Author Topic: Should I buy a bigger home now or wait?  (Read 13337 times)

Rpesek6904

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Should I buy a bigger home now or wait?
« on: November 23, 2013, 01:45:42 PM »
I currently live in a 2 bed, 1 bath home with my wife, and two children (Ages 2 and 6 months). We are content in this home and not in a hurry to move. We plan to have another child in 18-24 months. I expect my wife will want to move from our home about the time a third child is born.

Our current home cost 80k in 2010. Zillow lists at 80k today. We owe 40k on our mortgage. 5.25%. Monthly payments of $751.

I am 29. I own my own business which I started two years ago (Law Firm). I do not get paid a salary. Last year I made 109k. This year I will make 225k. I believe I can make 100k consistently. I might make a bunch more in the future. I really don't know. At least for now, my income is great. However, I do not want to over commit myself and get on the income-spending wheel. I have no debt other than the 40k mortgage (no cars, school, or other). I love the idea of paying the last 40k on my mortgage and living 100% debt free - for at least a few months.

My question is this: with interest rates very low, does it make sense to buy a larger home now?

I am assuming interest rates will go up. Without diving into the policy discussion, I think it is reasonable to believe interest rates could rise to the 6% to 9% level. Who knows, maybe higher (See, 1980's).

http://www.freddiemac.com/pmms/pmms30.htm

If I were to purchase a home now it would probably be worth maximum $250k. Obviously, I would be looking to spend less.
If can lock in a low interest rate today rather than get stuck with a higher interest rate in 18-24 months (clearly an an assumption). I could carry the low interest rate and put extra money into investments. 

Am I an idiot?



 

monarda

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Re: Should I buy a bigger home now or wait?
« Reply #1 on: November 23, 2013, 02:10:16 PM »
It's about more than just the interest rates.
It'd be way more pleasant to move before your third child is born, and be settled by the time he/she arrives.
What about your current school district compared to where you might be looking?

What about adding on to your current house?  Is the new house you're considering 3X the value of your current house?

Think about neighborhood and your commuting distance, too. All things to consider.   As others will tell you, interest rate and price will both vary. Rates may rise, but I don't think they will rise that much in a short time frame. And if they do, the prices may likely be forced downward.

We currently live in a 2 bed, 1.5 bath house (only ~1000 sqft after two additions).  We're thinking of adding on a third time because we love the current neighborhood and the cost of a house with one extra room is over 100k more than the value of this one. We did the shopping with a realtor. The addition won't cost 100k.

Stackfault

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Re: Should I buy a bigger home now or wait?
« Reply #2 on: November 24, 2013, 06:30:50 AM »
I suggest you start looking but not get carried away to make the move immediately.  Take time to research and identify the neighborhoods and house/property features you really want and familiarize yourself with the market. Continue to save in the meantime!  Then when you see a house that you know is the one, you'll be in a good place to make the move with confidence.  Also think a lot about he extra work and expense that comes with the bigger place.  You'll miss the savings you have now and grumble about the extra house/yard work on the weekends.  Having said that, I think wanting a bigger place for a family of 5 is not unreasonable.

Here is my experience:

Ten years ago, I was making $100k and had a $400 mortgage payment on a 3BR 2 bath house, probably about 1200 sq. ft.  We are a family of four.  We were saving a ton of money!  The neighborhood started to decline, the house had some issues (or I'd have kept it as a rental), and we wanted more space so we moved up to a 2700 sq. ft. 4BR 2.5 bath brick house and a mortgage of about $1400.  Since the old mortgage was so cheap, we waited until after the move to fix up and sell the old house, making for a very leisurely moving experience.  Somewhere during the move, we picked up a bad habit of eating out too often that has never stopped.  Other than wasting too much on food, we continued to save and invest but I missed that cheaper living, though loved the new house.  I should admit though that we didn't use all that new space.  Spare bedroom never became the craft/hobby room like we planned and we never use the dining room.  2-car garage has kayaks, bikes, grill, etc. on one side so I still only hve a one car garage.  My wife has some hoarder in her so a lot of the extra space in the house is filled with junk.  I guess we tend to fill the space we have.  I did pay off my mortgage two years ago when a layoff seemed imminent and while I greatly enjoy not having a mortgage, I freely admit that I'd hve been better off financially to refinance from 4.75% to 3% and keep that money invested as the S&P was 1200 at the time and just hit 1800 this week.  While I still like our house and 2700 sq. ft. Is not huge, a smaller place that's closer to work and easier to maintain for the same price would have been a smarter choice. 

With 3 kids, it sounds like you can justify the bigger place.  Just don't rush into it.  And use your mustachian skills to ensure you spend the money on location, efficiency, and low-maintenance, not just more space that will get filled with stuff.

Good luck!



Rpesek6904

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Re: Should I buy a bigger home now or wait?
« Reply #3 on: November 24, 2013, 07:43:44 AM »
I really appreciate both responses. You have clarified my thinking in multiple ways.

I do still hope for others to chime in. I am still looking for a little guidance from the more experienced mustachians.

SunshineGirl

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Re: Should I buy a bigger home now or wait?
« Reply #4 on: November 24, 2013, 08:14:08 AM »
Not having a mortgage is kind of addicting. Maybe you should pay off that 40K and see how it feels for a year.

As I age and my children age, it's interesting to see how our house needs/wants change over time. We have resisted moving because we love the nieghborhood and it holds its value well, and while there are things I wish were different about my house, to date the bottom line has been I prefer to have the cash in the bank than the improvements, and I don't want the debt even though we could pay it comfortably. Now, knowing my kids will likely be gone in 4-5 years, it causes me to look differently at the improvements I WOULD do, should I ever do them. The ebb and flow of a household is interesting.

zinethstache

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Re: Should I buy a bigger home now or wait?
« Reply #5 on: November 26, 2013, 10:23:26 PM »
Another poster mentioned an addition. Is that possible for you? If you are happy in a smaller space, perhaps adding on a master with bath suite would be all you need? I think the school district would be a top factor to consider...

fragglebock

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Re: Should I buy a bigger home now or wait?
« Reply #6 on: November 30, 2013, 12:34:52 PM »
Assuming the school district is important, you have a timeline of 0-4 years if you want to be in the new house before your oldest starts school.  That give you a long time to find the perfect place and build a bigger stache in the meantime.  There's no need to rush into any decisions while your kids (and your business) are still so young.

dragoncar

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Re: Should I buy a bigger home now or wait?
« Reply #7 on: November 30, 2013, 01:51:13 PM »
Not having a mortgage is kind of addicting. Maybe you should pay off that 40K and see how it feels for a year.

As I age and my children age, it's interesting to see how our house needs/wants change over time. We have resisted moving because we love the nieghborhood and it holds its value well, and while there are things I wish were different about my house, to date the bottom line has been I prefer to have the cash in the bank than the improvements, and I don't want the debt even though we could pay it comfortably. Now, knowing my kids will likely be gone in 4-5 years, it causes me to look differently at the improvements I WOULD do, should I ever do them. The ebb and flow of a household is interesting.

I'd save prepayments for a down payment on the next house.  Unless you can swing some way to avoid a contingent purchhase

lhamo

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Re: Should I buy a bigger home now or wait?
« Reply #8 on: November 30, 2013, 05:59:05 PM »
80k to 250k is a pretty big jump.  Seems like it isn't really necessary.

I would take it slow and steady
.  Start researching your ideal neighborhoods in terms of schools, parks, walking distance to amenities (library, grocery stores, pediatrician's office, etc.), distance to your office (or availability of alternative office space you could move the business to, preferably within walking distance).  Once you have the neighborhood pinned down, decide what your ideal house layout/composition would be.  Do you really need separate bedrooms for all the kids, or can they share?  Is it possible to get a house with office space in it (think hard about how you deal with work/life balance before you commit to an in-home office, though -- for workaholics it is not necessarily a good thing...)?  Do you want/need space for a garden? 

Once you know more or less what you want/need, keep an eye on the market and look for value properties.  Walk around the neighborhoods you like and strike up conversations with the people who live there.  Get a sense for who might be moving on soon -- people retiring who want to downsize, older people who might be getting ready to move out to assisted living, large families in smaller houses that might be wanting to upgrade.  If you hear of good possibilities you might be able to make an offer before the house even goes on the market.  You will also be able to pounce on houses you are interested in the minute they hit the market, if you are watching carefully.

Absolutely no rush to buy, though.  You are in great shape financially, with your income and the fact that you live in such a low-cost area. 

 

Beckyemerson

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Re: Should I buy a bigger home now or wait?
« Reply #9 on: December 06, 2013, 08:31:55 AM »
We are in the military so we move often. We have 3 small children. I always go for a smaller house. Not only is the rent/ mortgage cheaper but I don't feel the need to buy stuff since I have no where to store it. Family members also try to give my children multiple toys for each holiday. I don't feel rude telling them to limit their buying since we simply don't have room for tons of toys. Also I think it is easier to clean a smaller house. It starts to look messy faster but that motivates one to clean more frequently and because it is small it takes less time. Lastly, I think small children prefer to share a room, at least mine do. Even when we have had more bedrooms so that they didn't need to share they didn't like the idea of sleeping in a room alone.

TrMama

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Re: Should I buy a bigger home now or wait?
« Reply #10 on: December 06, 2013, 09:42:41 AM »
The thing about higher interest rates is that they push prices down. I'd sit tight, save as much as possible and buy a bigger house when it goes on sale. That way you'll have the biggest down payment possible and will be more protected from the higher rate.

The only hiccup in this plan is that you could take a hit on selling your current house. However, when prices drop, more expensive homes tend to drop more than cheaper homes. In a high rate climate, fewer people can afford (or even qualify for) the more expensive homes and everyone tries to pile into cheaper homes.

In your case, higher rates can be a big advantage.

Rpesek6904

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Re: Should I buy a bigger home now or wait?
« Reply #11 on: June 08, 2014, 07:43:37 AM »
In case anyone follows up on their posts, I just wanted to say thank you. I tried to take everyone's advice and use it to make the best decision I could.

In the end, I purchased a new home. I bought it for $165k. Its bigger (2,500 SF) but not a huge Mcmansion type deal. 2 miles to work, so I bike often. Heating and cooling bills are proving to be the same even with much larger house because its a higher quality home. Much more "upscale" than my last neighborhood but not a trendy place where you pay for location. I've been fortunate as my business has continued to grow, so the price of the home is really pretty easy to accommodate with my earnings.

Anyway, thanks for your time in responding.

TomTX

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Re: Should I buy a bigger home now or wait?
« Reply #12 on: June 08, 2014, 02:47:33 PM »
Sounds like you did well. Kudos!

waltworks

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Re: Should I buy a bigger home now or wait?
« Reply #13 on: June 08, 2014, 03:14:27 PM »
Don't worry about the interest rates, just buy the house that you *need* in the location you want and let the rest of the chips fall where they may. A primary residence is not really an investment - don't think of it that way. Think of it as a consumable like a car - ie will this place keep the rain off with minimal cost/maintenance? Is it located where I want it located? Will I have to fix important mechanical parts of it often? Is it efficient/cost effective/capable of providing the services I need?

-W

dragoncar

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Re: Should I buy a bigger home now or wait?
« Reply #14 on: June 08, 2014, 06:29:18 PM »
In case anyone follows up on their posts, I just wanted to say thank you. I tried to take everyone's advice and use it to make the best decision I could.

In the end, I purchased a new home. I bought it for $165k. Its bigger (2,500 SF) but not a huge Mcmansion type deal. 2 miles to work, so I bike often. Heating and cooling bills are proving to be the same even with much larger house because its a higher quality home. Much more "upscale" than my last neighborhood but not a trendy place where you pay for location. I've been fortunate as my business has continued to grow, so the price of the home is really pretty easy to accommodate with my earnings.

Anyway, thanks for your time in responding.

Now that that's finished, would love to hear the story of you starting your own law firm.

Emilyngh

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Re: Should I buy a bigger home now or wait?
« Reply #15 on: June 08, 2014, 07:45:48 PM »
Neither.   I'd recommend planning on staying in your 2 bedroom home unless you have many more than 2 children.

Figure out how you use your space and put your time/energy/money into optimizing what you have vs buying something else.   Build built-in storage, renovate for space that's functional and beautiful for you and stay put, all the while staching away as much as you can.    You'll sooner have your freedom, and I suspect you'll realize that your home has more than enough room (or you'll figure out exactly what you need).

SDREMNGR

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Re: Should I buy a bigger home now or wait?
« Reply #16 on: June 09, 2014, 12:35:23 AM »
Congrats on all fronts.  You didn't go much into your retirement fund but as a self employed person, I hope you are taking advantage of simple Ira or sep to save money pretax.  Have your wife on payroll working for you to double the benefits.

TomTX

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Re: Should I buy a bigger home now or wait?
« Reply #17 on: June 09, 2014, 05:37:35 AM »
Neither.   I'd recommend planning on staying in your 2 bedroom home unless you have many more than 2 children.

Figure out how you use your space and put your time/energy/money into optimizing what you have vs buying something else.   Build built-in storage, renovate for space that's functional and beautiful for you and stay put, all the while staching away as much as you can.    You'll sooner have your freedom, and I suspect you'll realize that your home has more than enough room (or you'll figure out exactly what you need).

With an income over $200k, moving to a $165k house isn't extravagant - especially when the new house is 2 miles from work. Plus they expect Child #3 fairly soon.   


Rpesek6904

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Re: Should I buy a bigger home now or wait?
« Reply #18 on: June 09, 2014, 06:10:27 AM »
Congrats on all fronts.  You didn't go much into your retirement fund but as a self employed person, I hope you are taking advantage of simple Ira or sep to save money pretax.  Have your wife on payroll working for you to double the benefits.

I am contacting Vanguard about a SIMPLE IRA this week. I believe it may have been TomTX (below) who said the same thing to me on another conversation. I have been slow to the pre-tax money situation for various reasons (none of which are particularly good reasons). It's been a ride trying to organize my business and investments correctly. This might be the last big piece of the puzzle. So, thanks for the reminder :)

Zamboni

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Re: Should I buy a bigger home now or wait?
« Reply #19 on: June 09, 2014, 06:19:29 AM »
Congrats on finding a house your like and even more for finding an under-served group in your area to represent!

Even though I'm not in a business where I really need Spanish, so many people speak it in the world that I'm kicking myself for not learning Spanish in school.  My other half is a native Spanish speaker, but also speaks perfect in English, so I think the only way I will ever get Spanish down pat is to emulate you and move somewhere that immerses us in the language.

dragoncar

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Re: Should I buy a bigger home now or wait?
« Reply #20 on: June 09, 2014, 10:19:18 AM »
Congrats on finding a house your like and even more for finding an under-served group in your area to represent!

Even though I'm not in a business where I really need Spanish, so many people speak it in the world that I'm kicking myself for not learning Spanish in school.  My other half is a native Spanish speaker, but also speaks perfect in English, so I think the only way I will ever get Spanish down pat is to emulate you and move somewhere that immerses us in the language.

Can't you go Spanish-only at home?  I'm learning a bit that way (although I took Spanish in high school, I was never very good at it)

AccidentalMiser

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Re: Should I buy a bigger home now or wait?
« Reply #21 on: June 09, 2014, 10:31:36 AM »
Ross,

You sound like an exceptional human being.  Congratulations on your family, your home, your faith and your practice!  If I ever need legal advice, I'm going to keep you in mind.

rmendpara

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Re: Should I buy a bigger home now or wait?
« Reply #22 on: June 09, 2014, 10:34:48 AM »
I currently live in a 2 bed, 1 bath home with my wife, and two children (Ages 2 and 6 months). We are content in this home and not in a hurry to move. We plan to have another child in 18-24 months. I expect my wife will want to move from our home about the time a third child is born.

Our current home cost 80k in 2010. Zillow lists at 80k today. We owe 40k on our mortgage. 5.25%. Monthly payments of $751.

I am 29. I own my own business which I started two years ago (Law Firm). I do not get paid a salary. Last year I made 109k. This year I will make 225k. I believe I can make 100k consistently. I might make a bunch more in the future. I really don't know. At least for now, my income is great. However, I do not want to over commit myself and get on the income-spending wheel. I have no debt other than the 40k mortgage (no cars, school, or other). I love the idea of paying the last 40k on my mortgage and living 100% debt free - for at least a few months.

My question is this: with interest rates very low, does it make sense to buy a larger home now?

I am assuming interest rates will go up. Without diving into the policy discussion, I think it is reasonable to believe interest rates could rise to the 6% to 9% level. Who knows, maybe higher (See, 1980's).

http://www.freddiemac.com/pmms/pmms30.htm

If I were to purchase a home now it would probably be worth maximum $250k. Obviously, I would be looking to spend less.
If can lock in a low interest rate today rather than get stuck with a higher interest rate in 18-24 months (clearly an an assumption). I could carry the low interest rate and put extra money into investments. 

Am I an idiot?

Your kids are still young, so no need to rush out and get something bigger immediately.

However, you probably will want to upgrade to a 3-4br home within the next 5 years which could last you indefinitely.

Since you are just getting your business going, I wouldn't want to take on a bunch more risk by getting a big mortgage at this time. Even 1 year from now, you'll have a much clearer idea about whether your firm is on a successful path and you can expect ~$100k going forward. Maybe share your plans with the wife to start shopping, and make the purchase when the right place comes along. Perhaps you could buy a place soon, rent it out for 2-3 years, help pay it down a little, and then move in once your kids are a bit older and you can evaluate the success of your business more accurately?

AssetGrinder

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Re: Should I buy a bigger home now or wait?
« Reply #23 on: June 11, 2014, 02:11:20 PM »
Given your current financial status  I would wait until you pay off your current mortgage. Then at that point you can either sell your home or rent it out for some passive income depending on rental yields. If you can sustain your income for the next year I see no problem in you buying a 250k home. Interest rates will slowly come up so you have some time on your hands.

If I were you I would wait one year and get a new home. This way you can save some money in the bank for your new home  and pay off your current mortgage.You will have a small mortgage on your new home and you will be sitting pretty. Buying a new home for your growing family is a no brainer but just dont overspend like i did lol.Big mistake! I think the biggest decision for you is if you want to keep your current home as an investment!!!! Best of luck man!

TomTX

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Re: Should I buy a bigger home now or wait?
« Reply #24 on: June 11, 2014, 07:41:31 PM »
Given your current financial status  I would wait until you pay off your current mortgage. Then at that point you can either sell your home or rent it out for some passive income depending on rental yields. If you can sustain your income for the next year I see no problem in you buying a 250k home. Interest rates will slowly come up so you have some time on your hands.

If I were you I would wait one year and get a new home. This way you can save some money in the bank for your new home  and pay off your current mortgage.You will have a small mortgage on your new home and you will be sitting pretty. Buying a new home for your growing family is a no brainer but just dont overspend like i did lol.Big mistake! I think the biggest decision for you is if you want to keep your current home as an investment!!!! Best of luck man!

You know, you could read the thread and realize he already bought the new house.

Your nickname seems apt, as you seem to be mostly grinding out posts in order to get exposure for your blog.