoever, just observing.

For a 3 year time span, unless you are actively making the choice to buy for lifestyle reasons (more space, love of remodeling, yard/gardening, etc.), I woudn't buy. After closing costs, I can't see how you'd make money, especially if the market falls even a little bit.

olivia

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Re: Evaluating quality of commute + house cost
« Reply #13 on: May 05, 2013, 10:20:26 PM »
If you're only going to stay for 3 years, I wouldn't buy.  (Unless renting is way more expensive than owning, but it doesn't sound that way from the prices of the houses you posted and the $900 rent you mentioned.)  Otherwise you'll likely lose pretty serious money on closing costs.  The house we sold was sold for $230k and closing costs were around $14k.  We would have been pretty screwed if my husband's company hadn't paid the closing costs for us.  I think 3 years is really just too short a time span to bank on the value of your house going up enough to cover the closing costs from buying and selling.  Plus if it's a hot market I doubt the sellers will cover your closing costs when you buy, so that's more money you'll be out.

Now if you're planning to hold on to the house and rent it out, maybe that's another story.  I'm not to the rental property phase of Mustachianism yet, so I can't advise you there!

lhamo

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Re: Evaluating quality of commute + house cost
« Reply #14 on: May 06, 2013, 03:33:42 AM »
I'm finding it hard to believe your time estimates on the commute.  I live in one of the most ridiculously congested cities in the world and have an 18km (11 mile) crosstown commute to my office.  In the worst Beijing traffic, at the height of rush hour, I have made it in 1.5 hours by taxi and that involves taking alternative routes that push the distance to over 20km (more roundabout, but more time on freeways rather than arterials so somewhat faster).  On public transit I can do it in about 1.25-1.5 hours and that involves a fair amount of walking (15-20 minutes for transfer and door to door).  I won't bike commute the full distance because of the truly dangerous drivers here (DH has the scars to prove it, and thankfully still his life), but I would consider it if I was in the US. 

I think you should look at all your options, put in offers you can afford on houses that seem to meet your criteria, and see what happens.  You probably won't get the perfect house at the perfect price with the perfect commute, but you can find something acceptable.  Personally, if it was me, I would put a premium on reducing the commute over other factors.  You won't enjoy your cute little stylish house much if you never have time to spend in it because you are on the road all day.

Also, if you employer is amenable to it consider working alternative hours or at least coming in early/leaving early or coming in late, leaving late to avoid the worst of rush hour.  That is the only thing that makes my long commute bearable (I work 7-3 most days).


mandelbrot

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Re: Evaluating quality of commute + house cost
« Reply #15 on: May 06, 2013, 11:07:55 AM »
Hey guys,
ML and Olivia:
What I should have said was, if we feel like moving somewhere within 3-5 years, we will almost certainly rent the house out and probably do quite well with that approach. Housing is in such high demand in Austin right now that rental rates are generally favorable, from what little I can tell right now.

We might consider selling if the appreciation was truly dramatic and we had enough equity (maybe in 5+ years) that we would legitimately come out ahead. As I tend to carefully research (the hell out of) big decisions like these, I don't think we would wind up being caught in the red here. Maybe greater men than me have said such things before, though ...

In any case, thanks for the warnings there.

Lhamo:
Good point. I might be exaggerating in my estimates for fear of, as you said, being stuck out on the road too often. But, your approach of moderation (make offers, see what turns up, find something that works) seems to be the best way forward. I guess if we had more capital and more time on our hands, we could truly control the mess out of this process and really pounce with great precision on the exact house we wanted whenever it came up. But for us, who are only inexperienced mortals with a modest stash to leverage ... I guess you're right. Might as well accept that we probably won't hit the jackpot.

On the employer front -- there is hope there. Since I'm brand new I can't take full control of my schedule yet, but once I'm more ramped up and self-reliant (maybe 6 months), I'll be able to come in early / late and also probably spend some parts of the week working from home. As I reflect on these possibilities, the situation doesn't seem too bad, even if I end up doing ~24 miles a day roundtrip.

Thx everyone. This has been helpful.

Tyler

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Re: Evaluating quality of commute + house cost
« Reply #16 on: May 06, 2013, 11:41:40 AM »
I understand your anxiety.

We also bought a house in Austin just last October. Even at the end of the sales season, the market was nuts. Four houses we made offers on during the shopping process all had multiple offers within 24 hours of being on the market. We finally won a bidding war against 5 other offers primarily because we had no contingencies and were positioned to close very quickly (lender was lined up with all paperwork and ready to go).

My best advice is to be decisive when you like something, but don't get hung up on perfection. If you're not prepared to do that, think about renting for a while in your target neighborhoods to try them out.

We live and work in northwest Austin and are new to the area, so I can't really comment on your areas. But your commute times do seem a bit high to my knowledge. I work with some guys that commute from south of the river to Round Rock, and the worst they've ever reported is 1.5hrs. But YMMV based on your route.