The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: xclonexclonex on June 24, 2015, 05:56:39 AM
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Hello everyone,
As the title states, I am contemplating whether or not I should buy a house given my current financial situation.
Here is some information about me
Age - 32
Wife's age - 26
Married, no kids
Monthly take home pay - $4368.67 (my salary), $1000 (wife’s salary)
No debt
Immigration status - green card holder, not an American citizen. I intend to apply for the privilege of becoming a citizen of this country in 2019.
Some things to consider
- Wife wants to move back to Europe in year 2020.
- We want to try for having a child some time in the couple of years
Housing market -
- Mortgage rates are around 3%-4% depending on the length of the loan term.
- Houses that I consider very decent are priced around $150k to $180k
- I live in a university town in Central US. I am told that I shouldn’t have trouble renting my house if I ever want to move in the future.
Current financial situation -
- Checking account - $1,630.87
- Checking account 2 - $654.89
- Savings account - $1,000.70
- CD (5 years earning 2.30%) - $97,336.49
- Online savings account - $39,412.68
- Savings account - $95.46
- Checking account - $4.95
- Savings account - $0.84
- Fidelity 401k - $9,528.75
- Vanguard Roth IRA - $4,548.12
- Overseas bank - $412.56
- Total - $154,626.31
Monthly expenses
All said and done, we currently spend about $1500 per month including rent etc.
My attitude towards life
I don’t particularly care about having a fancy lifestyle. We weren’t rich growing up, and I don’t think anyone in our families ever had as much money as we have right now. I was always frugal, and once I started earning a decent income, I really didn’t know what to do with it. All my needs and wants are met, so I just kept saving money. I am told that by renting I am really throwing away all my money, and I am not building wealth. Now that I think about it, it's true, but at the same time, I do not know if I particularly enjoy the responsibility of being a homeowner. I am actually happy being where I am right now.
I am also told that my monthly expenses are going to be significantly higher once I buy a home, and I will have to deal with the maintenance etc. I am not sure if I am thrilled about that.
At the same time, I feel like I shouldn’t miss out on the opportunity to build wealth etc.
So, what should I do? I can’t go to anyone I know for advice because both of our family are dumb as bricks when it comes to money. They are your typical wasteful consumers. For whatever reason, I am not like that.
So given all this, if you were in my situation, what would you do?
Thanks for your advice.
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I was really close to saying "those houses are cheap! Go for it!" but then I saw the plan to move away in 2020--not to mention your satisfaction with where you live now.
I'd say skip it. You have a VERY affordable renting situation, and the benefits of owning are easily lost if you can't be sure you're holding onto the place for a good long while. Lots of people's biggest regret is buying a house that they ended up selling within a few years. Six years isn't painfully short, but it's not, IMO, long enough to incur the risks of home ownership when you have a good rental situation.
Don't let anyone tell you you're throwing away money. You have to live somewhere. Mortgage interest, home insurance, and home repairs are just as much "throwing away money" as paying for a place to live is.
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Your wife wants to move back to Europe in 5 years? Rent.
Keep saving money and stashing :)
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Yeah, keep renting.
Why so many bank accounts? Do you not find it ridiculous having an account with $0.84 or $4.95 in it?
My view is that you only need 2 bank accounts. A cheque/transaction account, and a savings account.
Close the rest and save yourself the fees and the paperwork.
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If you can cash out the $100k CD and put down 66% on a $150k house - I'd actually say go for it. But look for a house with strong rental potential - hell find a management company and ask them for suggestions. If the long term goal is to keep this as a rental, then plan for that in the beginning rather than after the fact.
As for 'buying to rent' in a university town - find where graduate students live and look to purchase in that area - more stable, tends to be less 'crazy' than undergrads. This will usually be a bit further from campus but still on the bus route (if those are big for the college).
Now if you can't touch that 100k, not worth if due to the concerns with such a short time frame before you are planning to move again.
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If you are looking at owning a home for only five years, you are not likely going to see much appreciation in value (unless there's something particular about your housing market that strongly indicates otherwise) and given that you'll likely borrow to own, most of your mortgage payments are going to go to interest, not paydown of principal (which equals increase in equity if your home holds its value.) Mortgages payments are weighted with the earliest years' payments going mostly to interest, so you don't really pay off principal substantially until more toward the end of the years you pay the mortgage. So, unless you are going to keep the house as a long term rental, or unless it's likely you will not be moving back to Europe in '20 (and I note that you mention your wife wants to move back to Europe in '20, not that "we want to move in '20"), you are probably best off avoiding purchasing a house. My recommendation would be different if you were strongly emotionally inclined toward homeownership, if you were anxious as hell to work on your day to day home maintenance skills, etc. etc., but that's not at all what you are saying. Even on purely financial grounds, renting long term can be an excellent and sound move to make. Good luck.
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Your best chance of renting out your house out when you leave is most likely going to be where the students live. This means that you might need to live in a student neighborhood for 5 years. Could you handle the noise and traffic? I think you could make some money doing this in the long term. However, you need to have the mentality that you want to do it. If you arent' 100% committed, then you are likely to sell early and lose money. From this end, you don't seem super committed. Take the money out of the CD's and put it in the stock market. Should you be saving that money for a house in Europe?
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No.
Mostly based on a moving timeline that short. I would also never want the headache of renting to college students, but only because I saw house house rentals to students went in my university town. Seems like every year you would be replacing, repairing, and fixing things, and no one I knew in our town stayed anywhere for more than two years, often one. If you were abroad you'd possibly need a property manager to do those things. You're also looking at paying lots in realtor fees and etc. Your living expenses compared to income are great. Keep saving.
I'd also consolidate bank accounts. I don't see the point of having 4 savings accounts when the bulk of your money is in one, nor 3 checking accounts.
But I am not you, and it only matters what you do.
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I'd go with "no" as everybody else.
I owned a house for 2 years in Japan and then we had to move. Buying, selling were a pain, it is not worth it if you don't have plans to stay in the country for a bit longer.
Enjoy the flexibility of renting: you guys can move to a bigger place when you have a kid, without massive headaches
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No. biggest thing, you say you are planning to move in 5 years. There are high transaction costs in buying and selling. You don't want to be renting your house, living in another country. You are happy where you are now.
I would invest at least SOME of that 100K (rounding up) you have in CDS, for retirement. If you can live on 1500, kudos and keep it up!
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Don't let anyone tell you you're throwing away money. You have to live somewhere. Mortgage interest, home insurance, and home repairs are just as much "throwing away money" as paying for a place to live is.
That is a very interesting way to look at it. I confess I never thought about it that way. I guess I need to figure out if I really need a house at this point. I don't think I do, but at the same time, I get this feeling of missing out on something.
Why so many bank accounts? Do you not find it ridiculous having an account with $0.84 or $4.95 in it?
I want to close a few of the accounts. I just haven't gotten around to it yet, but I will do it this week. Thanks!
If you can cash out the $100k CD and put down 66% on a $150k house - I'd actually say go for it. But look for a house with strong rental potential - hell find a management company and ask them for suggestions. If the long term goal is to keep this as a rental, then plan for that in the beginning rather than after the fact.
I thought about saving enough money to buy a house out right, but everything I think about emptying my bank account completely, I get anxious because as of now, with our current situation, if I lose my job, we can live on our reserves for close to 100 months. Not having that safety net makes me very nervous.
I'd go with "no" as everybody else.
I owned a house for 2 years in Japan and then we had to move. Buying, selling were a pain, it is not worth it if you don't have plans to stay in the country for a bit longer.
Enjoy the flexibility of renting: you guys can move to a bigger place when you have a kid, without massive headaches
Any tips on getting over this fear of missing out?? Its the thing that bothers me the most. Like maybe I am missing out on a chance of being wealthy because I am far too conservative with money.
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You're definitely currently too conservative with your investments, but that has nothing to do with owning a primary residence. Don't even factor that in. Five years of owning a primary residence isn't going to make you rich and you will probably even lose money.
What you really need to do is ask yourself and answer three questions:
1. Do I want to transition from homeowner to landlord when I move in 5 years?
2. Am I okay with a long distance investment and will I do the leg work necessary to make this a long term success?
3. (Assuming you don't know much about being a landlord) - Am I willing to do a lot of research and learn all I can leading up to purchasing my first property?
If you answer no to any one of those questions, the answer is keep renting. If you're not buying a property for investment, there is zero point in owning a primary residence in your present situation.
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Sadly, right this second, I cannot answer those questions because I don't really know. However, I am going to spend some time this week, and figure out a game plan, and hopefully have all these questions answered.
Thanks for your input!