Poll

What would you do

Stay put you're crazy
18 (72%)
Move to the larger same tax house
3 (12%)
Either works do what suits you
4 (16%)

Total Members Voted: 22

Author Topic: Buy new house or stay where we are  (Read 10694 times)

jhartt3

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Buy new house or stay where we are
« on: February 14, 2014, 12:21:42 PM »
alright so here is the deal.  One week before finding this blog/forum my wife and I found our dream home.  It backs to the lake in the community we live in.  its a ranch with a 3 car garage and a walkout basement. 

Here are the finances:

We have a 14 years left on a 15 year mortgage and owe 175k on a house worth ~250k Property taxes here are about 50% higher than property taxes at the new place.  we pay 4k in property tax here.  and 700 in insurance.  and our mortgage is 870 principle and 430 interest 3% rate

New house money numbers
20 year mortgage 4.25% rate
800 in principle
1000 in interest
1800 in insurance ( could go down if i manipulate my credit to something more reasonable like 1200)
4k in property tax

If we get 250 for our house it gives us about 50k to put down on a 350k purchase price for the new home. 

Would you do it?  Answer the poll. 

Thanks for any insight.

jba302

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Re: Buy new house or stay where we are
« Reply #1 on: February 14, 2014, 01:43:20 PM »
Do you care about the math more or the house more? One side of this is easy, because you can just run a cost analysis of monthly / PDV / total overall between the two (acknowledging the higher % rate and lower taxes, and knowing you would have to compare it to your expected living time in the house).

"Dream House" is a pretty heavy emotional phrase. If the math doesn't work in your favor, can you still justify the increase in cost? Would it be such a burden as to take from your other goals in life?

jhartt3

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Re: Buy new house or stay where we are
« Reply #2 on: February 14, 2014, 02:24:02 PM »
i'm more interested in the monetary side.  you wanna throw that at me? 

a bit more background ... we plan to have 2 kids and right now our house we would have to finish the basement and put in an egress window or move.  Could we make it work yes.  One of my thoughts are if we wait to move til we MUST move then where are housing interest rates going to be?  sub 5 probably not probably closer to 6-7 or higher.  it would set us back in our saving ... since finding this site i have found it reasonable for us to cont. our current lifestyle and retire at 40 easily.  this probably pushes us back to 45.  in my rough estimations

Thegoblinchief

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Re: Buy new house or stay where we are
« Reply #3 on: February 14, 2014, 03:36:30 PM »
I feel like I post this in a lot of threads, but why do you HAVE to do X when you have kids? I have three kids in 2BR, 730 sqft. Surely you can make your current house work, quite possibly with no modifications at all.

When it comes to the new house purchase, are you big watersports people? That could be nice to have, but if it's scenery... As a parent, I'm not sure I'd want to worry about little kids on a lake.

Is it more bikeable? Does it have better parks/schools? Property taxes are lower rate despite the higher value, so I'm guessing you'd be changing municipality/school district.

I'm assuming you're new house numbers are 1800 P&I, 1800/12 insurance, 4000/12 tax for total monthly payment of 2283/mo.

Current is 1681. That's a net annual difference of 7200. 10 years compounded at 7% (monthly x173), that's $103,800.

At least for myself, that ~5 YEARS of my retirement budget just to have a bigger house for 10 years.

Do a cost/benefit analysis

PRO
location?
size?
lifestyle?

CON
extra monthly cashflow-->what that cashflow represents over time

Bateaux

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Re: Buy new house or stay where we are
« Reply #4 on: February 14, 2014, 04:10:34 PM »
if your salary can handle it I'd say go for it.  It sounds like a property that will increase in value and that makes it an investment.   Attack the debt though.  The house needs to be the expensive meal out, the new car, Disney World and all the other money grabs out there.  Get it done and try to put away into a Roth IRA any scratch left over.  In 10 years you will own it and can spend a little more freely.

jhartt3

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Re: Buy new house or stay where we are
« Reply #5 on: February 14, 2014, 04:39:04 PM »
so why is the house better ?  Mainly scenery we wont have our own dock.  i have to petition the community to build docks behind my house to make it more lake house like.  I am a water person i'm an avid wakeboarder and actually make money buying and selling my boats.  I think there is a better than 65% chance i could get the community slips built behind my house.  this should increase the value.  The house is in a different school district.  but the school districts share the same ratings... the one we are moving from is 2x the tax. 

now where it hits our finances.  currently we max out 401k's staying where we are and we max out our roth's ... moving to this place costs me the maxing of my wife's 401k.  the rest can still be maxed out. 

i' have been a decently frugal person most of my life while still affording those luxuries that make people look at me like how do you have all that.  and they dont even see our savings.  This house pushes me a bit out of my comfort zone but we planned to upgrade and this would be our house for 30 years most likely.  And we can make some budget friendly upgrades to make this house worth even more. 

its a really tough decision.  we could slow down some of our travel life when we move.  but its hard to do that with a companion pass from southwest and free hotels.  i know there are other costs when we do travel but with how i travel for work ... its hard to pass this deal up. 

also our retirement budget will be 50k ... i have been diligent at many things in my savings early on in life and we can retire at 40 with 50k a year as a budget in today's dollars. 

i really like seeing both sides on here and its a pretty close heat.  which is how i feel ... currently my opinion is if we can move our house for close to asking and get the new house near what we want lets do it.  if it doesnt happen we arent in a bad spot and we have a great retirement plan ahead of us. 

jhartt3

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Re: Buy new house or stay where we are
« Reply #6 on: February 14, 2014, 04:44:28 PM »
keep the replies coming i'm very open minded on this issue.  i'm not set one way or the other.  and yes our 1800 sq. ft ranch will easily allow 2 kids with no problems.  just a lifestlye and possibly we could get better utility bills this house back to the lake str8 south so we will get benefits from the sun. 


netskyblue

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Re: Buy new house or stay where we are
« Reply #7 on: February 14, 2014, 04:47:11 PM »
Nobody's asked this - If the dream house is so great, how do you know you'll be able to get an offer/sale through on your current house before somebody else buys the dream house?

Thegoblinchief

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Re: Buy new house or stay where we are
« Reply #8 on: February 14, 2014, 05:00:26 PM »
Retiring at 40 with that kind of budget? Wow.

AccidentalMiser

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Re: Buy new house or stay where we are
« Reply #9 on: February 14, 2014, 05:04:52 PM »
Welcome to MMM. 

There are a lot of tangible and intangible variables that go with any house purchase, as you have demonstrated.

No one on these forums can evaluate the intangibles for you, obviously.  In my opinion, moving from a smaller house to a larger house is almost always a mistake unless there is some overriding factor that makes it plain that moving is the only sensible thing to do.

You said that buying the new house will cause you to stop maxing out your wife's 401k.  That, to me, is sufficient to tell you that it isn't a good financial move.  If you're 1 year into a 15 year mortgage, you're going to get killed unless property values have shot up over the past year in your area (or unless someone else paid all your closing costs.)

Lots of people will tell you to "go for it" because they don't understand how money works; congratulations for  having the good sense to ask this question here before making a commitment.

I read through your posts several times, but I still don't have a clear picture of the numbers.  Can you give a "House A costs us X dollars per year; House B will cost Y dollars per year."?  That'll make it an awful lot easier to do the math.  An idea of your income wouldn't hurt either.

Best of luck!!

jhartt3

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Re: Buy new house or stay where we are
« Reply #10 on: February 14, 2014, 11:01:31 PM »
So we make 140k + give or take. I mean the new house will cost us more and its not even close. 1200 in insurance and 7200 in interest. Purely financially I don't think it makes any sense. Actually it totally doesn't make any sense. From that perspective. Its purely a matter of want.

jhartt3

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Re: Buy new house or stay where we are
« Reply #11 on: February 14, 2014, 11:02:15 PM »
Basically do I want to be retired at 40 or do I want to live in this house and retire at 45

MrsPete

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Re: Buy new house or stay where we are
« Reply #12 on: February 15, 2014, 08:04:14 AM »
I vote no.  Here's why:

- You're only one year into your current house.  That makes me wonder if you're going to find other "dream houses" down the road. 

- If the purchase of this house would mean you can no longer "max out" your wife's 401K, the price is too high -- you need to invest as much as you can NOW while you're young and the magic of compound interest is on your side. 

- Maybe you could manage the higher-priced house now, but once you add the expenses for two kids, that may change significantly.  Speaking of kids' expenses, will your wife continue to work?  Her income is a big line item in your budget. 

- You're assuming you'll have two healthy kids, but you have no guarantees (not that I mean to wish anything bad on you!).  A child with a medical problem can change your priorities in a hurry.  Also, I know several families who set out to have a second child and instead had multiples.  The point:  Your future expenses are largely unknown, so it's unwise to tie yourself into larger expenses at this point. 

- This isn't monetary, but do you really want to live in a house on the lake while you have small children?  Small children + water = much concern for the parents. 

jhartt3

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Re: Buy new house or stay where we are
« Reply #13 on: February 15, 2014, 08:27:18 AM »
we are 4 years into our current house i have taken advantage of our instant 25% equity when i bought it as a forclosure to refinance 4 different times all the way from a 30 at 5% with PMI (i also got the free 8k the govt was giving away) to a 15 at 3%.  I have a guy in town who does high income high credit score Refi's for free so thats how i accomplished this. 

i have been watching homes that back to the lake this entire time.  the new house is 3k sq. ft.  current house is 1800.  ranch style homes with 3 car garages that back to the lake dont come on the market under 400k very often if ever.  This is the first one i have seen that didnt need a complete gut. 

couple reasons i think this house is still on the market and isnt scooped up.  The breakfast nook is on the SW corner of the house (far away from the HVAC system)  current owners installed a ductless system to help keep this room cooler in the summer.  i think most people havent done there research and will instantly be turned off.  Also 2 years ago the sump quit working in their basement and it fooded. 

moral of story yes its an emotional decision still.  but the people are moving to pheonix so they may be willing to take much much less than asking to get it sold.  my goal is to get it between 330 and 340. 

Dee18

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Re: Buy new house or stay where we are
« Reply #14 on: February 15, 2014, 08:59:39 AM »
I would not buy a house that had been flooded....

arebelspy

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Re: Buy new house or stay where we are
« Reply #15 on: February 15, 2014, 09:24:41 AM »
Basically do I want to be retired at 40 or do I want to live in this house and retire at 45

I'm not quite sure why you think we can answer this for you?

The poll is just what would we do, in this situation, but it has nothing to do with you.

You've basically distilled it down to the exact question to ask yourself, in the above quoted post.

Ponder on it, and decide if it's worth it or not.

Seems pretty straightforward. :)
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Janie

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Re: Buy new house or stay where we are
« Reply #16 on: February 15, 2014, 10:33:12 AM »
You've mentioned 3 car garages a couple times. Is that a big factor for you?

AccidentalMiser

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Re: Buy new house or stay where we are
« Reply #17 on: February 15, 2014, 03:05:07 PM »
Basically do I want to be retired at 40 or do I want to live in this house and retire at 45

I wouldn't move into the Taj Mahal if it extended my work life by 5 years.  Not even if it had a 30 car garage.

If the money's not close (which it's not), then I can't help you make the decision.  As a mustachian, I'm going to say "You shouldn't" because that what I do (hence my username.)  You already know the financial aspect of the thing, and that's as far as this forum is going to take you.  (IMHO)

mm1970

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Re: Buy new house or stay where we are
« Reply #18 on: February 15, 2014, 06:50:31 PM »
Quote
i have been watching homes that back to the lake this entire time.  the new house is 3k sq. ft.  current house is 1800.  ranch style homes with 3 car garages that back to the lake dont come on the market under 400k very often if ever.  This is the first one i have seen that didnt need a complete gut. 

Okay, you lost me here.  You said earlier that you plan on having two kids and can't stay in the current house.

I live in a house with two kids (and a husband).  1146 SF.  2BR, 1 BA, NO GARAGE.  (Yeah, there are days that I'd KILL for another toilet - I've thought of buying an RV or composting toilet and  putting it into the laundry room!)

You couldn't pay me to keep a 3000 sf house clean.  Heck, I pay someone to clean my current house.  (Shh...)

jhartt3

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Re: Buy new house or stay where we are
« Reply #19 on: February 16, 2014, 05:15:22 PM »
i pretty much expected this to be the response to my question and was actually surprised at how much of a dead heat it was in the beginning.  Yes you live comfortably but wanting at extra toilet in your 2 bed 1 bath house.  my biggest take away from this site it

mmm read early retirement extreme ... decided hey i dont have to be that frugal but can still retire much earlier than the rest. and live super comfy.  i mean if you're saying you would kill for an extra bathroom i think you're missing part of the message ... i mean if there was something i would KILL for ... i'd probably just go buy it... but i guess killing does get you the ultimate MMM life no work and free food and free housing but you arent free.  i mean WOW anything worth KILLing for better be more than another place to pee. 

but off that rant.  you can take what MMM did and expand it just like he expanded ERE.  i know not everyone makes the same amount or lives in the same city but you can take what he has done and develop it for your life.  maybe it means less than what he has for your goals maybe it means more.  but i did boil this down to a very simple personal question as stated above do you want to retire in 13 years or 18 years and thats up to me to decide.  i'm 27 thanks for all the input.  many comments respected some taken with a grain of salt. 

happy

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Re: Buy new house or stay where we are
« Reply #20 on: February 17, 2014, 12:31:41 AM »
The other question to consider is how are you liking your jobs? If you like them now, how stable is that likely to be? If your jobs become a grind, that extra 5 years may not be worth it.

Houses are subject to hedonic adaptation reasonably  strongly in my experience. The next step up dream house soon becomes the new normal. What if you lived in a town without a lake?


jhartt3

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Re: Buy new house or stay where we are
« Reply #21 on: February 17, 2014, 06:45:38 AM »
as stated above we plan to live on around 50k in retirement much more than the traditional mustachian.  That does not mean we can't follow some of the guidance of the blog and seek advice.  i have no doubt if I gave up wakeboarding and sold my boat and we moved to the city close to our jobs ( both engineers both extremely stable also extremely stressful at times). We could retire by 30 just as he did.  But that isnt really our goal.  I run a charity event in KC called Wake the World. I'm heavily involved in this sport and choose to give back in this way.  So moving off a lake only makes our lives more expensive.  Unless we gave it all up.  I plan to start making money by giving lessons in the summers for kids and adults in our community who want to learn.  Yes a boat is a depreciating asset much like a car.  But if purchased at the right price they have value.  And wakeboard boats hold value like nothing else right now.  I paid 14k in the fall for my boat and will be able to sell it anytime in the next 5 years for over 20k most likely.  So do we need to move to a house on the lake.  No.. would it be nice Yes... what does the new house give us... more room a better view a place to store the boat and possibly very good lake access if I can get community docks built behind the new house.  (this would also greatly increase the value of the home). 

In actuality i would prefer not to move after putting all this thought into it.  But i'm not the only decision maker in my household. 

jrhampt

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Re: Buy new house or stay where we are
« Reply #22 on: February 17, 2014, 10:07:01 AM »
You said that buying the new house will cause you to stop maxing out your wife's 401k.  That, to me, is sufficient to tell you that it isn't a good financial move.

Several people have said this now, and I agree.  If you make $140k+ and have a reasonable cost of living, you should be able to max out the retirement accounts.

Cromacster

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Re: Buy new house or stay where we are
« Reply #23 on: February 17, 2014, 12:27:09 PM »
mmm read early retirement extreme ... decided hey i dont have to be that frugal but can still retire much earlier than the rest. and live super comfy.  i mean if you're saying you would kill for an extra bathroom i think you're missing part of the message ... i mean if there was something i would KILL for ... i'd probably just go buy it... but i guess killing does get you the ultimate MMM life no work and free food and free housing but you arent free.  i mean WOW anything worth KILLing for better be more than another place to pee. 

I would have to disagree with you, see:

http://www.mrmoneymustache.com/2012/09/18/is-it-convenient-would-i-enjoy-it-wrong-question/

While MMM is about enjoying your life to the fullest, its about filling that life with things that truly matter.  Would an extra toilet be nice? Maybe, would it actually make mm1970 happier?  Probably not.

Two things that has not been discussed.  The first being cost to run your house (and the amount of waste associated with 3k sqft).  The operating costs are going to be higher.  Second, it sounds like there is a HOA or Lake Association as part of living in this house...that would be a huge turn off for me.  As there are extra costs involved with that, that provide little to no return.  Just some other things to consider.

jhartt3

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Re: Buy new house or stay where we are
« Reply #24 on: February 17, 2014, 01:33:02 PM »
well when it comes to killing for something i think that crosses the "would be nice barrier"... The house is a reverse ranch that backs to the south with wall of windows on that side.  i would think my cost to run this house would be close to the same or less than my current house. 

The HOA is associated with both homes i live in this community now.  its 500 a year and is easily worth that in what we are offered in the community.  find me a maintained lake community that costs 750 a year to have a slip and your boat on and that doesnt account for the fantastic pool and free parties thrown monthly by the community.  Yes 95% of HOAs are bullsh!! but that doesnt mean they all are. 

anyways ... i'm done with the question i got the answer i figured i would receive.  i know i dont need the house to survive. and i probably can live in a lesser house in the same community i live in now and save more money.  i was just seeing if i was missing something.  and i dont think i was ... this new house would cost me 8k more per year to live in than my current home.  Utility costs are hard to understand before you live somewhere b/c you dont know how the other people lived.  comparing there bills to my current bills they are slightly higher but i live at 64 degrees in the winter at 76-78 degrees in the summer.  so i'm sure it would be a wash or less with me there.