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)
$+ 760.00 rental income
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$-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?