Author Topic: Should I buy this $400K house?  (Read 1324 times)

garth.

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Should I buy this $400K house?
« on: May 15, 2017, 10:57:49 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!


« Last Edit: May 15, 2017, 11:38:55 AM by garth. »

Laura33

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Re: Should I buy this $400K house?
« Reply #1 on: May 15, 2017, 11:12:30 AM »
What is your target income need for FIRE?  How do you plan to allocate the remaining @$900K into rental properties, what will those mortgages be, and how much rent do you anticipate those will throw off?  Can't really say without the context.

Generally, a house you plan to live in should be viewed more as a consumption good than an investment, because it will not return you any money until you sell.  So plug the cost of that mortgage (plus associated maintenance and utilities) into your post-FIRE budget; then estimate how much income you can throw off with your remaining $900K invested in leveraged properties.  That will give you the gap that you will need to cover over the next few years with additional savings/properties, which in turn will allow you to evaluate whether you are on track.

But FWIW, $400K sounds high for that part of the country.  And if you were relying on traditional investments and the 4% rule, it would be way high -- your post-purchase 'stache of around $900K would throw off about $36K/yr, which would basically be eaten up entirely by mortgage and utilities.

Scortius

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Re: Should I buy this $400K house? (AGH, sorry for the dupe posts!)
« Reply #2 on: May 15, 2017, 11:24:33 AM »
My family has a similar income level and we are in the process of buying a house for a bit over $400k.  It feels a bit wrong after reading threads here, but for us the house is well worth that price and our financials work out just fine.

I would be more worried about what your plan is with your savings.  Do you have experience buying and managing real estate?  Do you know the price ratios in the area where you're moving?  Is there any reason you prefer real estate over index investing?  Those question will have much more of an impact on your financial future than the purchase of a primary residence.

garth.

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Re: Should I buy this $400K house? (AGH, sorry for the dupe posts!)
« Reply #3 on: May 15, 2017, 11:38:36 AM »
I would be more worried about what your plan is with your savings.  Do you have experience buying and managing real estate?  Do you know the price ratios in the area where you're moving?  Is there any reason you prefer real estate over index investing?  Those question will have much more of an impact on your financial future than the purchase of a primary residence.

Thanks for the input! I totally hear you on the investment concerns. I'm aiming for a diversified portfolio with a portion in index funds. But I've also been a long reader on real estate investing in preparation for investing in buy-and-hold properties with the goal of building cash flow. I'll be easing into it very cautiously. I think investing in rental properties is one of the best ways to achieve FI if you buy right.