To buy a 2nd house/condo or not?

[jamesbond007]

So I bought a townhome style condo 3 years ago in the SF Bay Area close to San Jose or thereabouts for 440K with a HOA of $300. PITI+HOA is 2300 per month. Happy there. Kid goes to Kinder this year and elementary schools are good. Concern is middle and high. I agree they are 6 years away but the current assigned Jr. High and High schools assigned to our home are bad. Want to move to another part of the town where all schools are good. Now the question is should I buy now?


I don't have to sell my current home to put down 20% on a home up to 950K. I will rent it out and can get $2400 per month on it. There is a detached SFH built in 1954 in the price range. Or there are brand new townhome style condos being built in the 840K range with a $300 HOA. Can't decide. Please help make a decision or talk some sense into me if I acting irresponsibly. All my savings are in VTSAX so I will have to pay tax next year if I withdraw now. I have about 300K in investments (Not including retirement accounts) and most of them are in VTSAX. No other debts. My monthly take home after 401K and taxes is $10K.


Question 1: Should I buy?
Question 2: If not now because I have potential tax liability? Should I start saving in bonds and buy 4 years later just in time for my kid's middle school? The goal I to reduce tax liability.
Question 3: If it doesn't matter, SFH or a brand new townhome condo with HOA?

[Kwill]

Your signature says you are aiming for FI in 2025, around the same time as your child may be finishing elementary school. Will you definitely want to stay in the same town at that point? It seems like it would be simpler and more efficient to have one home at a time and invest what is left. $2400 in rent to cover $2300 in payments wouldn't leave you a lot of extra space in case of vacancies, bad tenants, repairs, etc.

[Papa bear]

My god the opportunity cost to buying another house there is insane.  Do not buy that. It would be a TERRIBLE rental. 

Plus is this 2006?  House prices always go up forever, right? Right?!?

So, if you want to move in 6 years, I see a couple much better options.

1) don’t buy a house. In 6 years, if you want to move, buy the other house and sell your current one. If prices are still irrationally high, then so will the house you’re selling.  Net neutral.

2) don’t buy the house.  If you still want to move, rent the house in the other school district.  It’s temporary, right?  Then rent your current place.  Net neutral.

3) don’t buy the house. In 6 years your current district gets better, or you don’t want to move. Or you get transferred out of the area entirely. Now you don’t an extra house you don’t need that’s been getting torn apart by renters. 

4) buy the house now but sell your current house.  If that’s really where you want to be, just do it now.  Ready go.

Anyway, NONE of these involve buying an extra house that you lose money on for 6 years just because you “might” move there when your current kindergartener is in middle/high school.   

I buy campus area rental houses. That’s like me saying my preschooler might go to Harvard, I better go buy some property in Boston because prices might go up there. I can rent it out at a loss, so it’s ok, I can afford to dump hundreds of thousands of dollars into an illiquid asset and keep it out of the market and definitely avoid all the those gains.


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[soccerluvof4]

How unrealistic would it be to open enroll to a different school and stay where you are? I know traffic is insane there.

I would as well not take on a second home but if you can not find another option for school that makes you comfortable sell now and make the move.

[frugaldrummer]

Papa Bear makes all the right points.

Plus - a caveat about those "good" high schools. My ex and I bought in a wealthy neighborhood when our children were small so they would have access to those good schools. Grade school was great, middle school a mixed bag. High school - well, those kids of wealthy parents had too little supervision and plenty of money for drugs. My oldest (mild Asperger's) did ok through the gifted classes. My other two ended up dropping out and attending charter schools that were mostly homestudy  because the social pressures were too unhealthy for them and they didn't want to stay.

[jamesbond007]

I agree with your posts. I will explain my rationale on why I started thinking this way.
1. Schools are going into a lottery because there are too many people. So I have to be in a good high school area to be eligible to go to that high school and have to be there during the intra-district transfer window which is usually November the prior year. If not, I would be put on a waitlist and depending on how big that is, I may never get into it.
2. Interest rates are still very low.
3. I figured detached SFH appreciate better long term so I thought might as well buy now when rates are still low and I could afford.
4. I did think about renting near those good schools 5 years down the line for about 6 years and come back to my home after the kid's done with HS. This is still a viable option.
5. I do have time to buy. So I could do this purchase 4 years later. But I am not sure how the market would be. if it goes down and interest rates are still low, then all good. If not, then I would be priced out. This is another reason I am showing interest.

I am leaning towards #5. But if the market remains crazy as now and rates go higher, then I could go with #4.