Reader Case Study -- Buying a House

[Dude on a Mission]

First off - I apoligize for the length of this post.

Income: $113k/yr with good growth potential in the next few years.

Current Expenses: $3,800/mo (15 year mortgage @ 3% is $1,650)

I stumbled upon MMM about a month ago. I've read some random articles and then decided to start from the beginning. I already did lots of Mustachian things like cut my own and my son's hair (my daughter and wife won't let me near them), roast my own coffee, buy cheaper used cars (one Prius, one Outback), etc.

But now we're coming up to a huge decision - buying a new home. We currently live in a ~1,600 sq ft, 1.5 bath, townhouse that we can't wait to get out of. We never intended to stay more than 5 years but we timed the market perfectly (buying at the zenith in 2005) and didn't have any equity until recently. Our only debt is our mortgage and small balances on car loans (I know - not good).

Single houses with 2,000-2,500 sq ft, 3-4 bedrooms/2+ baths in our area run a minimum of $300k and more like $350k and up for something nice. That seems like a crazy amount of money to me, especially when I want to do the whole early retirement thing. I really want to be close enough to bike to work (I am about to attempt my first bike commute to work - a 12 mile ride on a paved/gravel bike/walking trail) comfortably.

My wife is an itinerant vision teacher and drives ~15k miles per year for her job...she gets reimbursed at IRS rate which we use to save for next Prius. She is looking for a classroom teaching job but there are about 100 appicants for each opening. We also don't want to move the kids out of their school which greatly limits our area to buy a house. In fact there are zero towns with more than a post office where we're looking.

Do we move in to a very nice house we found for ~$315k but would have lots of outdoor maintenance with 4 wooded acres and long/steep driveway (snow in winter)? Do we wait till she (hopefully) gets a classroom job and then move? Do we move the kids out of their school (same district though) to the one town in our district with library, food stores, park, etc all in walking/biking distance? Do we just stay put for now? Any Senior Mustachians care to weigh in on this? I want to make the correct choice but right now I'm confused and frustrated.

[themagicman]

How much do you expect to  bring in from the sale of your current house? Any savings?

[CALL 911]

The thing about mustachianism is there is no right way, only your way.
On a mustachian scale, I'm probably a solid 5, maybe a weak 6. MMM is probably an 8+ or 9.

And I would like to be a bit higher. I have reasons for the things I do that are anathema to the ethos of the mustache. And that's OK. As long as I'm looking to grow.

Sometimes there are obvious things to fix (daily Starbucks, soccer mom with a dually, 5,000 sq ft for empty nesters). Some things are harder.

All that having been said: If you have to move, I would go to town. I think an important part of the simplified life is trying to pass it to the next generation. I've found kids (all people in general, really) discount a great deal of the things they hear. It is hard to discount the things they see.

You can proclaim driving bad/biking good as you load them into the prius to go buy shoes. They'll see hypocrisy, or make excuses (biking is good, buuuutttt . . .). If you say biking is good as you load them into the trailer, there is nothing but truth there.

Ultimately though, you can only do what is best for you, in total.

[Dude on a Mission]

How much do you expect to  bring in from the sale of your current house? Any savings?

Not much from sale of our house - maybe $10k. By the time we'd move early next year we'll have $30k in cash. So, not much really but that's mostly due to paying off almost every debt we had and maxing out my 401k.

[Future Lazy]

Single houses with 2,000-2,500 sq ft, 3-4 bedrooms/2+ baths in our area run a minimum of $300k and more like $350k and up for something nice. That seems like a crazy amount of money to me, especially when I want to do the whole early retirement thing. I really want to be close enough to bike to work (I am about to attempt my first bike commute to work - a 12 mile ride on a paved/gravel bike/walking trail) comfortably.

Why do you need a house this large for two adults and two children?  Are you planning on having more kiddos, and if so, how many? Enough to fill two extra bedrooms, where 2 kids fill one room?

How much do you expect to  bring in from the sale of your current house? Any savings?

Not much from sale of our house - maybe $10k. By the time we'd move early next year we'll have $30k in cash. So, not much really but that's mostly due to paying off almost every debt we had and maxing out my 401k.

So you're talking about putting 30k down on a 300k house - only 10% (where your other 10k is tied up in closing costs, moving expenses, etc). That means you're going to end up with PMI of several hundred per month, with a higher interest rate, etc - not very mustachian.

It kinda sounds to me like, financially, you're not prepared to move.

[Aphalite]

Why do you need a house this large for two adults and two children?  Are you planning on having more kiddos, and if so, how many? Enough to fill two extra bedrooms, where 2 kids fill one room?

Are you telling him to get a two bedroom and make the two opposite gendered kids share a room their entire life?

[Aphalite]

Don't be too attached to the same school - kids are very resilient, they'll adapt. If anything, getting them out of their comfort zone early teaches them what real life will be like. Move to the town where everything is close, that will save the most money in the long run

[Future Lazy]

Why do you need a house this large for two adults and two children?  Are you planning on having more kiddos, and if so, how many? Enough to fill two extra bedrooms, where 2 kids fill one room?

Are you telling him to get a two bedroom and make the two opposite gendered kids share a room their entire life?

It's what I plan on doing, until the oldest hits puberty. He didn't specify the age of his kiddos, either, so that's up in the air. It also tends to be that a lot of 'nice' 350k houses in America have lots of extra rooms besides bedrooms - extra living rooms and dens, basement rooms, office rooms, etc. These can easily be used as bedrooms.

[clarkfan1979]

More space is always more appealing until you have to clean it. My first primary house was 2200 sq. ft. with a nice yard (.28 acres) 4 bed/2 bath. I loved it for the first 6 months. Then I got sick of cleaning it. Sure, you could have a cleaning service, but that is not for this blog. I now live in a 1500 sq. ft. house (3 bed/2 bath) with a smaller yard (.17 acres) and prefer it much more. Less time cleaning means more time for fun.

I also agree with the other poster that if you are buying a house for 350K, you should have 20% down. I put down 20% for my first house. However, I only put 5% down on my second house. My second house was only 95K and I had 100K of equity on my first home at the time. The PMI for the second home is only $42/month. I could have rented an additional year to save more money but the rent was about $1100 for a 2 bed/2 bath condo at the time and my mortgage is $650. Based on those numbers, I justified it to myself that it didn't make sense to wait one more year. If I waited 1 more year I probably would have paid 20K more for a house. I bought at the bottom in Florida in Jan 2012. Good luck. 

[Dude on a Mission]

KaylaEM - the kids are opposite sexes ages 8 and 11 and won't be sharing a room. I mean no offense, but IIRC your profile said you're 22? I think you may have a different perspective on the kids sharing a room later in life. The 4th bedroom is not necessary but would be nice for extended visits from both sets of our parents. And I agree now that I've seen it written out plainly - I don't think we're ready either with only 10% down. We only need to save for another 9 months to get the other $30k for a $60k downpayment and avoid PMI (with additional equity from current house for closing costs).

aphalite - thanks for the vote of the town. That's what I want to do but it's not quite as spiffy as the other areas so I have to work on that option with my wife. It's also futher from her current job's starting point. Plus I guess I have a thing about making the kiddies change schools that I need to figure out.

clarkfan1979 - I would agree with not needing/wanting to maintain a large home/yard. I don't think a 2,000-2,500 sq ft house is oversized though. It's actually tough to find houses in that range around here. Most newer houses are 2,500-4,000 sq ft which could house a small militia. What really bothers me is the huge 1-5 acre yards around here and all the equipment I'd need to buy to maintain them.

Oh and Kayla - the places we're looking at generally don't have extra rooms such as a den/office/extra living room, though they do have a garage/basement. They would get used as they should - cars/tools in the garage, workout area/storage in basement.

[Future Lazy]

KaylaEM - the kids are opposite sexes ages 8 and 11 and won't be sharing a room. I mean no offense, but IIRC your profile said you're 22? I think you may have a different perspective on the kids sharing a room later in life. The 4th bedroom is not necessary but would be nice for extended visits from both sets of our parents. And I agree now that I've seen it written out plainly - I don't think we're ready either with only 10% down. We only need to save for another 9 months to get the other $30k for a $60k downpayment and avoid PMI (with additional equity from current house for closing costs).

aphalite - thanks for the vote of the town. That's what I want to do but it's not quite as spiffy as the other areas so I have to work on that option with my wife. It's also futher from her current job's starting point. Plus I guess I have a thing about making the kiddies change schools that I need to figure out.

clarkfan1979 - I would agree with not needing/wanting to maintain a large home/yard. I don't think a 2,000-2,500 sq ft house is oversized though. It's actually tough to find houses in that range around here. Most newer houses are 2,500-4,000 sq ft which could house a small militia. What really bothers me is the huge 1-5 acre yards around here and all the equipment I'd need to buy to maintain them.

Oh and Kayla - the places we're looking at generally don't have extra rooms such as a den/office/extra living room, though they do have a garage/basement. They would get used as they should - cars/tools in the garage, workout area/storage in basement.

As mentioned to Aphalite, I wouldn't advise opposite gendered kids hitting puberty to share a room - and it seems like your kids are at that age, which does justify them each having their own room, that's correct. My DH was raised in a family with 9 kids, in a 4 bedroom house, where there was essentially a Kids Room, Boys Room and Girls Room and Parents Room/Nursery. Kids sharing a room is okay, but it's important for separation to happen when, y'know, changes happen. I don't really think that has to do with youthful naivete, or that it's absurd, since it seems to be the pattern you're following.

That being said, basements are not necessarily for storage. Cordoning off half of a large basement room makes an excellent bedroom; I would know, I live in one :). In fact, it might be fun for you son or daughter to get creative building their own room like that. IMHO, anything your considering storing also needs equal consideration before completely dismissing the options to sell it or donate it. Empty space accumulates more stuff, and isn't necessarily good.

Likewise, extra bedrooms are not necessarily for guest rooms - having a guest room or a home office is a huge luxury; 2,500sqft-4,000sqft newer houses in my area go for the same as you're describing, or more, especially 'nice ones'. They're essentially mansions. In the same area, you can rent out a single bedroom in a house like that for $500 (or more), and still ask your renter for money to cover utilities; that's what we call opportunity cost.
http://affordanything.com/2014/09/02/how-i-earned-an-extra-40800-in-two-years/

Make sure you're not confusing wants with needs. Just because you can, it doesn't always mean you should...

[MayDay]

Having recently house hunted for 3-4 bedroom 2 bath houses, and having 2 kids, I can add my opinion with authority.

In our search, 1800-2800 sq ft houses were reliably 4 bed, 2.5 bath, plus basement. Most had either one or two "extra" rooms- either den, formal living room, formal dining room, etc.

We wanted a 1500-1800 sq ft house with 3 bedrooms and one "extra room" that could function as a combo office/guest room. We wanted one main bathroom and a small master bath with just a shower. We couldn't find this. Didn't exist in our town.  In retrospect apparently a year just wasn't long enough to wait as 2 or 3 eventually came on the market. At the time we had looked a solid year and thought it was time to give up.

We ended up with a 2700 sq ft 4 bed/2.5 bath with a full unfinished basement. If we finished the basement it would be about 4200 sq feet. It would be insane. As is, it's still insane. We thought "oh it seems a little big now, but as the kids become teenagers we'll want the space".  Nope. But when we have to replace the carpet we'll have to replace twice the square footage. When we 're-roof the cost will be double. Etc.

We are probably putting it on the market this spring, renting a while if needed, and waiting for the right smaller house.  I just can't deal with the mcmansion any more.

[mozar]

4 acres will greatly reduce your time spent with family.
How long does your family tend to visit for? If it's just a few days a year you could get away with a murphy bed or a set up in the basement. Definitely wait and see if your wife finds a job. I still don't understand why you need to move though.

[Dude on a Mission]

4 acres will greatly reduce your time spent with family.
How long does your family tend to visit for? If it's just a few days a year you could get away with a murphy bed or a set up in the basement. Definitely wait and see if your wife finds a job. I still don't understand why you need to move though.

I agree with the land taking up time. Although it's 90% wooded so there's not quite as much maintenance as you might suspect. In-laws live in FL and will visit for weeks at a time. We recently had my mother-in-law sleeping on a cot in our living room for 2 weeks - it wasn't fun.

As for needing to move...we don't NEED to move but we'd really, really like to. Our house is a poorly built townhouse and next door we have a boderline psychotic neighbor. She yells profanities at our and other kids, she parks her large SUV so that it's partially in my spot, she throws lit cigarette butts into our gardens, she has parked in our family and neighbors' cars when they parked in a pseudo-spot (there is not enough parking in our development) near her SUV, we *think* she has done various vandalism to our property, etc, etc. We get along great with everyone else but she's actually scary....not sure what she's capable of doing.

[Dude on a Mission]

MayDay - that is exactly what I want to avoid. Too much house with associated cleaning/maintenance/taxes/furniture is not good. The carpet is true, but not sure you'll have twice the size of roofing unless it's a rancher. This is why we're looking at 2,000-2,500 sq ft houses. Maybe I should clarify that that would include basement area. So maybe we're actually talking about more like 1,800-2,200 sq ft.

[MrsPete]

Throwing out a completely different thought:

You're happy with your area . . . you want the kids to stay in the same school district . . . you have little equity.  I'm not clear on whether the kids are currently sharing a room, but I do agree that they should have their own rooms -- but I don't think they need to be large rooms. 

Instead of moving, could you remodel in such a way that your 1600 sf would be acceptable?  That is, could you put some money into adding some nice storage, beefing up those bathrooms to a full 2, and giving the whole place a real facelift?  You could do this for less money than buying /moving. 

As for the psycho next door, keep in mind that her twin sister could move in next to you in your next house, or she could move away from you tomorrow.  You do need to consider the general neighborhood's "feel", but you can't base it on one individual. 

We wanted a 1500-1800 sq ft house with 3 bedrooms and one "extra room" that could function as a combo office/guest room. We wanted one main bathroom and a small master bath with just a shower. We couldn't find this. Didn't exist in our town.  In retrospect apparently a year just wasn't long enough to wait as 2 or 3 eventually came on the market. At the time we had looked a solid year and thought it was time to give up.

You've hit about 90% of the things we want . . . and we've not found it either.  We want to move back to the country when we retire, and the house we want just doesn't seem to exist.  I think our issue is that we want something that's in "entry level size" -- like you, 1500 sf sounds pretty good.  But we want some upscale items like a walk-in shower and walk-in pantry, lots of storage everywhere, and some upscale finishes.  We can find plenty of houses in the size range, but they all have large rooms, piddly storage, and tiny bathrooms.  If we look at larger houses that have the upscale items we want, they ALSO have upscale items we don't want -- like 6-burner commercial ranges, too many bathrooms, oversized master suites.  We want items that don't typically exist together, so we're going to end up building. 

[mm1970]

Why do you need a house this large for two adults and two children?  Are you planning on having more kiddos, and if so, how many? Enough to fill two extra bedrooms, where 2 kids fill one room?

Are you telling him to get a two bedroom and make the two opposite gendered kids share a room their entire life?

Well, that's what my MIL did in Europe.  Lived in a 1BR, shared the BR with her older brother.  Parents slept in the dining room.  Europeans not so hung up on things though.

Anyway, it sounds like their townhouse has 3BR, so why not just stay there?