Author Topic: Advice for First Time Homebuyer  (Read 1739 times)

PrettyCoolWorkshop

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Advice for First Time Homebuyer
« on: August 23, 2016, 09:21:20 AM »
Hey guys, I'm here to seek feedback regarding me potentially purchasing a home, at the same time as I'm moving to a new job.  If any of you also frequent the bogleheads.org forum, I've posted there as well...

I graduated college in December 2012 at age 22 with $30k saved up, I was already an agressive saver from summer jobs as a teenager and engineering internships (gratefully my parents covered living expenses during college).  I'm a mechanical engineer.  I've continued saving since, maintaining a savings rate >50% while having salary in the range of $60k to $69.2k.  My total montly expenses since graduating have averaged $1450, with $525 of that being rent.  I've worked at 2 different companies since graduating, and have now gotten a job offer at a company in the city I want to live in long term.  I will be able to finally move my girlfriend in with me. we've been in a long-distance relationship for 3 yrs, she's in the city I'm moving to, finishing a Computer Science degree.  I have somewhat of an idea that I would like to be able to retire early... maybe as early as the age of 33.

It is a 3 bedroom townhouse, currently listed for sale at $218k.  HOA fee is $155 per month, property tax rate is 1.018%.  I've been pre-qualified for a 15-year mortgate at 2.75%.  If I buy it, I intend to rent out the 2 spare bedrooms.  One tenant is my friend who is a graduate student (currently 1 year into a PhD), and the other is my girlfriend's brother, who is on disability.  Both seem like stable tenants that are interested in staying for multiple years, I would charge $380 rent each.

To give some more information and flesh things out a bit:

Another interesting factor... GF's mom is my realtor. She's very on board with the idea of this as she likes me and also wants to get an emptier nest- both GF and GF's brother currently live in her house, in addition to stepdad and stepbrother who are uninvolved in this ordeal. In a "falling out" relationship situation (which I think is very unlikely, but you never know...) it would be likely that GF and brother would no longer want to live with me, and in that case, I would seek another renter, including applicants I do not know personally. In that case I would also charge higher rent. GF is somewhat averse to the idea of living with people she does not know, so unless a falling out happens I would not likely seek renters this way.

GF's extended family is a relatively large support network in the metropolitan area I'm moving to- sister+sister's husband, uncle+ aunt, cousins, and grandma. It has been a long term goal for GF's bro to move out of mom's house, be somewhat more independent. His disability is schizophrenia, but he is a very calm person and has been stably medicated for years. GF's sister is a pharmacist, and in the area, which helps. I think I/we can lean on this support network if/when we need to- however, in some ways there is a risk that GF's bro is "too sticky," in that it might be difficult to get him to leave if I no longer want him to live with us. However, I would be perfectly comfortable with him living with us long term, and GF probably would too.

The metropolitan area I'm moving to is an hot spot for Computer Science jobs and GF has expressed her desire to live there long term as well. And I will add that it hasen't purely been a long term relationship- she lived with me for ~1 year in the town I'm currently located in, before she decided to head back to school to finish a degree. I currently drive 2.5 hrs to visit her most (probably 2/3) weekends, at her mom's house.

monthly housing cashflows if purchased @218k w/ 20% down ($42800), 15 year mortgage @ 2.75%:
$-1161.80 mortgage payment
$- 155.00  HOA fee
$- 181.54  property tax (218k @ 1.018% annually)
$-  67.00  Insurance (estimated)
$+ 760.00  rental income
---------------------------------------------------
$-805.01   total monthly case flow



Debt: $0   Currently debt free! :D
Tax Filing Status: Single
Tax Rate: 25% Federal, 5.75% State
State of Residence: North Carolina
Age: 25
Income: current salary $69,200.  Salary with new job: $76500.  New job has 10% bonus target.

Desired Asset allocation: 95% stocks / 5% bonds
Desired International allocation: 33% of 401k accounts, 0% of other accounts

Current total assets
100% $191,000

Checking/Savings at Ally Bank:
3.4% $6,300 checking
0.9% $1,650 savings

Taxable Brokerage Account 1 at Etrade:
I started this account fresh out of college before I learned of Bogleheads.  I intend to consolidate this and the Merrill Lynch account into my Vanguard brokerage account. 
3.6% $6,561           AT&T                           T
6.0% $11,000          Vanguard Small-Cap ETF         VB
4.9% $8,925           Berkshire Hathaway             BRK.B
1.6% $2,980           American Capital Agency REIT   AGNC
4.7% $8,577           Vanguard Div Appreciation ETF  VIG     (Expense ratio= .09%)
8.7% $15,800          cash

Taxable Brokerage Account 2 at Merrill Lynch:
This account was valued at $14,000 about 2 years ago, and was a gift (up to tax-free limit) from my mom.  The cost basis for these stocks is around $8000.  I really should consolidate this account into my Vanguard brokerage account though.
0.3% $554             cash
4.7% $8,681            AMGEN INC COM PV               AMGN
2.6% $4,839            PHILLIPS 66 SHS                PSX
1.1% $1,967            SPDR S&P 500 ETF TRUST         SPY
   

Taxable Brokerage Account 3 at Vanguard:
0% $43             cash
3.9% $7,238       VANGUARD CONSUMER STAPLES ETF   VDC     (Expense ratio= .10%)
7.9% $14,370      VANGUARD SMALL CAP VALUE ETF    VBR     (Expense ratio= .08%)

401k fund 1:  From a previous employer.  Managed by Voya.  I intend to roll this over some time, I guess it makes the most sense to put it in Vanguard IRA?
4.6% $$8,294       LifePath Portfolio Retirement 2050      (Expense ratio= .02%)

401k fund 2:  From my current employer.  Managed by fidelity.  company match: 75% of employee's contribution up to 8% (.75*8=6% company contribution).  I've contributed $10,031.24 to date this year, and have increased my contribution to the max. allowable (50% of pay) to try to get to $18,000 (or close) before I leave the company.
6.5% $11,842.18      FID INTL INDEX PR               FSIVX    (Expense ratio= .08%)
6.9% $12,564.35      FID EXT MKT IDX PR              FSEVX    (Expense ratio= .07%)
7.2% $13,112.40      FID US EQ INDX                           (Expense ratio= .04%)

401k fund 3:  From my future employer.  Currently empty.  Managed by T. Rowe Price. company match: 75% of employee's contribution up to 6% (.75*6=4.5% company contribution)

HSA 1: From my current employer.  Managed by fidelity.  I intend to never use this to fund healthcare expenses, but to rather use it as a stealth retirement plan.
4.6% $8,468      FID EXTD MKT IDX     FSEMX     (Expense ratio= .10%)

HSA 2: From my future employer.  Managed by T. Rowe Price. Currently empty.  I intend to never use this to fund healthcare expenses, but to rather use it as a stealth retirement plan.

Cash Balance Pension: Currently empty. My future employer will contribute an additional 3% of my salary toward a cash balance pension.  This vests over 3 years and is invested in 10 year US treasury bonds.

Traditional IRA at Vanguard
10% $18,240         Vanguard High Dividend Yield Index Fund VHDYX (Expense ratio= .16%)


New annual Contributions
$18,000 401k + company match
$5,500  IRA
$3,350  HSA

Questions:
1. First of all, what would you do here?  Is it smart to buy this much house?  Do you feel like this would be overleveraging if you personally had to make the decision?

2. Is it too much risk to buy a house simultaneously with starting the new job?

3. How much should I expect homeownership- and landlord-related tax breaks to improve my cash flow?

Piguslast

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Re: Advice for First Time Homebuyer
« Reply #1 on: August 24, 2016, 04:56:48 AM »
I wanted to look at this and feel a lot better now.

PrettyCoolWorkshop

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Re: Advice for First Time Homebuyer
« Reply #2 on: August 24, 2016, 05:06:47 AM »
I wanted to look at this and feel a lot better now.


Is my post particularly interesting to look at?  I don't understand what you mean.

ender

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Re: Advice for First Time Homebuyer
« Reply #3 on: August 24, 2016, 06:55:20 AM »
Another interesting factor... GF's mom is my realtor. She's very on board with the idea of this as she likes me and also wants to get an emptier nest- both GF and GF's brother currently live in her house, in addition to stepdad and stepbrother who are uninvolved in this ordeal. In a "falling out" relationship situation (which I think is very unlikely, but you never know...) it would be likely that GF and brother would no longer want to live with me, and in that case, I would seek another renter, including applicants I do not know personally. In that case I would also charge higher rent. GF is somewhat averse to the idea of living with people she does not know, so unless a falling out happens I would not likely seek renters this way.

GF's extended family is a relatively large support network in the metropolitan area I'm moving to- sister+sister's husband, uncle+ aunt, cousins, and grandma. It has been a long term goal for GF's bro to move out of mom's house, be somewhat more independent. His disability is schizophrenia, but he is a very calm person and has been stably medicated for years. GF's sister is a pharmacist, and in the area, which helps. I think I/we can lean on this support network if/when we need to- however, in some ways there is a risk that GF's bro is "too sticky," in that it might be difficult to get him to leave if I no longer want him to live with us. However, I would be perfectly comfortable with him living with us long term, and GF probably would too.

This somewhat concerns me, given you've not indicated how serious you are about this relationship. You think it's "very unlikely" to have a falling out..

I can't help but imagine how horrible this will end if you and GF end up breaking up. Has the brother ever lived outside his parents home, either?

It feels like your GF's mom is pushing you to buy this because she wants her kids out of the house. I'm... not sure you realize this, but read through your post - it certainly comes across that way.

PrettyCoolWorkshop

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Re: Advice for First Time Homebuyer
« Reply #4 on: August 24, 2016, 10:14:07 AM »

Can you give more details about the townhouse/community itself. What's the exterior construction- brick, siding, stucco? Any big ticket items are expensive- any onsite services like: workout room, pool, clubhouse, onsite staff, etc. 

Does the HOA cover exterior maintenance like mowing your yard and cleaning your gutters? Trash service-- municipal or covered by HOA? Is the HOA well managed? What have fee increases looked like in the past. Any big assessments?

Are you allowed to rent it out? What are the rental rates in the area?

Why not split the bills 3 ways? 

It's an investment but it's also your home--
Something a wise person once told me to think about:
When you come home from work after a really tough day, sitting in your car looking at the place, does the amount your house costs make you piss you off?

let me know if any of this is useful... Cheers!

Thanks for the feedback!  The buildings are about half brick, half vinyl siding.  HOA fee includes exterior maintenance (roof, siding, grass cutting).  The community was built in 2001, and had an HOA fee of $125 then.  It has since increased to $155.  No special assessments have ever been collected.  The community is also in a nice area, close to a university, and within walking distance to a lake, where the city rents kayaks and boats to the public.

I am allowed to rent it out.

The utilities will be split 4 ways- I will pay my 1/4 and my GF's 1/4.

"When you come home from work after a really tough day, sitting in your car looking at the place, does the amount your house costs make you piss you off? "  Hehe, good point... I might consider a 30 yr. mortgage.



PrettyCoolWorkshop

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Re: Advice for First Time Homebuyer
« Reply #5 on: August 24, 2016, 10:16:20 AM »
Another interesting factor... GF's mom is my realtor. She's very on board with the idea of this as she likes me and also wants to get an emptier nest- both GF and GF's brother currently live in her house, in addition to stepdad and stepbrother who are uninvolved in this ordeal. In a "falling out" relationship situation (which I think is very unlikely, but you never know...) it would be likely that GF and brother would no longer want to live with me, and in that case, I would seek another renter, including applicants I do not know personally. In that case I would also charge higher rent. GF is somewhat averse to the idea of living with people she does not know, so unless a falling out happens I would not likely seek renters this way.

GF's extended family is a relatively large support network in the metropolitan area I'm moving to- sister+sister's husband, uncle+ aunt, cousins, and grandma. It has been a long term goal for GF's bro to move out of mom's house, be somewhat more independent. His disability is schizophrenia, but he is a very calm person and has been stably medicated for years. GF's sister is a pharmacist, and in the area, which helps. I think I/we can lean on this support network if/when we need to- however, in some ways there is a risk that GF's bro is "too sticky," in that it might be difficult to get him to leave if I no longer want him to live with us. However, I would be perfectly comfortable with him living with us long term, and GF probably would too.

This somewhat concerns me, given you've not indicated how serious you are about this relationship. You think it's "very unlikely" to have a falling out..

I can't help but imagine how horrible this will end if you and GF end up breaking up. Has the brother ever lived outside his parents home, either?

It feels like your GF's mom is pushing you to buy this because she wants her kids out of the house. I'm... not sure you realize this, but read through your post - it certainly comes across that way.

I am very serious about the relationship, and me and GF get along very very well.  I am aware that GF's mom might be pushing this, but I am very on board with everything myself.

GF's bro has lived outside of the house before when he went to college (he had poor grades and dropped out, this is likely related to his disability).  He and the grad student are both neat and organized.

Enigma

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Re: Advice for First Time Homebuyer
« Reply #6 on: August 25, 2016, 11:24:11 AM »
I would go for it if I were you.  For one you will need to live somewhere.  Albeit renting or buying your own place.  The price doesn’t sound way out there either and is doable on what you earn.  Plus you will some increased tax right offs and not have to worry about rising rental prices.

As for all the retirement accounts and the taxable accounts, I would start consolidating those.  Must be tough jumping from one website to another to see how much your investments are growing.  Of course keep the taxable separate from your exempt accounts.

My brother cashed out all his taxable accounts when he bought his first house.  Your interest rate on what you pay for your property should be less than any taxable investments.  Otherwise there would be no reason to have those investments.  Good luck by the way!

PrettyCoolWorkshop

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Re: Advice for First Time Homebuyer
« Reply #7 on: August 26, 2016, 05:53:04 AM »
I would go for it if I were you.  For one you will need to live somewhere.  Albeit renting or buying your own place.  The price doesn’t sound way out there either and is doable on what you earn.  Plus you will some increased tax right offs and not have to worry about rising rental prices.

As for all the retirement accounts and the taxable accounts, I would start consolidating those.  Must be tough jumping from one website to another to see how much your investments are growing.  Of course keep the taxable separate from your exempt accounts.

My brother cashed out all his taxable accounts when he bought his first house.  Your interest rate on what you pay for your property should be less than any taxable investments.  Otherwise there would be no reason to have those investments.  Good luck by the way!

Do you have any idea of how much tax write-offs change things?  The standard deduction in North Carolina for singles is $7500, and my mortgage payment will start with only $400 in interest payment per month.