Rent or buy?

[Half Stached]

We currently rent and have been planning to buy a place when we retire in two years. Our rental is between our two jobs; I have a 10-15 minute commute and my wife's commute is 20-25 minutes. The area that we want to purchase our retirement home isn't too far from here - probably about a 45 minute commute from work for each of us.

Given how the market has been performing lately, we've started talking about buying a place sooner to mitigate risk. So, we currently have 2 options we are considering:

1. Continue to rent. This keeps the commute low, but also keeps all of our savings in the market.
2. Purchase our retirement home and commute from there. This would mean 2 years of long commutes, but would diversify our portfolio by moving a significant portion of our savings into our new home. We would then have no mortgage and no rent.

My primary goal is to maximize the probability that we are able to retire on target in April 2019. We are currently tracking to about 5% over our retirement target (retiring earlier doesn't really work due to the way my bonus pays out). We can handle the longer commutes for a while, but aren't really excited about it. What would you do?

[SimpleCycle]

I would keep renting, but move the house money to a lower risk investment.

[Hargrove]

Yeah just move the house money into bonds or a 2-year CD or something. This is like a real-estate version of timing the stock market.

Guaranteed losses: terrible commutes making the last 2 years at work as bad as possible, 100% of additional gas and car repair money lost, all of the 1-3% over 2 years (2-6%) if the money were invested - lost.

For...

Maybe gains: maybe the housing market goes up, and maybe it also goes up more than the money we lost above. Or maybe it just goes down.

[Half Stached]

Hmmm... I don't understand this recommendation. Currently, rent accounts for about 38% of our annual spend, while car expenses (including gas) is less than 2%. If car expenses increase by 2%, but the 38% disappears, this seems like a significant tradeoff, even given the increased commute time. Granted, we will not be making money off of the money that moved from market investments to the house, but instead will be able to take the money that would have gone to rent and instead invest it. What am I missing?

[Hargrove]

The fixed cost of cars and rent is a different metric from what percentage of your budget these things are. Also, if rent is 38% and you buy a house, the 38% doesn't go to zero, it goes to bought a house. Rent is not always so much more than ownership over short periods, but 38% of your money on rent seems like a really high rent immediately pre-FIRE. I don't know how it compares to the house you're looking at.

2-3x the work driving is almost 2-3x the gas bill, and possibly higher maintenance costs. It's also 26 hours of extra time from you and 20 hours of extra time from your wife each year. Your decision is a calculation of

(gains/losses from buying the house now vs later) - (2-6% investment growth skipped) - (2 or 3)*(gas bill) - (car maintenance bill) - 52*(your hourly rate added driving) - 40*(your wife's hourly rate added driving) - (home repairs) - (your hourly rate)*(time doing house-related upkeep, mowing, etc) - (cost of house upkeep activity) - (any additional housing bills - water/sewer, oil, trash pickup)

all in the context of more or less anxiously waiting until you can stop working.

You will know better whether adding a commute to your jobs will make those last 2 years very very hard, or just a little harder, and can then assign some value to the extra time you would have to put in and whether that's all worth it for you. I didn't assume your rent was eating so much of your budget, but if your house is a downsize, buying it now should be weighted a bit more. If it's an upgrade, I would definitely wait, because in addition to the commute, your house will create its own work.

[mjb]

Hmmm... I don't understand this recommendation. Currently, rent accounts for about 38% of our annual spend, while car expenses (including gas) is less than 2%. If car expenses increase by 2%, but the 38% disappears, this seems like a significant tradeoff, even given the increased commute time. Granted, we will not be making money off of the money that moved from market investments to the house, but instead will be able to take the money that would have gone to rent and instead invest it. What am I missing?

It seems like you're comparing only cash flow instead of the entire financial situation.

Have you read these articles?

http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/

Also: a lot could happen in two years.

That's not to say you shouldn't do it! JL Collins says it best, "Life choices are not always about the money, but you should always be clear about the money choice you are making."