Trying to Grow my stache and buy a house in an expensive city (Boulder CO)

[conthecoloradoclimber]

Hey everyone! I need some advice on what next steps to take to gain financial independence including buying a house.

Income: roughly 75k with full time, consulting, and selling my art work.

No debt or car payment.

Rent: $700 per month.

Stash: around 31k in savings, mutual funds, and stocks.

I feel like the next step for me should be to buy a house. I live and work in Boulder, CO I live 2 miles from work and skateboard there most days which saves me a bunch of money. With the current housing situation in Boulder (2b, 1 bath =800,000). Should I even try to by a house around here? If I choose to buy one in another town then I will lose money having to commute every day. Should I just take all my money and 50% of my monthly income and start investing it into a vanguard VTI and just rent for the rest of my life?  I’ve looked into buying a small piece of land (100-150k) around here and putting a 45k tiny home on it, but county regulations make it almost impossible to put a tiny home on property around here and I would need to put 25% down on a land loan.  I would love any advice on this. Thanks!

[Cranky]

You should move to someplace less ridiculously priced, and I sincerely apologize for the fact that I voted for the green belt legislation in the 70s.

[FINate]

Do you have an extra $2500/month to throw at housing? Because at a minimum that's what you're looking at to buy over-and-above your current rent. However, this is entirely moot since you don't have anywhere near enough saved for a down.

Let me guess, they preserved the greenbelt with the intention of densification instead of sprawling to Denver. But once the land was preserved homeowners had a change of heart and decided that "stack and pack" was bad and out of character for "our small town" ... which is another way of saying they wrote a big fat check to themselves by artificially constraining the supply of housing. I know this well, grew up in an area that did the same thing and now prices are outrageously ridiculous.

Take Cranky's advice and move somewhere more reasonable.

[uniwelder]

You don't have to buy a house.  Is your $700 rent with roommates or by yourself?  Your current payment sounds pretty cheap compared to the cost of buying.  If your reason to buy is just because its the next step you're 'supposed' to take in your adult life, you're probably further ahead to invest the extra cash.

[conthecoloradoclimber]

Thanks so much for the responses everyone. I live with roommates in a 3 bedroom townhome that is pretty nice and livable. I want to stop renting because I am sick of paying rent to the man. I enjoy doing home renovation and am pretty good at working with my hands and would love to build and pay equity into something I own.  When buying a home I would also try to have 2-3 roommates and I would try to have their rent cover my mortgage. My ultimate goal is to live in a small cabin up in the mountains and retire young up there and work par-time.

[brooklynmoney]

In NYC a lot of people buy in the woods hours away as most people can’t afford to buy in the city. They then use that as their weekend place. Why don’t you keep your cheap rent in the city and buy something where you ultimately want to live that would probably cost a lot less.

[FINate]

I want to stop renting because I am sick of paying rent to the man.

Before becoming a homeowner and then a landlord, I was renter. So while I understand the sentiment, it's inaccurate and counterproductive if you really want to achieve FI.

Done right, rental properties can be lucrative. But not at the prices and rental income you're talking about. Renters send a big chunk of change to their landlord and assume they're being screwed while he's rolling around on a bed of 100 dollar bills. However, add up the mortgage, insurance, maintenance, and property taxes and it's a different picture. Everyone, even property owners, pays "the man" their cut. In other words, rent is expensive in HCOL areas because housing is expensive. But what if the landlord doesn't have a mortgage, you say? In HCOL areas this usually means they have an awful lot capital tied up in an underperforming asset (rent relative to equity), but if they sell they'll owe capital gains and depreciation recapture. Best case scenario: They get enough capital appreciation to compensate for the years of underperformance, though that doesn't always happen, and even when it does it still usually would have been better to just be invested in stocks.

If you really want to live in Boulder long term (10+ years) and you really want to be in the landlording business, then work towards buying something. But only if you can find a good deal by the numbers.

Otherwise, save and invest in the market then use those assets to retire and fund your cabin in the woods. In the meantime, if you really want to pay less in rent, move someplace with a LCOL.

[Hibernaculum]

I totally agree with FINate. Rent, rent, rent. I lived in Boulder from 2013-2020. Bought a house to live in in 2013. Bought two investment condos in 2015. Sold one in 2019, the other in early 2020. The condos were a pain to manage, even with a management company. YMMV, of course. The house we lived in did OK. It doubled in value. The condos all-in trailed the stock market. I think we netted about 7% per year, so approximately the same as stock market long-term average.

[conthecoloradoclimber]

Thanks FINate and Hibernaculum, This is all great advice and I really appreciate it, you've brought some things into light I was not thinking about. I really enjoy my job and living right in Boulder close to all the rock climbing and fun. So maybe I'll hang around for a while and just keep trying to save my ass off. I have the opportunity to add another roommate to my townhome bringing my monthly rent down to probably $500 so maybe I'll do that this summer.

[ChpBstrd]

Here's another way of looking at it.

Rent is based purely on supply and demand. There will never be a housing bubble in rent, because the average renter can only pay a percentage of what the average person earns and rents can only go up if earnings go up in that area. If landlords tried to get more rent than that, people will say "sorry, can't make a living here, moving to Kansas City." So wherever you are, if you shop around for the market rate on rent, you're getting a fair deal considering the earnings potential of an area.

Home prices on the other hand, are the product of all sorts of factors. Rent yields are just one such factor. Housing scarcity, whether due to historical, natural, or legal reasons is a big deal in HCOL areas where the existing homeowners have voted to do things which constrain the supply of housing, such as ban high-rise apartments or set minimum lot sizes. Then there are mortgage rates which justify high prices when rates are low, but could swing the other way if rates go up! Finally, there is taxpayer subsidization of mortgage loans.

So rent is set in a fairly free economy, but housing prices are manipulated for the benefit of existing and more wealthy land owners. Which price would you like to pay?

If being a landlord doesn't make sense because houses cost $800k and rent for maybe 2k, then don't be a landlord, even to yourself. You are actually ripping off "the man" by only giving him *gross* revenue of 24/800= 3% of the property's value per year BEFORE all expenses. These HCOL area landlords are only managing to break even on payments, taxes, and upkeep while they speculate on future price increases, and that's a gift for renters. If a greater fool does not come along to buy their overpriced properties or mortgage rates go back up to 7% causing a meltdown in these unsustainable home prices, guess who doesn't lose a thing? The renter.

Typed from my 3BR SFH on a quarter acre that I bought for $150k two years ago and pay about a grand a month for on a 15y loan. Sooo glad I'm not on the treadmill of spending a lifetime trying to pay for a $800k cottage somewhere else.

[GoCubsGo]

That's crazy pricing.  I visited Boulder for my daughter's college visit.  Thank god she didn't choose there, falling in love with Boulder sounds absurdly expensive!  I've visited Colorado many times and I guess I don't get what makes Boulder so expensive.

That said, could you even come close to getting a loan for even a $500k house, let alone an $800K one?  I'd imagine not, so no use dreaming about it.  Sounds like you've secured extremely cheap housing for now.  Ride it out until your sick of it and save like crazy.  Maybe a housing crash might happen in the next 5-10 years and you'll be able to pounce on deals.  Worse case you could rent your own place if you get sick of roommates and still save a lot more than owning a $800K home

[Dicey]

All markets are cyclical. Keep being a renter and amassing your stache until something causes the markets to soften or even tank. They always do.  And LMAO about your "the man" comment. Just wait until you buy a house. AHAHAHAHA!

[Cranky]

Boulder is expensive because it’s nice and people stay after college and it’s got a lot of tech so there are high salaries, and people move back after they retire, and because a number of anti-growth measures were passed in the 1970s to keep sprawl from happening. That makes Boulder a nice place to live, of course, but expensive for what it is.

[Paper Chaser]

I feel like the next step for me should be to buy a house.

Why? Just because society says so? Because you see others doing it?

From a financial perspective, you'd almost certainly be better off by moving to a cheaper city with a similar job but life is not entirely about finances. Either way, I think you need to do some introspection about why you feel like you need a house, especially an expensive one when you're just starting out on your financial journey.

[windytrail]

There seems to be a bit of hypocrisy on these forums when this topic comes up. A lot of the Mustachians will tell you to keep renting and not to buy. But how many of those people are actually renters? If they are not renting, why not?

And there are plenty of comments from people who bought when it was more affordable. We get it --- you were fortunate and may have even predicted the housing supply issues that currently exist today. But some of us who were too young, or too poor, to buy back then still desire a plot of land to garden, a garage workshop, numerous tax benefits, etc. The idea that "it was worth it for me, but won't be for you" comes off as arrogant.

I have been renting for ~11 years now since college and feel your sentiment about wasted payments to the man. On the other hand, being able to save 75% of my income puts me on a path to a more luxurious future, impatience notwithstanding, if that is what's desired. Here, homes cost $1 million or more, which is a terrible way to lock up my 'stache that is only valued at 20% of that amount.

Have you seen the post about house hacking (https://www.mrmoneymustache.com/2020/10/23/house-hacking/) and ran the numbers for Boulder? Or would you be willing to move to an area outside of Boulder, such as MMM's neighborhood Longmont, if it meant you would be able to afford to buy?

[ChpBstrd]

It's not that we're hypocrites. It's that it makes sense to rent in HCOL areas and it makes sense to buy in LCOL areas.

[Tester]

You have a 700 expense for living space.
Are you ready to pay 3000 for this???
I will just ask some questions, just to make you think.

1. Are you ready to give up flexibility?
2. Are you ready to pay 18k USD to build a retaining wall and replace a 60 feet long fence? And to wait for half a year between the quote and getting this work done?
3. Are you ready to pay 5k to replace the furnace? Are you ok with sleeping with kids in a tent in your house for a week while you wait for the contractor to come?
4. Are you ok with giving up fun activities/traveling/a beer with friends to pay mortgage?
5. Are you ready to do those things up for 30 years (ok, not all 30 years, but at least until the mortgage payment is not 50% of your income)?

Think about what you like to do and what you want to do.
If you really want a house, go for it, but please don't pay more than 25% of your monthly income for housing. If you do it it will remove a lot of the good parts of owning a house.

If your current living situation is not working perhaps you could pay just a little more to get a better place ( only sharing with one other person)?

[Dicey]

There seems to be a bit of hypocrisy on these forums when this topic comes up. A lot of the Mustachians will tell you to keep renting and not to buy. But how many of those people are actually renters? If they are not renting, why not?

And there are plenty of comments from people who bought when it was more affordable. We get it --- you were fortunate and may have even predicted the housing supply issues that currently exist today. But some of us who were too young, or too poor, to buy back then still desire a plot of land to garden, a garage workshop, numerous tax benefits, etc. The idea that "it was worth it for me, but won't be for you" comes off as arrogant.

I have been renting for ~11 years now since college and feel your sentiment about wasted payments to the man. On the other hand, being able to save 75% of my income puts me on a path to a more luxurious future, impatience notwithstanding, if that is what's desired. Here, homes cost $1 million or more, which is a terrible way to lock up my 'stache that is only valued at 20% of that amount.

Have you seen the post about house hacking (https://www.mrmoneymustache.com/2020/10/23/house-hacking/) and ran the numbers for Boulder? Or would you be willing to move to an area outside of Boulder, such as MMM's neighborhood Longmont, if it meant you would be able to afford to buy?

Hi Windytrail, fellow BA person here. I'm one of those people who frequently tell people to keep renting, as I did upthread. Just for fun, here's a bit of background. In my twenties, I lived in an L.A. apartment with a string of roommates, but wanted to buy my own house for the poast-cancer security it represented. I couldn't afford to buy in L.A, so when I was 30, I bought a 3+2  SFH as a rental in Riverside, where I had the thrill of growing up. /s

I paid $100k for it and sold it eight years later for $115k. Not exactly stellar returns, but I learned a lot. In 1996, I sold it to buy something I could actually live in in the Bay Area. I was 38. It was a 2+1, 880sf apartment conversion condo. I got it for $120k on a short sale. After four years, I upgraded to a larger place and got a roommate again. 

Fast forward: when I met DH and we got married, I pulled the FIRE trigger, we sold both of our highly appreciated, well leveraged houses and paid cash for one together. It was a short sale. The house we bought cost ten times his income. Yeah, renting and waiting turned out okay.

[FINate]

There seems to be a bit of hypocrisy on these forums when this topic comes up. A lot of the Mustachians will tell you to keep renting and not to buy. But how many of those people are actually renters? If they are not renting, why not?

And there are plenty of comments from people who bought when it was more affordable. We get it --- you were fortunate and may have even predicted the housing supply issues that currently exist today. But some of us who were too young, or too poor, to buy back then still desire a plot of land to garden, a garage workshop, numerous tax benefits, etc. The idea that "it was worth it for me, but won't be for you" comes off as arrogant.

I have been renting for ~11 years now since college and feel your sentiment about wasted payments to the man. On the other hand, being able to save 75% of my income puts me on a path to a more luxurious future, impatience notwithstanding, if that is what's desired. Here, homes cost $1 million or more, which is a terrible way to lock up my 'stache that is only valued at 20% of that amount.

Have you seen the post about house hacking (https://www.mrmoneymustache.com/2020/10/23/house-hacking/) and ran the numbers for Boulder? Or would you be willing to move to an area outside of Boulder, such as MMM's neighborhood Longmont, if it meant you would be able to afford to buy?

I have rented in the past and am open to it in the future. It all comes down to the specific situation. Getting overextended on a mortgage is never a good idea. What's the point of buying a house if you can't keep it and ruin your credit in the process? My general advice: If you can afford it and plan to stay put for the long term, then buying will probably work out okay even in a HCOL area. Hence my recommendation to OP to keep renting.

Anecdotally, and to address your hypocrisy concerns, I'll add that early last year we sold the last of our rental properties in a HCOL area. They weren't performing well relative to value (and other reasons) so we cashed out and put the proceeds to work in the market. We took a hit on taxes but it was worth it. Real estate isn't magically always a good investment.

[jeninco]

Boulder is expensive because it’s nice and people stay after college and it’s got a lot of tech so there are high salaries, and people move back after they retire, and because a number of anti-growth measures were passed in the 1970s to keep sprawl from happening. That makes Boulder a nice place to live, of course, but expensive for what it is.

Yeah, there's a supply/demand thing going on here that gets worse every time a big tech company (I'm looking at you, Google) opens up a large office in town and employees with huge salaries and unrealistic (ly high) expectations about housing prices swoop in to buy houses. Over half the people on my block couldn't buy their houses now, as it's an interesting mix of teachers, people who work at non-profits, retired chemists, ...

OP, honestly, your rental plans (especially if it's OK to add another roomate) sound like a great position to be in, plus you're not tied to maintenance and ongoing repairs of a house. I'd keep the 2 mile commute too, if I were you -- I've done longer driving commutes, and they honestly suck, at least for me.  And a big part of the point of this site is "figure out what's important to you, and spend money on that. But not on everything."  So save away!

[joe189man]

OP why not go the MMM route and buy in longmont or any of the surrounding towns, lafayette or louisville, firestone, erie, dacono, niwot, etc.

it will be cheaper to get a prius and a house hacking type home near by than buy a tiny place in boulder

heres your niwot place now https://www.zillow.com/homedetails/8142-Dry-Creek-Cir-Niwot-CO-80503/13239873_zpid/

[the_fixer]

Boulder area person here.

Probably best to either keep renting if you do not want a commute.

I you really want a house you could move to a 10 - 15 min commute and get something affordable (compared to Boulder) and easy to commute. Skateboard from the buss stop or ride a bike.

Here’s a few right on the buss line for the flatiron flyer that will get you to Boulder in 10 - 15 min. Also quick to downtown Denver or the airport

https://www.zillow.com/homedetails/2046-Oxford-Ln-Superior-CO-80027/54988443_zpid/

https://www.zillow.com/homedetails/13452-Via-Varra-Broomfield-CO-80020/71346663_zpid/

https://www.zillow.com/homedetails/13428-Via-Varra-Broomfield-CO-80020/71346675_zpid/

https://www.zillow.com/homedetails/2855-Rock-Creek-Cir-UNIT-204-Superior-CO-80027/50945845_zpid/


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[ChpBstrd]

Looking at those listings made me so grateful not to live in a HCOL area. How does anyone get ahead with a $400k mortgage around their neck? Even those 30 year old single-wide trailers listed for $50k, which in my area sell for about $40k brand new, have $850 lot rents.

The rationale has always been that's the only way to work for a big tech company, but I can do that from a LCOL area:

https://www.businessinsider.com/salesforce-employees-can-work-from-home-permanently-2021-2

[the_fixer]

Looking at those listings made me so grateful not to live in a HCOL area. How does anyone get ahead with a $400k mortgage around their neck? Even those 30 year old single-wide trailers listed for $50k, which in my area sell for about $40k brand new, have $850 lot rents.

The rationale has always been that's the only way to work for a big tech company, but I can do that from a LCOL area:

https://www.businessinsider.com/salesforce-employees-can-work-from-home-permanently-2021-2

Honestly in Boulder it is mostly people that have owned for a long long time or people that have relocated some with jobs from VHCOL areas that can afford it.

Us normal people cannot afford to buy in Boulder or many other places.

They do have an affordable housing scheme there but it is hard to qualify for and the prices are still very high (anything you see that is not crazy is likely under the affordable program) and appreciation is limited so it does not allow people who qualify to benefit from the ownership the way you would normally benefit through appreciation.

Basically Colorado natives including myself are unable to live where we grew up and are being pushed out further and further by new money coming in from other states. I would love to live in the towns I grew up in like Boulder and Lyons but just no way I can afford it even with 2 engineering level salaries unless we want to be saddled with a huge mortgage till the day we die.


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[Metalcat]

I love when someone says renting is paying "the man", as if paying interest on a giant mortgage, paying huge property taxes, and paying home insurance isn't also paying "the man".

The interest alone on an 800,000K loan at 3% for 30 years is well over 400K. How many months of $700 rent would that amount to. Then calculate what the property taxes, insurance, maintenance, additional utilities, etc, etc, and see how many months of rent that adds up to.

I'm guessing it covers more than your entire lifetime.

Now, of course, comparing shared rent to owning a home is apples to oranges. However, if you're *just* looking at how much money you are "losing" to "the man", then you come out WAY ahead with your current rent.
 
People come out ahead renting in a lot of markets, that's why so many people recommend it. However, as someone pointed out, only a minority of people here rent even if it's financially adventageous, because owning vs renting is as much of a lifestyle choice as it is a financial one, if not moreso.

I personally would *much* rather rent, I have no love of owning, but in my specific neighbourhood, it's actually cheaper for me to own. In the rest of my city, it's cheaper to rent. I also lived with two other people until my 30s, and DH did until he was 40.

If I were you, I would rent with roommates for as long as you can possibly enjoy it.

[Dicey]

Looking at those listings made me so grateful not to live in a HCOL area. How does anyone get ahead with a $400k mortgage around their neck?

BWAHAHAHAH! I'd love to buy a house for "only" $400k. The answer is that you start modestly. You make do without all the bells and whistles. You buy the ugly property and use sweat equity to make it pretty. Lather, rinse, repeat.

Our current home cost 10X DH's salary, but we paid cash, so nobody cared. We did that by selling two highly appreciated properties that had old, long, low mortgages on them. It suits our needs for now. When it doesn't, we'll sell it.

[aetheldrea]

Looking at those listings made me so grateful not to live in a HCOL area. How does anyone get ahead with a $400k mortgage around their neck?

BWAHAHAHAH! I'd love to buy a house for "only" $400k...

I’m from SoCal, I was assuming he was talking about the mortgage with a 50% down payment:-)

[jeninco]

Looking at those listings made me so grateful not to live in a HCOL area. How does anyone get ahead with a $400k mortgage around their neck?

BWAHAHAHAH! I'd love to buy a house for "only" $400k. The answer is that you start modestly. You make do without all the bells and whistles. You buy the ugly property and use sweat equity to make it pretty. Lather, rinse, repeat.

Our current home cost 10X DH's salary, but we paid cash, so nobody cared. We did that by selling two highly appreciated properties that had old, long, low mortgages on them. It suits our needs for now. When it doesn't, we'll sell it.

Erm, houses on our block that were built as "affordable" in the late 50's, early 60's (so small ranches with fairly crappy construction -- the "beam" supporting the center of our house over the crawlspace is paired 2X6's, because apparently 2X8s were too expensive? Our neighbor's walls are constructed around old telephone poles rather than dimensional lumber?) are now selling in the 3/4M range or higher.  Granted, we're not (now) in the cheapest area of town, but it's crazy in that low-supply, high-demand way that markets can get.

 I'm not saying that the "ugly" properties don't exist, but you'd have to do some serious looking, and then be very sure you don't have to deal with potentially catastrophic structural flaws.

I'd suggest continuing to rent, is what I'm saying here.

[Cranky]

There’s a house in Boulder that I used to go by every day on my way to work - kinda 50’s modern but it was pretty shabby at the time and I always thought “What a dump!”

I guess they’ve fixed it up because I noticed it in the NYT’s “What You Can Get For A Million Dollars “ feature a year or two ago...

[ChpBstrd]

Looking at those listings made me so grateful not to live in a HCOL area. How does anyone get ahead with a $400k mortgage around their neck?

BWAHAHAHAH! I'd love to buy a house for "only" $400k...

I’m from SoCal, I was assuming he was talking about the mortgage with a 50% down payment:-)

Yea, to buy a home in CA one would have to make it the point of their life to own a home in CA. Lots of people get on this forum and ask "Age 65, how do I retire? Assets: $1.2M home equity in my small apartment + $10k cash" and the mathematically correct answer is always "Move to Indiana and live like a king" and they say "ewww Indiana..." and go broke upon the next property tax bill.