Author Topic: House buying advice! Should I be as frugal as possible???  (Read 8011 times)

Dmy0013

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House buying advice! Should I be as frugal as possible???
« on: April 02, 2017, 08:19:43 AM »
Ok need some advice.

I live a HCOL area where a starter home runs you about 400,000 - This is roughly a 1500 - 1600 2 Story (750SQ FT per level)  3 bedrooms upstairs with a small bonus room, small kitchen, small living room down.

Or I can buy a bigger house which is roughly 1800 Sq Feet - Much nicer in my preferred neighbourhood (closer to work) however its 540,000 and I did not want to spend more then 500,000...

Do I buy the starter home? and stay in it as long as I can?  Probably resulting in us getting fed up with it and moving again in 5 years?  Or do I just buy the bigger house and plan on staying there for 15-20 years.

We just finished selling our first house.  When I bought my first home I was as frugal as I could be - buying the cheapest home I could find.  Still in a nice area, and still large enough for us at the time.  I had planned on paying off the mortgage quickly and putting money away!  However we quickly outgrew it.  I am concerned I am about to make this same mistake again.  Also the small starter home is a "cookie cutter" meaning they literally build 100's of these in the neighbourhoods.  Which we found to be a big problem when selling our first house was we had a lot of identical competition which forced us to lower the price.

So I guess my question is do I do what is "frugal" and buy the entry level home?  And Pray we dont outgrow it / get the urge to move again?
Do I buy the house that is 30,000 above my budget?  which is more then I want to spend... Yes I can afford it however it will effect my ability to keep a high savings rate - will also restrict my ability to take extended unpaid leaves from work etc.  However we would most likely stay in the house for 15-20 years (until the kids are done school)  Also this home is more of a custom home, so in a neighbourhood with 5,000 houses there is probably only 5 of these homes.

Look forward to your advice thanks

MonkeyJenga

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Re: House buying advice! Should I be as frugal as possible???
« Reply #1 on: April 02, 2017, 08:27:59 AM »
How many kids do you have or plan on having that 3 bedrooms is a starter home?

Dmy0013

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Re: House buying advice! Should I be as frugal as possible???
« Reply #2 on: April 02, 2017, 08:43:59 AM »
We have 1 child now who is 8 months old, and we plan on having atleast 1 more, so we would definitely fill all the bedrooms.

Bedroom wise we have enough, I just worry we will outgrow the rest of the house again quickly

Viking Thor

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Re: House buying advice! Should I be as frugal as possible???
« Reply #3 on: April 02, 2017, 09:05:59 AM »
I would be wary of buying a place you already have some reservations about and think you may outgrow quickly. What about staying where you live now for a while and then moving to the size house you need? Or buying a different house (i.e. your budget is $500k, and you are debating 540k vs 400k...what about another house similar size to 540k house but slightly cheaper, so you could meet the 500k budget).

bobechs

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Re: House buying advice! Should I be as frugal as possible???
« Reply #4 on: April 02, 2017, 09:10:00 AM »
It is quite clear what your preference is, and you came to the right place.  These forums are all about confiming people in whatever pre-conceived notion they hold.

Get the bigger house. As you say, you will just bail on the smaller one in a couple of years, to your financial disadvantage.

You have my permisssion to do exactly what you want.

sol

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Re: House buying advice! Should I be as frugal as possible???
« Reply #5 on: April 02, 2017, 09:15:11 AM »
What counts as "most frugal"?

Every house we own in the PNW has been skyrocketing in value recently, making me wish I had bought MORE house than I needed, each time.

If you live in an area with a strong local jobs base and a limited supply of SFRs, housing is usually a wash.  You don't necessarily make/lose more money on a more expensive house than you do on a cheap one, because the leverage of a mortgage (typically 5:1 if you put 20% down) turns even small inflation-scale price increases into hefty equity growth that matches/exceeds your ongoing interest payments.

You still need the cashflow to cover the payments, of course, but a bigger house just more rapidly transfers your income into equity.  For us, it has worked out to be good for our total net worth to own expensive houses.

YMMV if you live elsewhere.  And another RE crash can totally wipe you out, of course, so be prepared to deal with that sort of slow-scale volatility. 

MonkeyJenga

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Re: House buying advice! Should I be as frugal as possible???
« Reply #6 on: April 02, 2017, 09:28:24 AM »
We have 1 child now who is 8 months old, and we plan on having atleast 1 more, so we would definitely fill all the bedrooms.

Bedroom wise we have enough, I just worry we will outgrow the rest of the house again quickly

What does it mean, in practical terms, to outgrow the rest of the house? Is it a matter of your stuff not fitting? Or you want to let every member of the household have separate places to hang out apart from their bedrooms?

SnackDog

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Re: House buying advice! Should I be as frugal as possible???
« Reply #7 on: April 02, 2017, 09:38:46 AM »
How about staying small (nobody needs or uses more than 1500 sq ft anyhow) but spending more in a better neighborhood? You will end up better off in the case of continued appreciation or a crash.

aceyou

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Re: House buying advice! Should I be as frugal as possible???
« Reply #8 on: April 02, 2017, 10:22:05 AM »
Staying there 15 to 20 years is the key factor I think.  If you are there less than 8 years or so, you are basically a renter who also pays the taxes, insurance, and does all repairs, since this year's you basically just pay interest on the 30 year note.  Might as well rent regardless of what you do. 

However, at twenty years, and considering that it's where you will raise your kids, then other factors beyond finances can matter.  I bought a 225k house over a 150k house because of the neighborhood and feel.  With a 2 and 5 year old we are happy we did, despite the small additional costs.  Good luck.

Cranky

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Re: House buying advice! Should I be as frugal as possible???
« Reply #9 on: April 02, 2017, 11:35:44 AM »
Why would you outgrow a 1600 sq ft house? I mean it does seem that you like the more expensive house a lot more, so you have to decide what exactly is worth it to *you*.

Buy for the long haul - but remember that in 20 years, even your hypothetical child will be ready to move out, and you'll have plenty of room.

MarioMario

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Re: House buying advice! Should I be as frugal as possible???
« Reply #10 on: April 02, 2017, 11:41:24 AM »
I hate the notion of a started home.  And I would imagine that notion is antimustacian.

My wife thinks we live in a starter home, but we live in he same neighborhood as my grant parents who have lived there 60+ years.

I would say buy the cheaper house and check out a book on stoicism and be happy with what you have.

pbkmaine

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Re: House buying advice! Should I be as frugal as possible???
« Reply #11 on: April 02, 2017, 12:20:08 PM »
Echoing what many have said here: the most mustachian option is to pick a modest house in a neighborhood with good schools and live there forever, limiting the "stuff" you acquire. I grew up in a 1,000 sf 3 bedroom 1 bath house. At one point, six of us lived there (my parents, my 2 brothers, my grandmother and me). It was very liveable and none of us felt deprived. My parents, private school teachers, were able to save a lot of money living in that house. Big houses, stuff to fill them up, and new cars are the enemy of savings.

Blissful Biker

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Re: House buying advice! Should I be as frugal as possible???
« Reply #12 on: April 02, 2017, 12:28:11 PM »
I think the size of the house is less important than loving the neighbourhood and proximity to work.  The perfect scenario for me is a small high quality home.

We prioritized having a nice home and are glad we did.  We have ratty old cars and a low cost lifestyle but take great pleasure from our lovely home.  It is now paid off and we are building happy family memories around our harvest table with mountain views.  Life is good.

gerardc

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Re: House buying advice! Should I be as frugal as possible???
« Reply #13 on: April 02, 2017, 12:29:47 PM »
A house is an investment, not an expense, so frugality does not apply. Would you buy $400k or $550k worth of VTSAX?

cacaoheart

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Re: House buying advice! Should I be as frugal as possible???
« Reply #14 on: April 02, 2017, 01:18:38 PM »
A house that you rent to someone else is an investment. Your own living space is an expense, whether you own or rent.

My wife and I have switched to smaller and smaller apartments each time we've moved with the mindset that people will fill whatever size space they have, going from a 1200sq ft 2 bed 2 bath apartment now to an 800sq ft 2bed 1 bath, and now we have a greyhound and a 3 week old girl. I could see staying here even if we go on to have a few more kids, just setting up bunk beds as needed. We're in an excellent, walkable area where the average home mortgage would be several times our rent.

If I were going to buy and I saw one place as something I wouldn't want for more than 5 years and another as a place I could enjoy for decades, I'd either go for the latter if I could afford it or rent until I felt like buying the latter, and skip the costs/frustration of buying/selling the first place. I have too many friends that have had the headache of buying a place as soon as they can and then trying to sell it when they want to go elsewhere.

zolotiyeruki

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Re: House buying advice! Should I be as frugal as possible???
« Reply #15 on: April 02, 2017, 01:33:17 PM »
I vote for the smaller house!  Here's why:
1) We lived in a 1500sq ft house (including 2-car garage, so really 1,100 ft2) with *four* little kids before we started wanting more.  Kids can (and in my opinion, should) share bedrooms.
2) You're looking at getting 20% more square feet for 35% more money.  How much would you save by living closer to work?  Can you quantify the cost of "much nicer"?
3) If you're willing to exceed your limit, it's not really a limit.

Aunt Petunia

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Re: House buying advice! Should I be as frugal as possible???
« Reply #16 on: April 02, 2017, 03:30:54 PM »
Why not shop around until you find something you like better that is in your price range?  If you are pressed to move now, I would go with the bigger one so you don't have to deal with the transaction costs twice.

Villanelle

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Re: House buying advice! Should I be as frugal as possible???
« Reply #17 on: April 03, 2017, 12:34:37 AM »
I'd keep looking until I found something in your budget in a neighborhood in which you want to be. 

Linea_Norway

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Re: House buying advice! Should I be as frugal as possible???
« Reply #18 on: April 03, 2017, 04:16:21 AM »
Another option is buying the big house and renting out a room to a student. As named, your children can share a room as long as they are young. When I was young, my parents also rented out a room and I shared a room with my brother. This went fine.

ChpBstrd

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Re: House buying advice! Should I be as frugal as possible???
« Reply #19 on: April 03, 2017, 11:41:25 AM »
Small house. Existing homes are over $260/sf but if you wanted to add onto the smaller house, or build an MMM-style backyard cave, your costs would be $125-150/sf. The real trick would be learning to be satisfied with what you have. Houses are just products. They are not our goals, personalities, identities, etc.

I have a 2700sf house that I bought for less than half the prices you're about to pay and I hate it because it's a PITA to keep clean and I get to watch my money being wasted every day on unused space.

FIFoFum

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Re: House buying advice! Should I be as frugal as possible???
« Reply #20 on: April 03, 2017, 12:20:00 PM »
The frugal choice is neither. Don't buy a home outside your budget (no matter the size - but most certainly not if it's bigger than you need). Don't buy a home that you don't intend to stay in for 5 years.

I am confused why renting would not be your best move right now. Compare a house within your budget that meets your projected needs/desired location where you would NOT move within 5-7 years versus your options for renting. If you find such a house, that's the one you should buy now. If not, you shouldn't be buying a house at all.

Dmy0013

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Re: House buying advice! Should I be as frugal as possible???
« Reply #21 on: April 03, 2017, 09:14:37 PM »
Ok so to answer a few questions

The house for 530,000 is above what I wanted to spend, I am approved for significantly more then this.  I know that sounds VERY anti mustachian, but I just wanted to make sure no one thought I was gonna try and go over my pre approval.

I can't stay in my current home as I have sold it - We owned an apartment style condo.  in the past 3 years this very similar condo has been built 5 times within a few miles.  Construction also started on another 100ISH condo complex 2 blocks away from me, so we decided lets get out of the condo market.  Right or Wrong we made the decision to move based off our local market.

Me wife and I live with minimal possessions.  We dont have consumer junk, So I'm not worried about filling my house with "junk"

Renting is an option, however I feel rent is very expensive.  I looked at a few different homes in my current neighbourhood ands roughly 1700 + utilities for 1250 Sq feet.  So we are not gaining much space, and I would just rather pay my own mortgage at those prices.

Until we make the right decision my inlaws have a very large house we will be moving into so as much as I am in a rush to purchase I have a very nice / safe place to stay.

the 530,000 Home will save roughly 30 Minutes round trip for my drive to work.  The starter home is on the very wrong end of the city.

And due to school districts and what not I can't get much closer to work maybe I could shave off a few minutes each way and be in a less desirable neighbourhood.  But its not worth it in my opinion for a few minutes.

Its not a questions if I can afford the house to not, its a question of what does this do to my future ability to retire, how long will this push it back?  Am I looking at this all wrong?  Some people look at a house as a forced savings plan, other people look at them as a money pit...  Im more so curious did the majority of people buy the bare minimum for there home?  Just enough to get buy?  Or did people buy a nice house they are proud of?

zolotiyeruki

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Re: House buying advice! Should I be as frugal as possible???
« Reply #22 on: April 04, 2017, 12:36:11 AM »
When we bought our first house, we were approved for $250k.  We were a family of 3 at the time, and bought a 3-bedroom house for $105k. That's pretty bare bones.  It wasn't until we had 4 kids (5 years later) that we started to feel a bit cramped.

It was 20 miles to work, which was less than ideal, but it was in a good neighborhood with good schools.  It was a good move IMO--we were able to plow a lot into extra equity and also retirement savings.

Is the more expensive home 30km closer to work than the less expensive home, or is it 30km closer than the in-laws' home?  You can do a pretty straightforward calculation to figure out how much the closer home would mitigate your higher mortgage payments.  Let's say it saves you 60 miles every work day.  If you assume $0.55/mile (that's what the US gov't uses), that's $6600/year (after taxes).  While that doesn't cover the cost of the higher mortgage, it takes some of the bite out of it.  You also need to factor in the value of having another 1-1.5ish hours every single day that you wouldn't be spending in your car.

Calculating the impact on your retirement is pretty straightforward as well.  There's a good spreadsheet posted in a sticky somewhere around here that you can use, or you can build your own--it's not too hard.

Linea_Norway

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Re: House buying advice! Should I be as frugal as possible???
« Reply #23 on: April 04, 2017, 12:52:50 AM »
Our first house I guess was a starter's house, at the very low end of the marked, mainly because it was from the 70s, had a very steep road and had well water and a septic tank. It was quite big though and we lived in it for the next 15 years. We enjoyed it a lot. During the 15 years we installed a new kitchen, bathroom, draining around the roof, singles on the roof, installed a warmth pump, replaced several ceilings and built a  walk-in closet downstairs.
But there were some issues: some big maintenance issues coming ahead, like replacing all windows and installing balanced ventilation. And no matter how much we would modernize the house, the insulation in the walls would still be quite thin. The road was getting worse and worse and we had to maintain it ourselves after every heavy rain. In the neighbour's house, someone rented out to a lot of construction workers (8 to 9 men living in a small house with a leaky septic tank). A part of the front garden was about to collapse downhill. Eventually I really wanted to move to a modern low energy house.
We were spoiled by having a fantastic view from our house and no traffic noise, so these was the requirement for the new house. After some years of looking around we finally found a house that has these two requirements. It was on the very high end of the market, but after selling the old house, we could pay it cash. The view is amazing. But in matters of energy, it is not a modern house. We use more electricity than we did in the old house after installing the warmth pump. I regret buying such an expensive house and the wrong house. We had almost nothing left of savings. This means any FIRE plans include selling this house, moving to some place that costs half the price and moving in itself also has a high cost. And we must hope the house doesn't loose it's value. And as I have learned, when the house market crashes, it's the expensive houses that will go down most in value. I've seen it in the Netherlands where my mother and FIL live. Their houses have both dropped in value to 50%. Our 5 year old house is also not in as good a state as we had expected it to be and we still have several cases against the previous owner. Luckily we signed for a buyer's insurance, so we have a free layer for this. But it costs quite a lot of our time.
I discovered MMM shortly after moving into this new house and found out that FIRE really is an option in a number of years. I am not sleeping very well and sometimes wish we had hung on to that old house, even though that means we would have spent a lot of time and money on renovation. Now we sit with all our eggs in the same basket with no guarantee at all that it will go up in value during the next years. I am desperately investing a about half of my nett income into index funds now to make sure we build up some other stash.

Laura33

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Re: House buying advice! Should I be as frugal as possible???
« Reply #24 on: April 04, 2017, 07:35:41 AM »
I can't stay in my current home as I have sold it - We owned an apartment style condo.  in the past 3 years this very similar condo has been built 5 times within a few miles.  Construction also started on another 100ISH condo complex 2 blocks away from me, so we decided lets get out of the condo market.  Right or Wrong we made the decision to move based off our local market.

So for future reference, this was your mistake -- you made a life decision based on the anticipated value of your current residence, without first fully investigating the costs/options on the other side of the fence.  And really, once you have all that building around you, any price impact is already largely built into what you can sell it for (I learned this when they re-zoned my school district -- by the time the rezoning went final, my property value had already dropped).  Not that you can do anything about this now, but a good lesson for the future.

With respect to your specific choice, the "frugal" option is the one that will provide you the most value for the dollar long-term.  ITA with earlier posters that the smaller/cheaper house makes zero sense, because if you plan to sell in a few years, the transaction costs and general life upheaval will eat up any profit.  The larger home may make sense if it is a home you can live in for years; I also agree that saving 30 minutes each way on your commute is a huge, huge deal.  OTOH, it will very likely push back your time to FIRE, because you are taking investable money and putting it into an illiquid asset; unless you luck into a huge runup in property values and are willing to dump the house and move somewhere cheaper, having a lot of your income and assets locked up in your living space means you won't get to FIRE as quickly. 

Personally, I would look at the larger house as a consumption choice.  I would not buy it with the plan/hope that I will get an awesome return from it.  Do the math on the total costs of your various options -- net commuting gain, additional PITI, additional upkeep/utilities/maintenance, etc.  This will show you what the larger house will actually "cost" you on an annual basis.  Then do the math on how much sooner you'd reach FIRE if you invested that money instead.  And then ask yourself:  are the benefits of this house enough that I am willing to pay $XX more per year and retire YY months/years later to live there?  [FWIW, for me, the answer was a resounding yes -- my house is not the least Mustachian, but I love it and would in no way be willing to sell it to FIRE earlier.]

Finally, I think the truly Mustachian approach would not even be considering whether you are "proud" to own a particular home -- that's all about appearances and ego.  The question is what is the least you can spend, over time, to meet your needs.  Anything beyond that is a luxury -- which doesn't make it bad, because we all blow cash one *some* sort of luxury.  The only question is whether this is a worthwhile luxury for you, and whether you consciously choose to make the tradeoffs to obtain it.

Tl;dr:  You clearly have your mind set on the bigger house.  So go buy it.  Just don't come back next year whining about how much longer it's going to take you to FIRE.  ;-)

ysette9

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Re: House buying advice! Should I be as frugal as possible???
« Reply #25 on: April 04, 2017, 12:19:02 PM »
Maybe I missed something here, but what is wrong with staying where you are now?

marielle

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Re: House buying advice! Should I be as frugal as possible???
« Reply #26 on: April 04, 2017, 12:38:44 PM »
Maybe I missed something here, but what is wrong with staying where you are now?

I think I missed something too, if there is no need for the extra space for "consumer junk" then what is the purpose of the bigger house? Both have three bedrooms and there will only be two kids. What is the purpose for 1800 sqft? Are you filling up with furniture that is too large, making it seem smaller? If it's because of a small kitchen or something, that's still cheaper to modify than buying the more expensive house.

This kind of seems like a false dilemma fallacy, are there not other homes closer to work and in good school districts that aren't $530k and 1800 sqft?

Hedonic adaptation will always leave you wanting more and "outgrowing" the house even if you buy the 1800 sqft one. There's no reason you can't make it work in the 1500 sqft one, unless there is a real reason that hasn't been mentioned.

FIFoFum

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Re: House buying advice! Should I be as frugal as possible???
« Reply #27 on: April 04, 2017, 01:09:41 PM »
Renting is an option, however I feel rent is very expensive.  I looked at a few different homes in my current neighbourhood ands roughly 1700 + utilities for 1250 Sq feet.  So we are not gaining much space, and I would just rather pay my own mortgage at those prices.

Its not a questions if I can afford the house to not, its a question of what does this do to my future ability to retire, how long will this push it back?  Am I looking at this all wrong?  Some people look at a house as a forced savings plan, other people look at them as a money pit...  Im more so curious did the majority of people buy the bare minimum for there home?  Just enough to get buy?  Or did people buy a nice house they are proud of?

Feeling like renting is expensive so you'd rather pay the same amount for a mortgage is exactly how people make financial mistakes and miss out on frugal choices. The way to calculate whether it is worthwhile to rent vs. buy takes into account how much you lose on the act of buying/selling (which is a big issue if you don't stay in the house long enough) as well as all that pesky maintenance stuff that you don't have to do in a rental.

I highly recommend you crunch your numbers on this and do some reading on when to rent vs. buy if you want to make the decision that impacts your ability to be FI. It has nothing to do with feeling like renting is expensive or throwing money away or viewing any form of home ownership as something to be proud of.

nara

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Re: House buying advice! Should I be as frugal as possible???
« Reply #28 on: April 04, 2017, 01:34:09 PM »
For me personally, I would never buy a home I didn't care for just to be as frugal as possible. Feeling good about where I spend most of my time is an important lifestyle choice that is non-negotiable. I would chose to FIRE later if need be because life is about living and who wants to be miserable in their own home? I have friends who made the mistake of buying fixer uppers without the time or skills to dedicate to it and they always regretted it.

With that being said, I wouldn't go over my budget either. It sounds like you have the option to move in with in-laws. Why do you feel so pressured as if these houses are your only two possible choices? Why not wait longer until something perfect comes around?  It makes more sense to rent temporarily (even if you believe it's throwing away money) than to exceed your budget by $40k+  just so you can rush into a home and feel good about not "wasting" the extra money on rent?

canisius

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Re: House buying advice! Should I be as frugal as possible???
« Reply #29 on: April 04, 2017, 01:49:29 PM »
Ok need some advice.

I live a HCOL area where a starter home runs you about 400,000 - This is roughly a 1500 - 1600 2 Story (750SQ FT per level)  3 bedrooms upstairs with a small bonus room, small kitchen, small living room down.

Or I can buy a bigger house which is roughly 1800 Sq Feet - Much nicer in my preferred neighbourhood (closer to work) however its 540,000 and I did not want to spend more then 500,000...

Do I buy the starter home? and stay in it as long as I can?  Probably resulting in us getting fed up with it and moving again in 5 years?  Or do I just buy the bigger house and plan on staying there for 15-20 years.

We just finished selling our first house.  When I bought my first home I was as frugal as I could be - buying the cheapest home I could find.  Still in a nice area, and still large enough for us at the time.  I had planned on paying off the mortgage quickly and putting money away!  However we quickly outgrew it.  I am concerned I am about to make this same mistake again.  Also the small starter home is a "cookie cutter" meaning they literally build 100's of these in the neighbourhoods.  Which we found to be a big problem when selling our first house was we had a lot of identical competition which forced us to lower the price.

So I guess my question is do I do what is "frugal" and buy the entry level home?  And Pray we dont outgrow it / get the urge to move again?
Do I buy the house that is 30,000 above my budget?  which is more then I want to spend... Yes I can afford it however it will effect my ability to keep a high savings rate - will also restrict my ability to take extended unpaid leaves from work etc.  However we would most likely stay in the house for 15-20 years (until the kids are done school)  Also this home is more of a custom home, so in a neighbourhood with 5,000 houses there is probably only 5 of these homes.

Look forward to your advice thanks

As others mentioned, I'd buy the best deal for you.  We bought a house that was $20,000 above our limit.  However, it was in our preferred neighborhood AND 1.5 miles from work (so I bike to work) and had two living areas.  Now, we could have gotten cheaper homes (so this is a little reverse of your situation) with 4 bedrooms instead of three, but the neighborhoods wouldn't be good for kids (This becomes more important as they become older) and it would have been further from work.  Let me tell you, being close to work has made me a better worker and a better husband.  It's also amazing how you can adapt to a different size.  We're going on kid number four.  Where as before, I would have sworn that each kid needs his own room.  They adapt, and they insist they wouldn't want their own room.  Likewise, we have a small yard.  Again we adapted.  We've learned intensive gardening, we spend less on lawn work, and when the kids want to play they walk a block and half to the park.  So how would I translate this to your situation:
1.) Stick with your budget, but if it's workable (I'm not talking about going to rice and beans.  Rather, managble cuts) for a better quality of life, consider it.
2.) Don't look at your Must Haves like HGTV.  Rather, look at the entire package.  I grew up in the country.  If you told me that I would have a 500 sq foot yard in a town home I'd never have believed you.  Yet, I have two parks with trails, disc golf course just two blocks from home and I don't have to cut the grass.
3.) Look at how you can adapt to your situation to make it fit. 
4.) There will always be another house.  If it doesn't feel right, then don't do it.  There will be other houses.  There will be another market correction.  That doesn't mean wait forever, but don't force a bad home because there are no other alternatives.  There are always other alternatives. 

LadyMuMu

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Re: House buying advice! Should I be as frugal as possible???
« Reply #30 on: April 04, 2017, 03:25:00 PM »
Just piping in about big homes. When we relocated to this area 5 years ago, we found one house that met all our needs--except it was larger than what we were originally looking for. We were moving from a 1300 sqft into 2200. Let me tell you, those extra square feet translate into $$ over time. More time to clean. More shingles for a new roof. Larger AC/furnace unit. Heating/cooling. Yard care. Picking up after messy kids. On and on and on. I am so glad we live in a walkable neighborhood in a house we love, but the house itself did slow down our retirement goals. We're having to repaint the house this summer and oh my the cost of paint these days!

Also, larger newer homes of the McMansion variety tend to be very cheaply made. They won't wear very well 20 years down the road.

zolotiyeruki

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Re: House buying advice! Should I be as frugal as possible???
« Reply #31 on: April 04, 2017, 03:30:51 PM »
Just piping in about big homes. When we relocated to this area 5 years ago, we found one house that met all our needs--except it was larger than what we were originally looking for. We were moving from a 1300 sqft into 2200. Let me tell you, those extra square feet translate into $$ over time. More time to clean. More shingles for a new roof. Larger AC/furnace unit. Heating/cooling. Yard care. Picking up after messy kids. On and on and on. I am so glad we live in a walkable neighborhood in a house we love, but the house itself did slow down our retirement goals. We're having to repaint the house this summer and oh my the cost of paint these days!

Also, larger newer homes of the McMansion variety tend to be very cheaply made. They won't wear very well 20 years down the road.
Some very, very good points here.  The cost goes well beyond just your mortgage.

henceforth

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Re: House buying advice! Should I be as frugal as possible???
« Reply #32 on: April 04, 2017, 04:42:34 PM »
If you are in a hot real estate market, I would stretch and buy the $540k house. I am in Toronto and the house we bought two years ago, at the "top" of the market we could now not afford. We have a 3BR, 1200 square foot house, that we bought for $990k in 2015 and could now sell for $1.3mil. We could not "move up" in this city even if we wanted to - if your region is headed in the same direction buy as much house now as you can.

gerardc

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Re: House buying advice! Should I be as frugal as possible???
« Reply #33 on: April 04, 2017, 08:37:05 PM »
if your region is headed in the same direction buy as much house now as you can.

If that momentum is real, wouldn't the expected future valuation be built into the current price?

ysette9

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Re: House buying advice! Should I be as frugal as possible???
« Reply #34 on: April 05, 2017, 08:14:51 AM »
Quote
If that momentum is real, wouldn't the expected future valuation be built into the current price?

Not necessarily. In our region at least there is limited land, limited housing supply, lots of high-paying jobs, and big-name companies/universities expanding their campuses near our house. The last 5 years have had sustained real estate increases that have outstripped our fairly generous pay raises. Except for the years of 2008-2012 where prices were flat (for obvious reasons), growth patterns like that have a rather long history. Our region is pretty unusual though so I wouldn't be surprised if this doesn't hold true other places.

bacchi

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Re: House buying advice! Should I be as frugal as possible???
« Reply #35 on: April 05, 2017, 09:21:49 AM »
There's some market timing going on in this thread.

Houston had a down market for over 10 years after the 80s oil crash. In other words, if you bought in '81, you'd be lucky to get what you paid in '95 (ignoring inflation).

http://www.chron.com/business/article/Burns-Housing-bubble-a-flashback-to-80s-Texas-1809020.php

Yeah, I'm sure it's different this time. Your city would never have a housing crashed caused by, say, a narcissistic ruler imposing tariffs in a bid to save jobs.

zolotiyeruki

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Re: House buying advice! Should I be as frugal as possible???
« Reply #36 on: April 05, 2017, 09:27:09 AM »
There's some market timing going on in this thread.

Houston had a down market for over 10 years after the 80s oil crash. In other words, if you bought in '81, you'd be lucky to get what you paid in '95 (ignoring inflation).

http://www.chron.com/business/article/Burns-Housing-bubble-a-flashback-to-80s-Texas-1809020.php

Yeah, I'm sure it's different this time. Your city would never have a housing crashed caused by, say, a narcissistic ruler imposing tariffs in a bid to save jobs.
FWIW, Houston is very much *not* geographically constrained--if housing prices start edging upward, developers just build more houses further out!  We bought our house there for $105k in 2005, and sold it in 2011....for $105k

ysette9

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Re: House buying advice! Should I be as frugal as possible???
« Reply #37 on: April 05, 2017, 09:52:58 AM »
The geographical constraint or lack thereof is a huge factor. When you are not constrained by geography and/or building codes, there is no real reason for prices to increase more than inflation because supply can keep up with demand. When you have constraints and demand outstrips supply, economics say that no one should be surprised that prices go through the roof.

Take a look at the two price curves for cities in CA: Bakersfield is like Houston in that it is hot (literal) mess of urban sprawl and has little in the way of building codes limiting expansion. Builders will build up to the point that people aren't willing to sit their butts in a car for that long each day.
Contrast that to Menlo Park in the Bay Area that is constrained by mountains, water, and NIMBY building codes. Compare how the housing crisis impacted each city.

bacchi

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Re: House buying advice! Should I be as frugal as possible???
« Reply #38 on: April 05, 2017, 12:02:37 PM »
Yes, Houston is not geography constrained but it didn't take a 15-20 year pause because of that. It took a dump because of oil and the fact that the Houston economy suffered high unemployment during the two 80s oil crashes.

Silly Valley is said to be geography constrained and prices decreased during the dot bomb in 2001. If you bought in January 2001, you would've been break even only in 2004. Of course, Silly Valley developers can just build farther out as well:

http://www.mercurynews.com/2016/11/02/job-boom-intensifies-traffic-and-housing-woes/

Quote
One takeaway from the studies that stunned experts: The Silicon Valley “megacommute” — defined as a single motorist driving 90 minutes or longer one way to work — is actually worse here in the Bay Area than is the case even in traffic-choked Los Angeles County.

Given Silly Valley's over reliance on Web 2.0, when the unicorns start to lose their horns (how much of a moat does Uber really have?), prices will drop. Ya know, like Portland in 2012, when I should've bought that new condo for $60k that's now going for 250k.

ysette9

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Re: House buying advice! Should I be as frugal as possible???
« Reply #39 on: April 05, 2017, 12:32:23 PM »
Quote
If you bought in January 2001, you would've been break even only in 2004.
Three years to break even? That is a blip in my mind.

In my experience many of the people doing those crazy commutes aren't actually living in Silicon Valley but live in the far outlying areas and choosing to commute in. Those of us who live in the Bay Area tend to not consider places like MOrgan Hill, Gilroy, and the central valley as being part of "Silicon Valley". I personally think people who spend three hours a day in the car to be crazy, and there is a little bit of crazy out there everywhere, not just in geographically constrained areas.

It seems like you are indicating that you think a crash will come in the job and therefore housing market here. It is certainly possible and since most things in life are cyclical, I expect there will be a downturn at some point. I, too, question the fundamental staying power of companies like Uber, but who knows? I was reading something in The Economist a few weeks back where they did an analysis of tech, asking if it was a bubble or not. Ultimately their analysis said that the fundamentals don't indicate a bubble though things do look a little pricey.

Even if the Ubers and whatnot go belly-up there is a lot more to this economy than a bunch of apps. We still create a lot of the technology that runs chips, servers, cloud computing, routers, not to mention biotech, aerospace, multiple universities and colleges (including two Ivy-quality universities), and more. I'll place my long-term bet here. :)

ChpBstrd

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Re: House buying advice! Should I be as frugal as possible???
« Reply #40 on: April 05, 2017, 08:57:36 PM »
It's kind of the same rationale for buying a truck.

  • Can you make money with it?
  • Do you have a plan to achieve FIRE using this asset?

There's no point living in a HCOL area if you are pulling in a similar salary you could make in a LCOL area. To do so would be like owning a truck for the "image". However, if you're a $180k/year software developer, living in the Bay Area might make sense, because you'd be a $80k software developer anywhere else.

Still, if you're a $180k/year developer and can only save $30k/year because housing costs are so high, you might be better off with the flyover country job where you can save $50k/year on the same standard of living.

I'd be reluctant to sign a mortgage in a HCOL area. American history is full of stories of boomtowns that crashed - just nothing on the scale we're seeing. It's especially weird how the current boom is centered around technology, which does not depend on geography to be developed. Past boomtowns were ports, or mines, or oil towns, etc.

ReadySetMillionaire

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Re: House buying advice! Should I be as frugal as possible???
« Reply #41 on: April 05, 2017, 09:00:55 PM »
I'm still at a complete loss as to why OP sold his current home. Seems to me that he didn't like the development of additional condos, which he thought was going to cause excessive supply, which he thought was going to decrease his property value, so he sold.

This is the "market timing" equivalent of home ownership. Other posters--do not do this.

Seems like the ship has sailed, so I'll just chime in with my normal rant that starter homes are complete bullshit. The transaction costs, furnishing a new house, etc. in buying and selling will eat any "profit" you may make.

So buy the home you think you'll live in for fifty years. Treat it like your 401k--don't worry about its value, take care of it, and let is slowly become an asset and tool for your early retirement.

pbkmaine

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Re: House buying advice! Should I be as frugal as possible???
« Reply #42 on: April 05, 2017, 09:06:44 PM »
I'm still at a complete loss as to why OP sold his current home. Seems to me that he didn't like the development of additional condos, which he thought was going to cause excessive supply, which he thought was going to decrease his property value, so he sold.

This is the "market timing" equivalent of home ownership. Other posters--do not do this.

Seems like the ship has sailed, so I'll just chime in with my normal rant that starter homes are complete bullshit. The transaction costs, furnishing a new house, etc. in buying and selling will eat any "profit" you may make.

So buy the home you think you'll live in for fifty years. Treat it like your 401k--don't worry about its value, take care of it, and let is slowly become an asset and tool for your early retirement.

I agree. We have friends who've bought and sold 3 houses in the past 3 years. There was something they did not like about each one. Between realtor fees, new furniture and other costs of sales, they must be out about $150k. It boggles my mind. Buy the house you want to live in forever.

ChpBstrd

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Re: House buying advice! Should I be as frugal as possible???
« Reply #43 on: April 06, 2017, 07:37:23 AM »
^The paradox is, you don't know what you will want/need in the future. In my previous life, I shopped for 3 years for a house that had parking for my boat and a few other rare amenities. Turns out, I sold my boat 2 years later and now have no plans to ever get another. I almost never use the other amenities I spent so much time and money to obtain.

The solution which allows you to spend less on housing and to FIRE sooner is not to look for an ever-changing definition of perfection, it's to not be so picky about things like size, yard, cosmetics, and layout in the first place. Being less picky would have enabled me to buy a foreclosure for cash and be mortgage-free today. Instead, I have 22 years of payments and a higher FI number to reach. But I have a house that very well fits a lifestyle based on consumption, entertaining, etc. that is no longer my reality, if it ever was. Trading down would cost enough not to be worth it.

ysette9

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Re: House buying advice! Should I be as frugal as possible???
« Reply #44 on: April 06, 2017, 03:07:27 PM »
Good point. Hopefully I can keep that in mind as we look at houses. At this point I am of the opinion that location is #1 and the ability to make the property what we want is a big factor. Everything else can be changed. I don't want to remodel, but I could if necessary. I cannot make the right house be in a different location though. I made the mistake once of buying a great place in a poor location and I hope to never do that one again.

Dmy0013

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Re: House buying advice! Should I be as frugal as possible???
« Reply #45 on: April 10, 2017, 09:44:27 AM »
Lots of awesome comments!

Sorry for not replying sooner we moved our stuff into storage this weekend, and we will be moving it out of storage in a few weeks into our new home.  Before you tell me storage is a big waste of money, my local storage place has a first month free deal going on, with no contract to sign.  So yes my storage was free!  Also traded a bit of manual labour to get my hands on a trailer and truck for the move.  Called in friends and supplied lunch, got boxes from my local grocery store for free.  So yes Mustachian in my opinion.

Ok lots of comments about selling my original home which was an apartment style condo of 900 Sq Feet (1000 including the deck)
Maybe it was right or maybe it was wrong.  We are currently bursting at the seems in that condo.  It has NO storage, No Garage, NO shed, and very strict rules about putting stuff on the deck.
It has 2 bedrooms 2 baths.  We are a married couple with an 8 month old son.  Somewhat of a side story but we had a lot of problems getting pregnant the first time, and we have been told if we want more kids that we should wait about 18 months and get right back into the swing of things.  So we are planning on expanding out family again in roughly a year, and we just dont feel like we have the room in the condo.

I had made a comment that we are not big into consumer junk, however we do have a lot of toys and gadgets for our son.  We do typically buy everything second hand, and the rest has been gifts.  Now I understand that a baby is happy playing with a plastic cup.  But at the same time we want to make sure he has toys to learn and independently play with, things that sing the ABC's etc.  Is it a big waste of money?  I dont know but Like I said its all second hand or gifts.  So the small amount of "consumer junk" we have is baby toys etc.

We also live in an area where there is snow on the ground for 6+ months out of the year, so going outside to play is not as easy here as other parts of the country.

I understand everyone is going to have their own opinion...  To some of you a home of 900 Sq feet might be huge, to others it might be extremely small... did I try to time the market... Yes and No...
The main reason I sold was because we planned to have more children in the near future, and we did not have enough room in our current home in my opinion... Yes I'm sure we could have gotten bunk beds or something but I would prefer not to.
As far as timing the market goes I guess everyone has there own opinion... We were going to sell this summer no matter what, then we decided to put it on the market after christmas to avoid the spring rush of homes and also the new build of the condos down the street.  Yeah I guess I tried to time the market... In my head it makes sense but it would not be the first time I made a financial oops.

We did end up purchasing a home that was a hair over our budget. I did not want to mention this in earlier posts as I feel it would have created its own discussion and confusion, but where I live introduced a new budget for the future and part of that budget was adding a 6 % Tax to new homes, so we were able to work around this tax.  This will also be a home we plan on being in long term 20 + Years.

I appreciate everyones comments and advice!

zolotiyeruki

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Re: House buying advice! Should I be as frugal as possible???
« Reply #46 on: April 10, 2017, 10:35:12 AM »
We did end up purchasing a home that was a hair over our budget. I did not want to mention this in earlier posts as I feel it would have created its own discussion and confusion, but where I live introduced a new budget for the future and part of that budget was adding a 6 % Tax to new homes, so we were able to work around this tax.  This will also be a home we plan on being in long term 20 + Years.

I appreciate everyones comments and advice!
Come on, now, you can't say "we bought a  house" in a "which house should be buy?" thread without providing more delicious details! :)

Cpa Cat

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Re: House buying advice! Should I be as frugal as possible???
« Reply #47 on: April 10, 2017, 10:46:57 AM »
My inclination was to tell you buy the house you want. But... I feel like we've been presented with a false dilemma.

Why isn't there a third option of looking for a house that is not $400k and not $540k, but instead within your $500,000 budget? If there are only two houses available right now, then maybe you should wait until something more suitable comes on the market.

Dmy0013

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Re: House buying advice! Should I be as frugal as possible???
« Reply #48 on: April 10, 2017, 08:21:29 PM »
The house we purchased ended up being 9 thousand over our preset budget.

It will be a long term home expecting to stay there until our kids finish school and then who knows the future from there.  It is in a newer area with a beautiful playground roughly 2-3 blocks away.  We will end up being about 6-7 blocks away from shopping which will include a large grocery store.  I think that is easily walkable once our son gets older and for the short term we can bike there!

The house has enough bedrooms for us to continue to grow our family, it has a bonus room we plan on using as the play room and it also has a smaller living room on the main floor, which we will just use as a small sitting room (no TV)

The Master bedroom is on the smaller side but we will make due :)  Basically the house seems like the right fit for us!  Big enough for us to grow our family! A nice separate play room for my son.  A basement and a garage for us to store the out of season baby / kid items.  Lots of young families around us and a play ground a short walk away :)  The adult stuff is nice but simple, but I think its gonna be a great house to raise kids :)  Funny how kids change your priorities in life. 

Financially it is on the higher end of what we wanted to spend, however we are still able to continue saving a good amount of our income, and leave our emergency funds in tact :)  as of course those are for emergencies