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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: SofiaBourbon on July 02, 2013, 04:42:28 AM

Title: Single mom - wants home with land
Post by: SofiaBourbon on July 02, 2013, 04:42:28 AM
Hi All,

My savings are:
Emergency fund:$11,000
Stocks: $15,000
Fund account: 49,000 (not earning anything)
NO DEBT :)

I have a son who is 13 and currently only has $1500 on a 529

We live rented: $875 and would probably be going up $20 (cable is included in the rent-can not be removed from the options) 
Electricity is $120
Phone:$102
Water:$55
Gas:$160
Internet:$68
Food: no budget -but I usually go to the farmers market on Saturdays and spend from $30 - $80

I would love to buy a house or should I invest the $49,000 towards my son's college? Should I just stay and just my savings grow?
I could easily put $600 towards savings monthly
The houses around the area with land star from $200,000 - 325,000
I bring home $1,300 every two weeks
I don't know how to do home repairs but can learn and do not own any household yard tools
Title: Re: Single mom - wants home with land
Post by: fiveoclockshadow on July 02, 2013, 05:54:44 AM

Some quick numbers, a 250K house with a 200K mortgage will:

- Eat up your entire fund account with the down payment
- Will have a monthly payment of 1275 at 4.5% 30-year fixed
- Will require property taxes and maintenance above that
- Based on your income most interest will fall within the standard deduction (effectively not deducted then)
- Will lock up potential savings in home equity which at times can be hard to access

Given you say you have $875 in rent and could easily save $600/month in savings you certainly could buy a 250K house.  However, you won't have much flexibility in your spending and savings at that point.

Looking at the above numbers you can see that even though you would slowly be building equity in the house the reality is that your housing expenses would actually go up quite a bit.  So you need to balance that increase in expenses with whatever benefits of enjoyment you might get from owning that house.  But compared to renting you really aren't "saving" any money by purchasing the $250K home, you are actually increasing your housing expenses and thus reducing your savings rate.

The other big question is your son.  What colleges might he go to?  How much are you hoping to pay for?  Is it possible you will move when he goes to college?  I think you really should pass on buying a house if you are going to move in say five years - transaction costs on homes are quite high so best to buy if you know you will stay put for a good long while - although five years wouldn't be an unreasonable holding period for a home.

If it was me I think I would personally continue to rent at least until you have more savings and your son is either off to college or out of college.  But I'm pretty conservative about such things. 

I've both rented and owned over the years and I can't say I have a strong preference for one or the other.  In general, however, I've found that when buying my tendency is to buy something nicer than I'd rent with the result that owning has always increased my housing expenses.  So far been very fortunate to have bought and sold properties at the "right" time - but that "right" time had nothing to do at all with choices I made and instead was just random luck on when we moved for job reasons.

I'm sure you'll have a lot of better detailed responses than mine soon.

Best of luck!
Title: Re: Single mom - wants home with land
Post by: nktokyo on July 02, 2013, 08:14:04 AM
Why so high on the utilities?

Quote
Electricity is $120
Phone:$102
Water:$55
Gas:$160
Internet:$68

That's 20% of your take-home.... seems high.
Title: Re: Single mom - wants home with land
Post by: TrulyStashin on July 02, 2013, 08:28:16 AM
There was a short spell in my life where I was a single mom with a home on 2 acres of land.  WHAT A NIGHTMARE!  Cutting the grass, weed whacking, spreading gravel for the drive, fixing stuff.    It was an enormous burden and ate up significant resources in time and money.  Exhausting.  I could never keep up with it all and could see that failure to maintain it would slowly erode the home's value (who wants a poorly maintained home on a weed-ridden lot?)

I now have a suburban ranch house on 1/2 an acre and even that, by myself, is too much.  I can't wait for my son (16, helpful but still....) to go to college so I can downsize.

If this isn't enough of a face punch, I don't know what else to say.  Having that much house and land is at least a two-person endeavor.   Don't do it.
Title: Re: Single mom - wants home with land
Post by: frompa on July 02, 2013, 08:44:22 AM
Although, on the other hand, that cash sitting there is going to be eaten up by your son's education, while if it was equity in a home or a small business, it would not be considered available to him for funding his education.  (I think that may also be true for funds that are in some sort of tax preferred retirement form -- like an IRA or 401(k).)  And, unless he goes to an extremely cheap community college or state school, AND lives at home, I don't know if that $49k is going to go far enough to pay for his education.  If you don't have the money available, he's much more likely to qualify for financial aid that can make a big difference to him long term. 

Ditto what the others have said about the other expenses of owning a home. 

Why a house on land?  A house on a tiny lot is far more economical, easier to care for, and less expensive to maintain.  I live in a small house on a small lot in a city and still have PLENTY of space for growing food, planting fruit trees, putting in flowers, and doing all those other warm and fuzzy land things.  Unless you've lived with a sizable bit of land as your sole responsibility so you already know what you're getting into, maybe you want to reconsider that part of the equation.  A smaller place will also have you paying far less in taxes and insurance, easing your day to day cash flow concerns, and leaving you a little more wiggle room to handle the ups and downs of normal financial life, which as a single Mom you have to absorb on your own.  Good luck, whichever way you decide to go.
Title: Re: Single mom - wants home with land
Post by: SofiaBourbon on July 02, 2013, 10:35:34 AM
frompa: Thank you for your post, I agree with your point regarding financial aid. I went to college on financial aid/student loans
TrulyStashin: Thank you for the reminder, it made me laugh and at the same time recall what I had forgotten. I remember the romantic side of owning land with my Ex and totally forgotten about our weekends slaving over fixing and trimming as well as the cost for our driveway in the large lot we used to live in (long story, neighbors had issues with mud so we had gravel and eventually concrete. Since, they didn't like little rocks on the main road)
nktokyo:Thank you for your post. I'll look into reducing Utillities, the Gas is required since I drive to work but I'll look into ways of cutting cost.
I am with AT&T - I need the large amount of minutes and unlimited data.
I have internet Turbo - Do you pay less than this for turbo?
fiveoclockshadow: Thank you for your post- My son wants to study law enforcement but he is not sure of the details yet, just turned 13 ( I am helping him on this).  I have also thought about moving in the next five years but nothing set in stone yet.




Title: Re: Single mom - wants home with land
Post by: Rebecca Stapler on July 02, 2013, 11:02:57 AM
The previous poster has a good point about that idle $$ being calculated as available financing for school. I don't know how that works, but I think it would be wise to research where you can put that money so it won't be counted as available. Part of my undergraduate financing was in the form of need-based grants, because my parents didn't have a lot of $$ available to fund my education. And I actually went to the school I wanted to go to; it didn't feel like I was limiting my options.

Do you have any money in a retirement fund? That's the first place I would direct that $49k so it's out of reach from the financial aid office -- with 4 years to go, you can put $5500/year into an IRA, so that might get $22k out of reach. I don't know the rules in this area, so there might be somewhere else to put it, but if you don't already have a retirement fund I think it's time to get that started.

I'm a renter too and there are many reasons why I would like to own a home, but it's just not feasible with our income. We would pay more in mortgage and taxes and upkeep than we do on our modest apartment -- and we have more time on the weekends because we don't have to DIY our maintenance! It sounds to me like it's wise to hold off on the purchase -- given that your expenses would increase significantly and you would drain your possible retirement fund for the benefit of ... ??? What's the benefit? Potentially earning equity in a non-liquid asset? (I *am* biased because I'm a renter, but "investing" in a primary residence just doesn't seem like a great investment in my opinion -- it's also because I've seen the bubble burst on my friends)
Title: Re: Single mom - wants home with land
Post by: fiveoclockshadow on July 02, 2013, 12:10:28 PM
Good points from those mentioning assets and financial aid.  Your are off to the right start with 529 as that typically has low impact on financial aid (i.e. it is a good place to put college savings).  Given that college is only five years away and how much and what kind of financial aid you get can go a long way to affordability I think now would be a good time to start thinking about that.  You'd want everything in position at least one year before he has to apply for financial aid.

This is a good and detailed reference:

http://www.finaid.org/fafsa/maximize.phtml

As to land maintenance - my goodness am I acutely aware of that.  Despite wanting to buy a house on a largish lot I was wanting something with easy maintenance (like all woods, perhaps combined with an easy to mow section of lawn).  Well, when the "right" house came around low maintenance yard was one of the things we had to give up on (you never find the perfect house, in this case neighborhood, commute and other factors trumped yard maintenance). 

We've got a bit under an acre, about half lawn and half mature "low maintenance" perennials.  At the moment we are doing the incredibly un-Mustachian "pay someone else to maintain it" plan and it is very expensive - about 5K a year for all the mowing, trimming, weeding, clean-up etc.  This is high on my list of things to change...  The point is that 5K is a good indicator of how much it costs either in your money or your time to maintain a large park like yard.  It certainly does look nice, but man - ouch.  I have decided at least to actively spend time in the yard (it is quite pleasant) so that I, rather than just the bunnies and deer, get some utility and enjoyment from it.  I hope in a couple of years when my daughter is past toddling that she will enjoy it a lot (I'd have killed to have a yard like this when I was a kid).  And I'll start in-sourcing more of the yard work now that I realize it is nice to be outside in the yard.  I'm slowing adjusting to mid-Atlantic life despite being a desert rat at heart.

One last suggestion - I have simply been amazed at what some people can pull of in extremely small outdoor spaces.  I've seen a vanishingly small townhouse "yard" which was fenced concrete perhaps 15ft by 20ft that was an amazing outdoor space.  All container plantings, vines on trellises to hike the fence, a stack of wooden buckets "fountain" for ambient noise, wood decking over the concrete and some nice chairs.  And a bird feeder.  Was a wonderful, cozy outdoor space that rivaled giant expanses of lawn in both appearance and utility.
Title: Re: Single mom - wants home with land
Post by: rugorak on July 02, 2013, 01:51:38 PM
I am with AT&T - I need the large amount of minutes and unlimited data.
I have internet Turbo - Do you pay less than this for turbo?
1. How much mobile data do you use a month? (This should be easy to find on your monthly bill) At home you should be using your own internet as it will be faster than mobile data. And since you are driving to and from work and working at work the majority of the time it seems to me that your actual data usage shouldn't be that high. If it is under 2gb a month you could switch to H20 wireless (an AT&T reseller) and pay $60 a month with no contract and unlimited minutes. If you in reality use a lot less data you could go with Airvoice for 500mb and $40 a month and still with unlimited minutes and no contract. And I imagine they will be screwing you out of your grandfathered unlimited data very soon anyway based on what they have done to others.
2. I am assuming you have Time Warner. The difference between the Standard and Turbo packages are just that you *can* get slightly faster speeds. But there is no guarantee. I have standard and watch netflix, hulu, amazon instant watch, stream music, play online games, skype, etc. with no issue what so ever. If you own your cable modem you can drop to standard and pay $51 a month. (just add the $3.95 +tax if you don't own your modem). Even if your sales tax is high you are likely to save $10 a month.
Title: Re: Single mom - wants home with land
Post by: Rebecca Stapler on July 02, 2013, 01:58:18 PM
Good points from those mentioning assets and financial aid.  Your are off to the right start with 529 as that typically has low impact on financial aid (i.e. it is a good place to put college savings).  Given that college is only five years away and how much and what kind of financial aid you get can go a long way to affordability I think now would be a good time to start thinking about that.  You'd want everything in position at least one year before he has to apply for financial aid.

This is a good and detailed reference:

http://www.finaid.org/fafsa/maximize.phtml


Wow. That was so interesting! I love all of the suggestions about things that are good to do anyway -- paying down debt, prepaying the mortgage, and fully funding retirement accounts.
Title: Re: Single mom - wants home with land
Post by: Zamboni on July 03, 2013, 04:44:47 AM
Quote
This is a good and detailed reference:

http://www.finaid.org/fafsa/maximize.phtml

This was very informative.  Thanks!
Title: Re: Single mom - wants home with land
Post by: Rollin on July 03, 2013, 07:21:28 AM
When moving to a new place that is larger it is important not to underestimate the difference in costs for things like: electricity, taxes (increasing fairly regularly), insurance (seems to always increase), maintenance (things break that you now have to fix), and possbily a longer commute for you.  This may not be correct in your case, but often larger lots equal longer drives because they are further away from the things you need (e.g. groceries, etc.).  These things so often get underestimated and can add up to a lot in a year in some cases.
Title: Re: Single mom - wants home with land
Post by: totoro on July 03, 2013, 08:47:29 AM
I've never owned a lot of land but I have owned larger lots and I can attest to the utility and value of a smaller lot.  We've moved recently and I am re-landscaping our new place.  It is a triple with a nice back garden area that is currently a mess. 

It is really fun to plan for every inch like fiveoclockshadow was talking about.  I'm using all the space we have and putting up trellises around the perimeter for vines and espaliered fruit trees.  We are putting in automatic watering and will also have an area for container gardening (also watered automatically).  It is a lot of work to start but we are going for less maintenance after set up.

The large lots we've had have been more work than this will be in the end and we never used all the space.  We tended to sit on the balcony and look at the back yard rather than use it - except for the vegetable garden.  Front yards are uncomfortable to be in unless you create a sense of privacy.

Have you thought about a duplex?  It would give rental income that could subsidize your expenses quite a bit.
Title: Re: Single mom - wants home with land
Post by: Spork on July 03, 2013, 09:08:57 AM

While I agree with everyone here on the "maybe this isn't the right time for you to buy land"....  I totally understand the desire for some land out away from folks.   It can be a little more work.  But (IMO) it can be worth it.

I also wouldn't (necessarily) throw "taxes" in there as a huge expense for a lot of land.  It's very common to be able to get tax exemptions for land (agricultural use, wildlife use, etc).  The tax on "the land portion" of our lot was about $22 last year.
Title: Re: Single mom - wants home with land
Post by: Daleth on July 04, 2013, 08:58:45 PM
I don't think we can do the math on rent vs. own anything, much less rent vs. own house with lots of land, without knowing what the cost of the kind of house you want is. If you're in California it's going to be way different than Ohio, Buffalo, etc. That would make a huge difference. You've been on Realtor.com looking, I assume? How much do houses with land in the areas you're looking at cost? What about houses with small lots (if you're interested in that upon reflection now that you remember all the time spent caring for the large yard)?
Title: Re: Single mom - wants home with land
Post by: Heather on July 05, 2013, 05:14:14 AM
As someone with a few acres of mixed forest and open areas, I would argue with the idea that more land is necessarily a lot more work.  In my  lot the 'lawn' portion is not visible from the  road, so how much or when to mow is entirely at our discretion.
Don't be a sheep: ignore the mowed lawn clones if you can get away with it.  I used to just push mow a little patch in front of the house, leaving the rest of the cleared area and orchard as 'field', scythed twice a year.  Now that we are two adults, we mow much more lawn, much more often.  But, even so, our mower broke recently, and fixing it hasn't made it to the top of the list yet.  The lawn looks lovely and soft.


 
Title: Re: Single mom - wants home with land
Post by: fiveoclockshadow on July 05, 2013, 10:55:17 AM
Really good point that how much land "costs" you in maintenance depends on where you are and what exactly it is.  I've lived on an acre lot of natural desert and let me tell you cost in time and money maintaining that was zero for three years.  No, wait I removed mistletoe from a palo verde once - took about 30 minutes tops.  And it was (in my opinion) a beautiful setting I was sad to have to leave.

Compare that to my less than an acre lot I live on now described in an earlier post...

And I did bid on a house with a six acre lot that was mostly just woodland with a bit of lawn around the house.  That probably would have been low cost/effort - except for the 900 ft driveway which would have sucked to repave eventually not to mention plow when it snows.

Very much a "it depends" kind of thing.
Title: Re: Single mom - wants home with land
Post by: Jamesqf on July 05, 2013, 11:07:20 AM
I don't think we can do the math on rent vs. own anything, much less rent vs. own house with lots of land, without knowing what the cost of the kind of house you want is. If you're in California it's going to be way different than Ohio, Buffalo, etc.

It's even going to be way different in different parts of California.  A few acres in the South Bay area are going to be a far different proposition from the same area of land in say northeastern California.

Likewise, the amount of work needed is going to depend on the amount you want to do, and the results you want.  If you leave things mostly natural, there's very little work needed.  If you decide to turn it in to acres of landscaped garden...  well, most of the work is in creating the original landscaping.  Once it's established, it needs only a fraction of the effort.