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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: jarcher777 on November 05, 2013, 12:23:18 PM

Title: Reader Case Study - Should we purchase a place closer to work?
Post by: jarcher777 on November 05, 2013, 12:23:18 PM
Hello fellow Mustachians!  I'd like some help with this particular situation.  My wife and I currently live about 20 miles away from both of our jobs which are in the same city.  We currently car pool together but I have wanted to move closer to work for some time now, while she likes the smaller town that we live in.  We have been looking at the possibility of purchasing a place closer to both of our jobs; however, there is a possibility that we would move after I finish my degree which is being paid for by my company.  The soonest we would move is about 3 years out but that is also "if" we move.  With this in mind, it was always our intention that if we bought a place we would choose a place that would be a decent renter upon the possibility of us leaving.  Well, my wife was searching around mls the other day and found a place that would be a pretty good compromise to what we both want.  Overall, I also like the place from what I've seen but I'm just not too sure if we are in the best financial position to go forward and want to figure this out before we schedule a showing or anything crazy like that..... The main thing that worries me is we would be dipping into our "Emergency Fund" to come up with the 5% down (ideally I would want to put 20% down to avoid PMI but that's not a possibility right now).  Below are before and after budgets to get a better view of where we are at and where we would be at if we went through with buying a place.  FYI, we are in our early 20's and the place we are looking at would bring approx 1600-1700 per month in rent, maybe more.

Current budget

Average monthly take home pay = 4530.00 (Take home pay does not include 401k deductions(450 per month + 100% match), Medical deductions (insurance at 160 per month), and HSA contributions (560 per month).

Charity           453
Rent              1000 (1br + 1br 540Sqft, 20 miles from work & college classes)
Utilities               85
Groceries               300
Restaurants       100
Gas             300
Insurance              250
Meds         50
Blow Money       200
Entertainment      100

Total Expense      2838.00

Investments       1692.00

Total           4530.00

After Budget

Average monthly take home pay = 4530.00

Charity         453
Mortgage+T+I     1400 (30 year mortgage, 2br + 1ba 1050sqft + backyard. Work, school, grocery stores withing 2 miles)
Utilities           170  (Just my estimated increase for a larger place. Not sure if its accurate.)
Groceries         300 
Restaurants       100
Gas             125  (Wife would still drive to work plus our commute back to church on Sundays)
Insurance              250
Meds         50
Blow Money       200
Entertainment      100

Total Expense      3148.00

Investments       1382.00

Total           4530.00

Current assets.

14k      "emergency fund" ( 11k of this would be used for 5% down and approx closing costs)
34k      Investments (These are all in retirement accounts across Roth 401k and Roth IRA's)
3k      Month ahead buffer

Current Debts = NONE! :)

The biggest reason I want to move is to be closer to work and school, I am SICK of the commute, and this appears to be a good compromise between my wife and I (she is against renting again). 

Advice and face punching is appreciated!
Title: Re: Reader Case Study - Should we purchase a place closer to work?
Post by: grmagne on November 06, 2013, 09:48:41 AM
Based upon your estimates, I'm guessing that you'll be building about $300-$400 month in home equity during the first year after purchase? If so, it looks like your net worth will increase by about the same amount in both scenarios. Since you're also reducing your commute time, this looks like a good way to improve quality of life at virtually no cost. You're losing most of your emergency fund, but since you weren't investing it anyway, that's not a big concern.

And getting $1600/month in rent would be very nice relative to your purchase cost. If I bought a place for $400,000 in my city I'd collect approximately the same amount of rent; so you're in a much more enviable position there.

Have you considered going to a 25-year mortgage? Paying off your mortgage 5 years sooner at the cost of about $100/month seems look a good idea. MMM has plenty of suggestions for how to save $100/month without too much of a loss of lifestyle.

You're way ahead of most people in their early 20s and you're doing it with 10% charitable giving, which is quite impressive.  If you stay on the path and steadily advance in your career you'll achieve FI sooner than you think.
Title: Re: Reader Case Study - Should we purchase a place closer to work?
Post by: feelingroovy on November 06, 2013, 08:33:16 PM
No.  You're not ready to buy if you don't have 20% down.  And if leaving town in 3 years is a realistic possibility, you'll be eater alive in transaction costs.  Save a down payment over the next three years.  Then you'll be ready to buy on both counts.

Convince your wife to rent closer to work.
Title: Re: Reader Case Study - Should we purchase a place closer to work?
Post by: ghatko on November 08, 2013, 08:17:33 AM

Check out that calculator to compare renting vs buying a home. I would think that renting would likely come out better than buying since you could be moving in 3 years, but it really depends on the rental potential of your house (and whether you want to be a landlord while living elsewhere).