Hey folks,
I came across this forum recently and I found the posts here really helpful. Most values on savings, early retirement and investment match mine well. So I came here asking for some help on my cases.
I got married early this year and moved to a condo that my husband purchased a few years ago. The condo is about 700 sqft. Because both my husband and I had purchased furnitures before our marriage, we found 700 sqft is not big enough for two sets of furnitures. We do not want to sell them because we think they will be useful in the future. In addition, we plan to have a couple of kids next few years, so we are considering buying a larger house to start the new family. I think 1500 sqft is a reasonable and "affordable" housing size for my family.
Unfortunately, we live in bay area, maybe one of the most expensive places in the world. The bidding war make things even worse. We have made 4 offers since our marriage. The first one listed as 920k, we offered 1M, the house sold for 1.25M. The second one we offered 1.1M, and sold for 1.25M. The third one we offered 1.25M, and sold for 1.4M. The 4th one we offered 1.4M, and sold for 1.55M. They were all approx. 1500sqft houses and all happened this year! three of them were sold for all cash.
We now stopped participating the bidding war as we feel it's not right to chase after the housing price. Actually, the last two offers I did not feel comfortable. It is very easy to write a number to offer, but I'm going to pay for it. So we are looking for other ways to solve our housing problems.
Option 1: forget about purchasing a house now. Sell the extra furnitures. Continue living in the tiny condo for a few more years while saving more money. There's some questions following this option.
a. My colleagues told me that I can continue contribute to after tax 401k and convert them to roth. Is it a good idea? How much should I put my dollors there?
b. How should we invest our down payment if we do not buy a house now?
c. I do think we need a larger house in at most 3 years. Is it better to buy now or wait for a better chance to come in 3 years? I'm a little bit worried that we will never catch up with the housing price. For example, our 4 offers all happened in this year, and the housing price went from 1.25M to 1.55M, which is 300k. The price increasing speed is much faster than our saving rate. I'm not positive the housing price will go down in the near future.
Option 2: Lower our requirement for the house to purchase. Previously we were looking for a single family house close to work and shops, safe and quiet, with good elementary school and not require too much requirement. Maybe we can consider townhouse without good schools. A christian private school only costs about 15k a year, while good school houses cost 200k-400k more. My question is:
a. I do want my new house to keep the value or increase, at least not fall down too much. Our agent told us to avoid townhouse, because it does not have land, and we need to pay HOA. The house can only gets older and older so it does not maintain the value. Is it a good idea to spend 1M on a nice townhouse?
b. If we choose this option, we thought we still imagine one day that we can afford a single family house. If so, is it necessary to buy a townhouse now?
Option 3: Rent a larger one when we actually have kids. My parents and my husband's parents strongly discourage we do so. They said we are helping others pay their mortgage without building our own equity. Also, the rental price also went crazy these days. My friend's 1000 sqft 2b apartment cost him 3k per month!
Option 4: any suggestions?
A few notes on our house hunting tour. Our current condo is at a very good location, close to both working places, walking to parks, grocery stores. We will not make any decisions to downgrade our life by spending more money for a worse house. For example, we will not consider any houses with much longer commute time.
Here's our basic financial status:
Age: I'm 26 and my husband is 35. No kids yet but plan to have a few soon.
retirement goal: 15 years? 20 years?
Income:
My base is 100k and my husband's is 150k. We also have unpredictable bonus and stock (50k - 150k).
Regular take home pay is about 10k monthly (after maximizing pre-tax 401k, my husband's ESPP, insurance).
Monthly expense:
Housing and utility: 2300 (including mortgage, HOA, utility, tax)
Piano lessons & piano rental: 350 (Both my husband and I really love piano, but we couldn't afford to learn piano when we were small....I know this sounds not right to mustachian, but we believe the early we learn the more we can enjoy it.)
Car: 800 (including a car loan, gas, insurance.)
Grocery: 150
Dining out: 100 (After piano lessons, I do not have time to prepare dinner, so my husband and I go on date after every piano lesson.)
Charity donation: 2000
Phone: 40
No cabled TV.
Others: < 300
Travel: Budget is 10k annually from bonus...but maybe only 5k will actually be used this year (for honeymoon).
Support for my parents: 10k annually, also from bonus. (some background: my parents did very successful business and 'retired' before 40. Then they moved to Asia and became full time missionaries and donated all their money. They do not have any savings for retirement as they believe God will provide them. Fortunately, I now have enough money to support them.)
Considering we already maximizing 401k, ESPP, the saving rate is more than 50%
My husband and I have a monthly financial planning meeting. We check all the bills of the last month, put all saved money into mutual fund, discuss on large item purchase (e.g., house or any thing costs more than $100).
Liability:
A new car loan $20k @ 0.9%APR ( My husband previous car was 18 years old with 160k miles...we were tired running to repair shop often so we bought a new car)
Mortgage $200k @ 2.8% APR 15 year fix
Asset:
House equity 300k (Our neighbor with the same floor plan recently sold for more than 550k, so we think we have around 300k equity. We plan to sell this one if we bought a new house. )
401k: mine 60k. my husband's 90k.
Cash: 200k (This is planned for new house downpayment, so it's cash staying in the saving account).
Investment: 150k (mostly stock index, REIT)
Insurance:
I have 300k term life insurance (As stated above, for my missionary parents...).