Author Topic: Mustachian First Time Home Buying: Buy Now or Stay in Rental Property?  (Read 2172 times)

The Mobile Mustachian

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Hello everyone,

My wife and I have been married for about 2 years (28 and 30) and have no children. I own a duplex with a business partner and we live in the second floor unit currently paying $850 per month. Profits from the property are divided evenly. So I typically make about $300 back per month as income and I'll continue to make that whether I live at the duplex or in my own single family home. The duplex has 24 years left on the mortgage.

At our present savings and investment rate, we will reach FIRE in 10 years, which we are very excited about (saving 55k per year at present). This assumes that we will be living in our duplex permanently. When we have children, our plan is to move into the downstairs apartment which would be about $1050 per month. We have been discussing whether to take the plunge and buy a single family home which would reduce our savings rate by about $9,500 per year since we will be responsible for maintenance vs. my business and also a cash outlay of around $40,000. This will set us back roughly 2 years on FIRE, but would mean that we have a permanent home that we own independently of my LLC. Alternatively, we could differ buying a home for a few years, but I am concerned about rising interest rates.

I would appreciate your thoughts on whether you would recommend staying in the rental or buying our own single family home.  Or is there another hybrid option that I am not thinking of? Thanks for your assistance in advance.

Here is the list of my positives and negatives:

Live in the Rental Property

Positives

  • +$750 savings per month (9,000 per year)
  • Achieve FIRE in 10 years and be able to be a stay at home dad when our child(ren) would be around 5 years old
  • Greater mobility - current plan is to spend spring, fall in Pennsylvania, summer in Washington state, and winter in Florida
  • Maintenance is easy - if I am not around, my business partner addresses all issues

Negatives
  • Rent will never go down, so in 30 years we will still be paying $850 + cost of inflation
  • I'm a handyman, so I feel inhibited by what I can and can't do with the rentals (for example: add a fireplace, central air, paved walkways)
  • Less privacy and space. We can hear our tenants occasionally and I'm sure that they can hear us despite some improved soundproofing. Given the somewhat close quarters, intimacy will be difficult once we have children
  • Basement laundry - my wife and I need to walk outside and around to the basement to do laundry which is awesome in the winter
  • Neighborhood we are in is fine for now, but the surrounding area within 3 - 4 blocks has been going downhill for a long-time. So there is a risk of neighborhood safety going down in 5+ years.

Buy a Single Family Home

Positives

  • More privacy and space
  • Possibility to use this as a future rental if we relocate out of state
  • Ability to do handyman projects and setup a workshop
  • When paid off, housing costs will go down to about $650 per month (insurance, taxes, maintenance)
  • Relocate to a neighborhood with better schools and closer to parks

Negatives
  • -$750 per month savings ($9,500 per year)
  • Achieve FIRE in 12 years instead of 10
  • Be a stay at home dad 2 years later when our child(ren) are 7 years old instead of 5

Thank you very much for your feedback!

seattlecyclone

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I'm curious about why you feel unable to improve your current house. Is your business partner hesitant to use LLC funds to pave the sidewalk, put in a fireplace, or make other improvements? If that's the case, what would it take to buy him out? Might that be a cheaper option than buying a new house for yourself?

I would probably stay put for now if I were you. You say your current unit is large enough for you and your wife. You'll need a bit more space when you have kids, but you say that's five years away. Why pay for the extra space so long before you need it? Interest rates might go up between now and then, but they might not. At the rate you're saving, you'll have something like $250k saved up in five years to pay cash for a house if mortgages become less of a good deal by then.

mmmellen

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I would stay where you are for now.  I always wanted to buy a two family house, but my husband at the time wanted a single family.  Financially we would have been much better off with a two family.  Your rent is low, and to me it would be better to stay where you are, unless you would want to invest in another two family house with a larger space for your anticipated family.  As you are handy, you could increase the worth of the new two family and gain more equity quickly for a single house if wanted down the line.


Also, I was confused about your plans to stay in three different places in early retirement.  Are you planning to home school your children?  If not, it could be difficult to be moving so much between schools.

I wouldn't worry too much about mortgage rates as house prices tend to go down as mortgage rates rise.  You can always remortgage into a lower rate, but you cannot renegotiate the price of your house after it's bought.

Good luck!


good luck!

feelingroovy

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Other hybrid option: buy, without your partner, another duplex and live in one half.

This is what we did.