Buy bigger house or stay put buy rental property?

[Charley1981]

*Update*
We have had great conversations over the past month and a bit. Put things in motion to secure our financial future; secured life insurance for the both of us, opened TFSA’s, RRSP’s (actually learned he had one) and adjusted resp to include all kids.  Feeling a lot better about where we are and gaining clarity of our financial picture. It has actually been really good having these conversations and feeling like a team. Never felt like more of a grownup (lol).  We have put a pause on any large purchase, especially with the outbreak. 

So we had our fourth baby 9 months ago, current house is beginning to feel tight. We have four kids ages 10, 8,7 and 9months plus my parents who live with us (free of charge). We moved them in when my dad encountered health problems and they have stayed with us since (been 7+ years). We have a four plus one in the basement where my parents sleep, our house is 2500sq feet plus basement (mostly used by parents), smallish suburban yard .
Anyway, we are in a position where we are considering  selling our current home and buying a larger home (with larger mortgage)with bigger yard or even just similar size with more open floorplan and larger yard with no rear neighbors, quieter road (we are in a busy corner) and more space for the kids  or stay put and use the money to purchase an income property that we can rent out, maybe do some updates to our current house and we can then revisit the need to move later on if we still felt need to move . We just don’t know what to do, rental is enticing because it feels a good time to do while we can and while kids are young as a way to prepare for future  (kids will grow and so will expenses ). Just not sure what to do..would love to finally get into our dream house but also know kids need more than just a nice big house..what should we do?

[Villanelle]

So we had our fourth baby 9 months ago, current house is beginning to feel tight. We have four kids ages 10, 8,7 and 9months plus my parents who live with us (free of charge). We moved them in when my dad encountered health problems and they have stayed with us since (been 7+ years). We have a four plus one in the basement where my parents sleep, our house is 2500sq feet plus basement (mostly used by parents), smallish suburban yard .
Anyway, we are in a position where we are considering  selling our current home and buying a larger home (with larger mortgage)with bigger yard or even just similar size with more open floorplan and larger yard with no rear neighbors, quieter road (we are in a busy corner) and more space for the kids  or stay put and use the money to purchase an income property that we can rent out, maybe do some updates to our current house and we can then revisit the need to move later on if we still felt need to move . We just don’t know what to do, rental is enticing because it feels a good time to do while we can and while kids are young as a way to prepare for future  (kids will grow and so will expenses ). Just not sure what to do..would love to finally get into our dream house but also know kids need more than just a nice big house..what should we do?

What do the rest of your finances look like?  Amount invest?  Saved?  Income?  Annual expenses?  How old you are?  Single income or two? 

[Charley1981]

We are 38 &43 , I make 96k/year stable/secure job with pension, he  is self employed and makes average 90k net after business expenses factored in. We have no credit card debts, still have a mortgage but 250k in equity , we have 20K saved in RESPS but no other investments as we weren’t really in a position to do so before with young kids and husband leaving his 9-5 career to start own business 7 years ago we kind of had to take a hit  for a while but now in a good position and want to be smart about what to do next. Current mortgage payment is $1800 a month paid biweekly. We do have childcare expenses coming up at about 1000/month (can be claimed on taxes).

[Freedomin5]

So based on your response, other than RESPs, you have no RRSPs, no TFSAs, no emergency fund, no life insurance despite having four kids under age 10 and two parents dependent on you for housing, and no critical/disability insurance for your self-employed spouse? If that’s the case, I’d say you may want to get your financial house in order before upgrading your physical house. I’m hoping you actually have all the things I’ve listed but simply failed to mention them in your response.

Follow the Investment Order sticky and build up the basics, then reconsider whether you need a bigger house.

[waltworks]

+1. You need a solid financial foundation before you even consider either of those options. At your income, it should be pretty trivial to save up $50,000+ per year. Give it a few years and reassess.

And yes to life insurance. Do that immediately.

-W

[dummy]

I agree. 4 kids and 2 parents need a serious cash safety net, college funds, medical fund, etc.

I would stay put until you can scrimp and save as much as possible.

[Charley1981]

Sorry, I am very new to all of this! I have historically let my husband look after finances and looking back decided it’s crazy of me to not be involved so I am learning. I have life and disability insurance (short and long term), as well as medical and dental coverage for our family. I am considering critical illness insurance for the both of us.  That said my husband does not have life/disability, I have been at him for it for a while and will ensure this is done right away. My salary covers majority of our primary expenses and we primarily lived off it for a few years. I have a great pension package that will give me 70% of my best five years and health coverage in retirement. Now that my husbands business has grown and stabilized we are better financially and trying to figure out next steps, how to grow wealth what kind of savings and emergency fund to have and where we should be putting his money. I really am trying to learn and become financially smart but I am super new to this and reason why I am here.

[YttriumNitrate]

So we had our fourth baby 9 months ago, current house is beginning to feel tight. We have four kids ages 10, 8,7 and 9months plus my parents who live with us (free of charge). ... rental is enticing because it feels a good time to do while we can and while kids are young as a way to prepare for future  (kids will grow and so will expenses ).

So you both work full time jobs, have four kids, help take of your parents, and are thinking about getting into the rental business. I'm exhausted just thinking about that.

[Charley1981]

Yes I know it’s crazy and hectic, I’m trying to get some feedback. I should add, we have a shared bank account where my salary goes and all our family expenses, he has his own bank account (and business account) which I’m not on, I don’t know how much he has in there , I do know it’s sitting in bank account and not invested. I do know he paid cash for some home Reno’s last year (22k) and wants to buy a camping trailer 32K which I have not agreed on, not sure how much he has in there , guessing anywhere 20-50k in personal account (business separate)

[charis]

He nets 90k a year that he puts in a personal account to spend as he wishes and you are paying all the expenses from your salary, which goes into a joint account?!  I think that needs to change first.

[Charley1981]

Yes, I’m working on that but he gets defensive over it suggesting I don’t trust him..

[ToTheMoon]

You should read the sticky on the 100 ways to get your spouse on board (or whatever it is called). I would link to it but I am on my phone.

When one spouse suddenly gets on the mustache train it can be terrifying for the other spouse who is less interested! (Ask me how I know) 😊

Start slow, and he will probably come around. You guys have done a decent job thus far, but can probably make lots of improvements. However, if he gets too defensive in the early stages you may doom making much progress.

Paging @Laura33 as she always has great insight into these situations!

[Charley1981]

@ToTheMoon Thank you, this is the most helpful reponse, I think be will come
around he is just an anxious person so need to sit and read some of the things with him. We have 17 years together and honestly financial planning and discussion hasn’t been something that we are good at , finances was never talked about at home growing up and his dad did all of theirs (very traditional relationship with wife at home) but definitely looking to change and get smarter and better and avoid costly mistakes. Better start now than never right?

[Papa bear]

Just some thoughts.

Why aren’t the parents handling childcare?

You need to know what’s in your husbands account. Like now. I have a business and I have rentals. My wife has access to accounts and knows what I have.  I also update her frequently even though she doesn’t really care much. 

2500sf is by no means a small house. 

Have you ever done anything with a rental before? First timer buyers for rentals can get eaten alive.  You may not have any idea how much work goes into this.




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[Laura33]

Wow, I got paged!  Thanks@ToTheMoon!

Couple of thoughts:

The deal with your husband is a big problem.  All "your" money pays the bills, and all "his" money goes into an invisible account that he can do whatever he wants with?  Yeah, no.  I don't care if you're mustachian or not; if you are going to plan for a joint future, you need to understand what all of the joint assets are and where all of that joint money is going.  Period.  You cannot possibly make a reasonable decision about houses or rentals or campers or whatever without knowing how much money you have and how much money you are spending.  It's not about questioning his decisionmaking; it's about knowing what you have.  Again:  period.  It starts here.

Second:  $3600/mo. mortgage is not a small house.  2500 square feet is not a small house.  Now, it may well feel small given all the people you have there.  But objectively speaking, you are already spending a lot of money on your house, and your house has sufficient size.  So improving your standard of living is a lower priority.  Remember:  a bigger house is a consumption item, not an investment.  When you upgrade, you are choosing to spend more of your spare cash on consumption -- which is a double-whammy, because it both increases the amount you need to save to be able to retire at that same standard of living and decreases the amount of money you have left to save with.  So at least wait until you actually need it, instead of buying because you might want something in a few years.

If you want to set yourself up for the future, you need more investments.  In particular, you should prioritize any tax-deferred savings vehicles you have available (sounds like you're Canadian, about which I know nothing, so I won't try to get more detailed than that).  The earlier you get money in the market, the more years it has to compound, and the better off you are down the road. 

You can certainly look at rental property.  But that is a LOT more work, and with kids and parents and two full-time jobs, I think you have enough on your hands for right now!  The nice thing about investments is that they do what they're going to do without any actual effort on your part.  In addition, I would never recommend buying a rental house without a nice, fat stack of cash to cover contingencies, like a couple of months with no tenants, or a new roof, etc. 

But really, you don't need to make the perfect decision right now.  You just need to make A decision.  So make the easy decision now and start investing your money (and tracking your spending!).  If you do decide you want to rent at some point, well, that option will still be there.

[ToTheMoon]

With your incomes, and the fact that you do not have anything saved in RRSP's suggests to me that you likely have a TON of contribution space. This is a double whammy of opportunity - first to save on taxes, second to boost the CCB you can receive. With 4 kids this is a big opportunity not to be wasted. A quick and dirty calculation on the CCB calculator (assuming $66k net for you, and $90k net for your husband, in BC -picked arbitrarily) tells me that if you could put 45k into RRSP's this year, it would increase your CCB by nearly $5,000. That is an almost 11% return right there, never mind the tax deferral.  Forget the rentals and start socking dollars into your RRSPS. I believe the CCB applies until kids turn 18 so you still have time to really take advantage of this!

That said, the number one thing I would do is sit down with your husband and do up a net worth statement. This will give you a birds-eye view of exactly where you are at. Next, start tracking spending. I am a fan of using YNAB, though there are a lot of options out there. Once you have a good idea of your spending, then you can decide which areas need work and actively pursue reducing those. Once you find your groove you can start to project what your retirement could look like, and figure out some solid numbers from there. 25x your annual spending in invested assets (home equity does not count unless you are willing and able to sell and cash out, while still having somewhere to live) is a pretty standard barometer around the MMM world.

TTM

(And keep asking questions - people around here are pretty darn helpful most of the time!)

ETA - Spelling and grammar, though it is still poor! :D

[Charley1981]

@Laura33  sorry, our mortgage is $1800 and change monthly it’s 900 biweekly ..must have written it wrong in OP. I really appreciate your insight/advice will begin tracking, I had bookmarked You need a budget as one to try and will begin tracking as suggested. I have never had rental and you already side really good points about work and money needed for maintenance, certainly huge part of the consideration. @ToTheMoon never even looked at CCB that wAy it thought we could leverage RRSP to increase CCB-mind blown!
@PapaBear  parents could do childcare but they like to go south in winters so they’re gone three to four months of the year , this arrangement is one that is getting tired. Essentially, they had a lot of debt, mortgage unable to retire and were constantly asking for money, etc. They sold they’re home moved in with us, live rent free and have blown through whatever profits they had when they sold, they travel (Europe, Asia etc.) and are back to having credit card debt. I feel responsible for them I think because they have relied on me for so long and as first generation immigrant huge guilt trip over the sacrifices they made so I could live here. The kids love them but they take up the entire basement which would give us more room ..anyway complete compljctArs side story but that’s the deal with the parents..they did help with childcare in the past but then they got used to wintering down south they can’t commit to it.

[charis]

Yes, I’m working on that but he gets defensive over it suggesting I don’t trust him..

I truly don't understand this, do you?  What would happen if you suggested that he take over all the household expenses and you'll put your income in a personal account and decide how use it? He should be ok with that because he should trust you, right? Or more likely no, because that would be an unfair expectation of any spouse.

The argument that he came from a traditional household doesn't even hold water here, since he's not paying any expenses. I know you want to give him some leeway, but it's simply not cool.

[Papa bear]

Hate to be the parental buzzkill. If you aren’t “taking care of them” now, and they’re well enough off to vacation in Europe and snowbird, they best now be helping out. 


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[Charley1981]

Hate to be the parental buzzkill. If you aren’t “taking care of them” now, and they’re well enough off to vacation in Europe and snowbird, they best now be helping out. 

I really don’t know how to fix this, my mother’s idea is “I can’t take it with me when I die so may as well spend it”  oh and “you can’t inherit debt” there are no savings, zip, maxed credit card, I don’t even know how they’d begin to live on own or pay bills..they were in a jam and sold house moved in with a five what intention but it’s going on 8 and despite not needing to pay any bills they blow every dollar they get..I feel like they’re never moving out

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[Charley1981]

Yes, I’m working on that but he gets defensive over it suggesting I don’t trust him..

I truly don't understand this, do you?  What would happen if you suggested that he take over all the household expenses and you'll put your income in a personal account and decide how use it? He should be ok with that because he should trust you, right? Or more likely no, because that would be an unfair expectation of any spouse.

The argument that he came from a traditional household doesn't even hold water here, since he's not paying any expenses. I know you want to give him some leeway, but it's simply not cool.

Wel his thing is I can see it any time just need to ask but I think decision needs to be we either each have own accounts plus one joint , or he closes it and we have one pot..I think both are fair..

[Jon Bon]

Yes, I’m working on that but he gets defensive over it suggesting I don’t trust him..

I truly don't understand this, do you?  What would happen if you suggested that he take over all the household expenses and you'll put your income in a personal account and decide how use it? He should be ok with that because he should trust you, right? Or more likely no, because that would be an unfair expectation of any spouse.

The argument that he came from a traditional household doesn't even hold water here, since he's not paying any expenses. I know you want to give him some leeway, but it's simply not cool.

Wel his thing is I can see it any time just need to ask but I think decision needs to be we either each have own accounts plus one joint , or he closes it and we have one pot..I think both are fair..

Every marriage is different.

But in my marriage that is absolutely not ok. I have a small business that I run. My spouse knows very little about the day to day, but is on the accounts and could access them if she wanted too. I also give her periodic updates. Usually quarterly I show something informal and yearly something a little more structured with P&L, unusual revenue/expense,  cash balances etc.


So I am on your husbands side when it comes to having a business and related accounts, and I don't think his behavior is acceptable.

What happens if he drops dead of a heart attack tomorrow, how screwed would you be? You need to know about his business for the sake of your family if nothing else.

For instance I just moved 40k in cash from business savings to my vanguard account. Told the spouse all about that one, verbally/email etc. Depending on the type of business anything >$500 should most likely be disclosed to a spouse IMO.

[charis]

Yes, I’m working on that but he gets defensive over it suggesting I don’t trust him..

I truly don't understand this, do you?  What would happen if you suggested that he take over all the household expenses and you'll put your income in a personal account and decide how use it? He should be ok with that because he should trust you, right? Or more likely no, because that would be an unfair expectation of any spouse.

The argument that he came from a traditional household doesn't even hold water here, since he's not paying any expenses. I know you want to give him some leeway, but it's simply not cool.

Wel his thing is I can see it any time just need to ask but I think decision needs to be we either each have own accounts plus one joint , or he closes it and we have one pot..I think both are fair..

I agree with either option would work for you probably.  But you shouldn't have to ask him first if you want to see it.  What would be the reasoning behind wanting that control?  If you took him off the joint account and he had to ask before seeing it, would he have a problem with that?  If yes, why?  It's the same situation but reversed.  It seems more like he doesn't trust you, not the other way around.

[dd564]

My advice will be different than some, but if you are in a growing suburb, buying a bigger house might be the best thing you can do over the next 20 years to grow your net worth.

Real estate has been a leading net worth grower for most families, especially families who are not expert savers.

Regarding your husbands account. Sounds like he has his own business which makes sense to keep funds separate.
I have something similar with my situation, but we do take draws out of it which my spouse does see.
She doesn't want to know the details.

It's only a problem if he's buying a bunch of stuff (like a new vehicle for work) too often or taking "business trips" and "business dinners" too frequently without you.