Future Mustachian in Los Angeles

[TimeBombJohn]

Hello Everyone! Another newbie here and wanted to get some input on our current situation.

I'm 28 and wife is 25. We're both engineers living in the Los Angeles area making a combined salary of 140k/yr (80 and 60 respectively). We have a measly 20k in savings and 67K in school debt. No cc debt, or 401k invested.

Wife's car (mustachian) = 7k remaining on loan
My Car (not mustachian)= 19k remaining
Third Tow vehicle = No loan, but unreliable (worth ~2k).
House = 318k remaining (current mortgage 2400 after taxes/fees/HOA)

Also, our house (3b 2.5ba sfh) is currently on the market for sale and after 5% commission, we will have 120-138k cash. Our current plan so far is to pay off our all our school loans, sell my vehicle to pay off hers, and then use the remaining balance to purchase a small condo somewhere between my work and hers. Due to the distance between the two jobs, it is almost impossible to live someplace where we can both bike to work. I'm no stranger to biking long distances, and actually welcome the ability to ride to work everyday. Right now she drives over an hour to get to work, so that wont do. However, after moving, her commute to work will be cut down to 20-40 mins dependant on traffic. Because she work literally overlooks the beach, it is impossible for us to buy in or rent in that area. Our work is 30 miles apart seperated by a 2,000 foot climb and a major interstate. We plan on having kids in the next three years, but want to start working towards a goal where we can be finanically independant in the next 10-15 years.

Around here a 2b 2ba 700 sq ft (rundown) condo goes for around 300k, and rent typically ranges from 2000-3000 in a relatively safe area. We're considering using what's left to buy a condo and reducing our standard of living substantially, but still want to be able to enjoy life.

Thoughts?

Thanks in advance, awesome site!

[madmax]

Around here a 2b 2ba 700 sq ft (rundown) condo goes for around 300k, and rent typically ranges from 2000-3000 in a relatively safe area. We're considering using what's left to buy a condo and reducing our standard of living substantially, but still want to be able to enjoy life.

Everything you said seems reasonable to me, only thing is you are downgrading from a house to a rundown condo. Also, you are planning to have kids down the road - would you have enough space for the kids in a 2b/2bath? I would recommend renting something similar to what you are planning to buy to see how it works for you.

[TimeBombJohn]

Yea, we're looking at some condos today to gauge the 'quality of life' but based on previous experience, it will take a lot of adjustment. I personally don't think my wife will be able to handle it for an extended period of time.

After paying off the mortgage as well as the student loans, we will have ~70k+20k savings left over.

If we take the 70k and put it into a 300k mortgage, we're looking at roughly 1600/mo mortgage including taxes and PMI. Most likely we'll have a 400$ hoa tagged onto that as well. So for all intents and purposes, lets estimate 2k/mo for buying but get an old 700 sq ft living space.

We've looked at 2b 2ba apartments (1100 sq ft) in the area and can get into a few that we absolutely love for about 2300/mo for the first 14 months. We know we could live renting for the next 5-10 years in terms of standard of living, even with a kid. Problem is, rent always goes up after each lease term.

So to answer your question, yes, we would have enough space renting for sure. Buying, is going to be tight...

[TimeBombJohn]

Our take home pay is 8k/month. And our student loans are 650/mo with interest rates all hovering around 5-6%

[escolegrove]

How much is a house without an HOA fee. We found that since money is still very cheap to borrow. That it made more sense to buy a house than a condo with an HOA fee. Example: A year ago  $150 bought $30,000. So a $400 HOA fee could automatically buy another $75,000 in house. Plus HOA's go up. We personally have found that great upcoming neighborhoods with the 2nd best school or 2nd best school district with the best school made fantastic buys.

[TimeBombJohn]

The base starting cost of a home without an HOA in a safe area starts around 390k, but that would tack on another 5-10 miles on my wife's drive. And the quality of the home & area is, ok, at best. Realistically, we're looking at 450-550, which is basically what we're doing now.

[escolegrove]

Why are you selling your current house? You mentioned HOA with you first house. What is the HOA? If you buy a condo, what could it rent for? I personally would only do your scenario if I was going to buy a condo as a primary with 5% down. Have it still be able to make $200-300 if you rent it out.

[TimeBombJohn]

We made the decision to sell our current house because it currently takes my wife over an hour to drive to work. We also like the idea of paying off our school loans right away. Plus, if we don't change our living situation, we'll be working until we're dead. Our current HOA is only $119. But that's because we both commute to work right now.

We're open to suggestions. We just don't see a better solution yet to get to that magical 60-75% savings/mo. (Or even 40-50% lol). When the dust has settled, and our $ is working for us enough to retire, then we'll obviously move to a more affordable area. But until then, we feel slaves to our 9-5's, and consequently, stuck in this area.

[TimeBombJohn]

The last variable that I failed to mention is that I'm currently interviewing with my wife's company. The risks associated with that is that it's a small startup which means that if the company tanks, we'd be completely screwed. And I;d likely have to take a 10-15k paycut. Also, rents starts around 3-3500/mo and small condos start around 500k.

Wow, I guess I needed more help getting through this than I thought.

[Gerard]

I'm not sure that this is helpful, because I'm Canadian and our "bad" neighbourhoods aren't all that bad, and whenever I visit LA all the neighbourhoods seem fine to me because at least the sun is shining.
But are there bargains in neighbourhoods whose reputation lags behind their improvement over time? Could you buy or rent somewhere that was in gangsta rap songs 15 years ago, but is now much better? Somewhere that is being changed for the better by recent immigration? Is it worth reading and ranking neighbourhood crime and education statistics for trends/direction, rather than absolute values?
And/or, given that you live somewhere with an awesome climate, could you live for many years in somewhere smaller than most people at your income level and life stage? Where if it feels cramped, you just go outside?

[seattlecyclone]

The last variable that I failed to mention is that I'm currently interviewing with my wife's company. The risks associated with that is that it's a small startup which means that if the company tanks, we'd be completely screwed. And I;d likely have to take a 10-15k paycut. Also, rents starts around 3-3500/mo and small condos start around 500k.

Wow, I guess I needed more help getting through this than I thought.

So you're interviewing for a job with a lower salary in an area with higher housing costs? Why? I understand the desire for both of you to work close to home, but wouldn't it make more sense for her to interview for a job closer to where you already live instead so you can stay in the cheaper house and keep your current higher salary?

[TimeBombJohn]

So you're interviewing for a job with a lower salary in an area with higher housing costs? Why? I understand the desire for both of you to work close to home, but wouldn't it make more sense for her to interview for a job closer to where you already live instead so you can stay in the cheaper house and keep your current higher salary?
[/quote]

I agree with you completely. The job market is still a bit tough to crack for someone like my wife who has less than 5 years experience as an engineer. I figured it doesn't hurt to have the option to work in the same area, especially if it gives us the rare opportunity to live near the beach. Its easy for us youngin's to entertain that dream. But again, I do agree with you.

Gerard, I appreciate the insight. This is an option that we haven't looked into throughly yet. It's hard to know what areas are safe here when there are certain areas that getting out of the car and walking around even during daytime is a detriment to your immediate well being. Its a big change for us to even consider living in an area that was considered the 'ghetto' when all we've known is gated communities and suburbia. But as a general rule of thumb, as you already know, crime tends to follow lower income areas, which subsequently have the most affordable housing.  Not exactly what I envisioned for my future kids.

What would you guys do in our shoes?

[TimeBombJohn]

And/or, given that you live somewhere with an awesome climate, could you live for many years in somewhere smaller than most people at your income level and life stage? Where if it feels cramped, you just go outside?

For us, that is the 300k rundown condo in a business district  that we're currently considering between my work and hers.

[LanceBurkhart]

What'd you end up doing?

Had to post becuase my wife and I are L.A. residents with remarkably similar age, income, debt numbers to yours, (minus the home equity you had!)

We're trying to grow our mustache by moving out of our $1,775 two bedroom into a small, $1,400 over-garage unit (they call it a 2 bedroom but it's more like a studio with two walk in closets). To work, it's a 30 minute bike ride for me and a 30 minute drive for her.  I like the "ex-ghetto" locale idea. The place we're looking is close to some sketchy areas, but the block itself feels fine.

We've decided to hold off on having a kid until age 35. Just give us more time to pay down the debt, advance in our careers and see where we're at. Aiming for FIRE at age 40.