Author Topic: Should I buy this $400K house?  (Read 3959 times)

garth.

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Should I buy this $400K house?
« on: May 15, 2017, 10:53:23 AM »
Hey Mustachians! Need some advice...

We're moving across the country to upstate NY.
Im 34, married, have 3 young kids. My day job brings in $160K/year.
We have 1 million dollars saved up to invest in real estate to be financially independent within the next 5 years.
We have no debts, no car payments.
Having a decent house with a yard is a something we really want for our family as we really enjoy being outdoors and have always rented. I also work out of my house.

Goals:
1-2 years: keep my W2 job as we begin buying real estate and create residual income while leveraging as much as possible.
3-5 years: quit my job and dedicate more time to managing REI investments, while possibly starting own business.
5-10 years: continue to expand investments while possibly investing in other business opportunities.

We've had our eye out for houses for the past year and found one we like that costs $400K. It has potential to have value added (unfinished walk-out basement, dated kitchen, etc.). Were planning to put $80k down on this house. It would put our monthly housing payment (PITI) at around $2500.

Is this unreasonable? Have any other mustachians out there been in a similar predicament? Would this purchase put a dent in our financial goals listed above?

Thanks for any input!



JoJo

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Re: Should I buy this $400K house?
« Reply #1 on: May 15, 2017, 12:18:05 PM »
How long do you plan to be in the house?  Is family nearby?

lifeanon269

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Re: Should I buy this $400K house?
« Reply #2 on: May 15, 2017, 02:20:16 PM »
Hey Mustachians! Need some advice...

We're moving across the country to upstate NY.
Im 34, married, have 3 young kids. My day job brings in $160K/year.
We have 1 million dollars saved up to invest in real estate to be financially independent within the next 5 years.
We have no debts, no car payments.
Having a decent house with a yard is a something we really want for our family as we really enjoy being outdoors and have always rented. I also work out of my house.

Goals:
1-2 years: keep my W2 job as we begin buying real estate and create residual income while leveraging as much as possible.
3-5 years: quit my job and dedicate more time to managing REI investments, while possibly starting own business.
5-10 years: continue to expand investments while possibly investing in other business opportunities.

We've had our eye out for houses for the past year and found one we like that costs $400K. It has potential to have value added (unfinished walk-out basement, dated kitchen, etc.). Were planning to put $80k down on this house. It would put our monthly housing payment (PITI) at around $2500.

Is this unreasonable? Have any other mustachians out there been in a similar predicament? Would this purchase put a dent in our financial goals listed above?

Thanks for any input!

It is hard to give advice based on just the info given above.

Are you moving to a HCOL area? Upstate NY generally is low cost of living (except for taxes). Most people here would already be FIRE'd at $1 million. With no debts, what type of expenses do you have to prevent you from FIRE'ing today? Obviously a $400,000 dollar house would answer that question, but I'm sure there are plenty of homes in upstate NY that are well below that mark. A $400,000 house in upstate I am guessing is a very large house.

If this is what you value (which is totally understandable):

"Having a decent house with a yard is a something we really want for our family as we really enjoy being outdoors and have always rented. I also work out of my house."

I would think there are plenty of options out there anywhere in upstate NY that would fit that bill well below the $400,000 mark.

Do you have a desire and drive to manage and invest in real-estate in your future?

I guess what I'm wondering is what is preventing you from living in a house at half or even a quarter of that price that would potentially allow you to simply retire now for the rest of your life without having to manage/invest in real-estate.

I ask these questions simply because they're unknown about your situation, not because I'm looking to judge. Without understanding your situation better, it is hard to give good advice.

I live in Western NY and cost of living is dirt cheap. A $400,000 home is a mansion here.

wanderingdomer

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Re: Should I buy this $400K house?
« Reply #3 on: May 15, 2017, 06:38:17 PM »
Remember that western NY has some of the highest property tax rates in the country. In many areas, that means you are paying $12,000 to $15,000 yearly in property taxes alone on a $400,000 home.  Which may be okay on $150,000/year, but may not be as benign on otherwise low withdrawals from your investments.

SwordGuy

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Re: Should I buy this $400K house?
« Reply #4 on: May 15, 2017, 07:46:04 PM »
I have to say that in most parts of the USA, a $400,000 price tag is NOT a "decent house with a yard" - it's a mansion.

So, honestly, unless you are moving to a city with very expensive housing - as in NYC, DC, SFO, etc., I think you're likely in need of a good calibration on what "decent house" means.  :)

I took a quick look at Buffalo and Rochester prices and saw some decent houses there for a fraction of what you're talking about.
You could probably buy two houses next to one another and tear one down for a bigger yard and still save one or two hundred thousand dollars...

And if you're willing to live around working class folks - which by the way, I recommend - you could find one for a lot less.



Cat_Race

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Re: Should I buy this $400K house?
« Reply #5 on: May 17, 2017, 08:11:32 AM »
I have to say that in most parts of the USA, a $400,000 price tag is NOT a "decent house with a yard" - it's a mansion.

So, honestly, unless you are moving to a city with very expensive housing - as in NYC, DC, SFO, etc., I think you're likely in need of a good calibration on what "decent house" means.  :)


I'm in none of those places and 400K won't get you a detached home period, or an attached home with a yard and more than 2 bedrooms.  400K is decent condo range.  I was recently playing around looking at housing in Ohio, and 400K wasn't mansion range either (more in the 600K to get that). Calibration on both ends. :)

wenchsenior

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Re: Should I buy this $400K house?
« Reply #6 on: May 17, 2017, 08:44:53 AM »
Every time real estate comes up it strikes me all over again that housing cost has to be our primary consideration when we finally move out of this city.  Here is what a little over 400K buys you in a higher end housing development in a village near us.


https://www.trulia.com/property/3234697350-3-Stirrup-Ln-Ransom-Canyon-TX-79366


 I use this example because this house used to be owned by a friend of ours, and we had some good pool parties there.  This house is also on one of only two bodies of water for about 100 miles around.  The lot is huge. The pool house would be suitable as a mother in law house.

It has an elevator in it.

Housing is so amazingly cheap here.

Dee18

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Re: Should I buy this $400K house?
« Reply #7 on: May 17, 2017, 09:24:39 AM »
How long have you been looking?  do you know the market well?  You might check out the Frugalwoods blog.  they got a fabulous deal by really shopping hard for what they wanted.  I have two close friends who ended up selling houses for less than they paid, one in Vermont and one in upstate New York (not during the real estate downturn years).  Both houses were beyond commuting distance to a city or university (both in prosperous smaller communities with colleges).  Both houses were great, but above the average price for that sized home. 

charis

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Re: Should I buy this $400K house?
« Reply #8 on: May 17, 2017, 09:49:03 AM »
Where in upstate NY?  This can mean VERY different things to different people.  Anything north of NYC within commuting distance is still very expensive.  However, most of the actual upstate area is much cheaper and at 200K will get you anything you need (sq footage, land, modern updates, etc).   

However, there will always be certain neighborhoods in some cities where you pay more just to live there (historical or very popular urban neighborhoods), but that doesn't make them better, or where the homes are basically mansions.   So unless you want to pay a premium for a specific location or live in a mansion, you should be able to find something for well under 400K.  Remember that the property taxes are very high.

charis

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Re: Should I buy this $400K house?
« Reply #9 on: May 17, 2017, 09:51:25 AM »
How long have you been looking?  do you know the market well?  You might check out the Frugalwoods blog.  they got a fabulous deal by really shopping hard for what they wanted.  I have two close friends who ended up selling houses for less than they paid, one in Vermont and one in upstate New York (not during the real estate downturn years).  Both houses were beyond commuting distance to a city or university (both in prosperous smaller communities with colleges).  Both houses were great, but above the average price for that sized home. 

This is also a good point - you probably aren't going to make much, if anything, selling a high priced (for the area) home in upstate NY.

garth.

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Re: Should I buy this $400K house?
« Reply #10 on: May 17, 2017, 02:18:00 PM »
Appreciate the feedback! We've decided to move forward with the purchase. The house is in Victor, NY (a suburb of Rochester, NY). It's in Ontario county which has lower taxes, and also is near my family and in the school district that my kids cousins go to, so that was a requirement as the reason we're moving here is to be near our family. Other criteria was 1-2 acres of land for the kids to have fun on, and be a ranch (not colonial like everything normally is in this area). The house we found is not a mansion (2300 sq ft). Victor is the fastest growing town in the area and there's lots of building going on, and the lot we're buying is desirable, so I don't think we'll be losing money in the long run; if anything, gaining value if we finish the walk-out basement and find other value-add plays. We can always sell down the road if we get super serious about FIRE, but at this point I think covering our fixed housing costs with passive/residual income is our short-term goal. Plus we want to enjoy these years with our kids, so we're willing to sacrifice the cost. We could always pay it off in cash so we have that peace of mind.

Cranky

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Re: Should I buy this $400K house?
« Reply #11 on: May 17, 2017, 03:49:06 PM »
I have to say that in most parts of the USA, a $400,000 price tag is NOT a "decent house with a yard" - it's a mansion.

So, honestly, unless you are moving to a city with very expensive housing - as in NYC, DC, SFO, etc., I think you're likely in need of a good calibration on what "decent house" means.  :)


I'm in none of those places and 400K won't get you a detached home period, or an attached home with a yard and more than 2 bedrooms.  400K is decent condo range.  I was recently playing around looking at housing in Ohio, and 400K wasn't mansion range either (more in the 600K to get that). Calibration on both ends. :)

Where in Ohio? And define "mansion", I guess, because I'd say that if you get outside the bigger cities, you could certainly get one heck of a house for $400,000.

And if you aren't worried about the schools and are willing to do some remodeling of an older house, yeah, you can lay your hands on an actual mansion for that.

Axecleaver

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Re: Should I buy this $400K house?
« Reply #12 on: May 18, 2017, 06:13:02 AM »
Welcome to upstate NY! You're moving at a great time. The summer and fall here is great, lots of local produce and plenty of outdoor fun to be had. Winters can be challenging.

Be careful not to over-improve in that area. I believe there are still a few big, successful employers in that area - Corning and Wegman's in particular - but a heavy tax burden and political challenges makes it difficult for businesses to grow here. There aren't a lot of people in Rochester who can afford to buy a 400k house - if you dump another 100k into it, your potential market is even smaller.

Take a look at your county sales figures to determine how many houses sold in the various dollar bands over the last year. A realtor can tell you this, too. NY counties also add taxes to real estate transactions which varies by county. Mine charges a flat 1% tax on all sales, for example, which just raises the cost of transactions and discourages investment.


charis

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Re: Should I buy this $400K house?
« Reply #13 on: May 18, 2017, 06:33:34 AM »
It sounds like you had already mostly made your mind up about the house, which is fine.   I have heard that Victor is a hot area to buy (it's currently a seller's market) but I still wouldn't buy a 400K house in upstate NY on a 160K salary.  I'm sure there are plenty of awesome 200K houses in the same school district.  We currently gross about 120K and our $1100 mortgage payment (PITI) is still more than I'd like.  But we still have some student loans to pay down, and my parents keep buying my children clothes (unnecessarily), so apparently our frugal living makes it seem like we are broke. :/

mbl

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Re: Should I buy this $400K house?
« Reply #14 on: May 18, 2017, 06:39:35 AM »
Be careful not to over-improve in that area. I believe there are still a few big, successful employers in that area - Corning and Wegman's in particular - but a heavy tax burden and political challenges makes it difficult for businesses to grow here.
Corning isn't here in Rochester, they're in Corning
The largest employer is University of Rochester.  Wegmans employs many as well but these two and Kodak, Xerox, Frontier,  Paychex, and a host of others but aren't what overall compels employment here.    There are many, many small start-ups, tech companies, software shops, finance and legal firms that employ the rest of us.


There aren't a lot of people in Rochester who can afford to buy a 400k house - if you dump another 100k into it, your potential market is even smaller.
Wrong....Rochester can be considered in many ways a white collar town.   There is a healthy market for sellers right now and in Victor, Pittsford, Penfield, Mendon and Webster there are plenty of $400k homes being sold

Take a look at your county sales figures to determine how many houses sold in the various dollar bands over the last year. A realtor can tell you this, too. NY counties also add taxes to real estate transactions which varies by county. Mine charges a flat 1% tax on all sales, for example, which just raises the cost of transactions and discourages investment.

Here it is.  Taxes.  On a $400k home you'll be paying "rent" to the schools and town on the order of about $12k/year.   And that is what makes one take pause.  That being said, the Victor school district is very good.   There are issues in that town with traffic leading into the village on 96 but the area is lovely.  Close to Eastview mall and about 25 minutes to Rochester.



emiloots

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Re: Should I buy this $400K house?
« Reply #15 on: May 18, 2017, 09:00:27 PM »
Victor is a great town, I grew up in Rochester and still have plenty of family in the area.  You're a quick jaunt to the Finger Lakes (where I spent most of my weekends camping growing up) - it's what I miss most about NY.  Property taxes are high, but that is a fact of life there - my brother pays over 13K/year on his 300K+ home in Irondequoit.  Congratulations, I hope you enjoy that part of NY - it's beautiful!

Edited to add:

Places to visit (since you're from across the contry):

Museum of Play in Rochester (great for the kids)
Watkins Glen
Ithaca (just a cool town with a nice pedestrian mall) - very artsy and unique
Finger Lakes (my favorite is Keuka but I think your closest will be Canandaigua) - beautiful year round but the fall foliage is amazing
Lilac Festival in Rochester
Tons of wineries, breweries
Bill Grays, Tom Wahls, Abbots ice cream, and a Nick Tahou garbage plate are kind of must eats for a newcomer
« Last Edit: May 18, 2017, 09:09:11 PM by emiloots »

garth.

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Re: Should I buy this $400K house?
« Reply #16 on: May 19, 2017, 12:49:34 AM »
Victor is a great town, I grew up in Rochester and still have plenty of family in the area.  You're a quick jaunt to the Finger Lakes (where I spent most of my weekends camping growing up) - it's what I miss most about NY.  Property taxes are high, but that is a fact of life there - my brother pays over 13K/year on his 300K+ home in Irondequoit.  Congratulations, I hope you enjoy that part of NY - it's beautiful!

Edited to add:

Places to visit (since you're from across the contry):

Museum of Play in Rochester (great for the kids)
Watkins Glen
Ithaca (just a cool town with a nice pedestrian mall) - very artsy and unique
Finger Lakes (my favorite is Keuka but I think your closest will be Canandaigua) - beautiful year round but the fall foliage is amazing
Lilac Festival in Rochester
Tons of wineries, breweries
Bill Grays, Tom Wahls, Abbots ice cream, and a Nick Tahou garbage plate are kind of must eats for a newcomer

emiloots, thanks for all the great tips and encouragement! I grew up in Canandaigua, and while we'll miss California tons, we're also excited to be in a lower cost of living area (currently, we're in San Jose where $3500/mo in rent is a steal), and enjoy the Rochester area. We'll make sure to explore all these places, especially camping in the Finger Lakes. I've been binging out on FI recently and although I think our housing costs are high, the great schools and being near family is worth it for us.

emiloots

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Re: Should I buy this $400K house?
« Reply #17 on: May 19, 2017, 07:19:33 AM »
It's changed quite a bit, the prices around the finger lakes have skyrocketed in recent years.  A lot of people with money from PA/NJ & NYC area coming up and buying vacation properties on the lakes so it's not as affordable as it used to be unfortunately.  My mom almost bought a cottage years ago for a steal and in retrospect it would have been a great investment. 

Great thing about camping is it's a pretty cheap activity!