Author Topic: Case study. Should I pull the trigger and buy a townhouse?  (Read 1727 times)

MountainTown

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Case study. Should I pull the trigger and buy a townhouse?
« on: October 23, 2016, 03:34:13 PM »
Life Situation: IRS filing status Joint, no dependents, live in collegetown in the northwest. Very "up and coming." Was a low cola but this is changing fast

Gross Salary/Wages: Together we make $115,000 year gross wages.

Pre-tax deductions: I didn't include this information as right now we are doing some extreme saving but this may change if we buy a house. We have your typical health insurance premiums, some flex accounts savings, and at least always do about 8% of our respective salaries. Currently we are both doing much more....like probably 20 to 30% of our income into retirement savings.

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: None

Current expenses: I would estimate we spend about $2000-3000 a month on regular monthly fixed expenses and pleasure expenses.

Assets: No assets other than a $5000 car

Liabilities: No loans. No debts.

Specific Question(s): Ok this is my first time posting a case study so please be patient if I did it wrong. I tried to not put in superfluous information. Here is my situation:

My wife and I, recently married, have been wanting to buy a house. But we have seen prices here skyrocket in the last year. Me being a nervous nelly, I have hemmed and hawed and passed on a lot of houses. Some we did make bids on but were outbid by cash buyers. I had always thought I could buy something conservatively but in this town it just seems like if you buy something under 250k it's going to be a heap of crap and require a lot of work. As this is my first house, and I have an extremely intense job, I really have no interest in doing a lot of upkeep at first. I just don't feel ready for it. I also have a chronic pain issue which limits how much physical work I can do. Recently an opportunity to buy a brand new townhouse within biking distance has come up. It's expensive and more than I ever thought I would have to spend yet I am considering it as most of the stuff at 250k needs so much work anyways it was also just as scary. See details below for more specifics on the townhouse.

Currently we have about $75,000 saved up for an ER fund of about $10,000 have earmarked for emergencies. 

Our retirement accounts approximate about $75,000 to $80,000.(Mostly traditional accounts, some deferred compensation for wife). In the past we have mostly been piling into our down payment savings so we could really get a good down payment. So our retirement savings aren't as strong as they could be. Recently I have ratcheted that up. With a 10% retirement savings rate we still have been putting about $2200 a month of cash aside for our down payment. I think we are pretty good savers but maybe not as extreme as some on this board.

Other details:

Current rent: 825 a month
Average rent for similar house as we are considering buying: $1700 to $2000

Price of new build townhouse: $290,000
Mortgage payment if I buy townhouse: $1100. Estimated PITI: 1400 to 1500(at most)
No HOA
Townhouse details: 4 units. Good space in between. No shared walls. Detached two car garages. 3 bed, 3 bath. Excellent construction and excellent materials. Good views and great use of space. The neighborhood is good, not immaculate but a gentrifying area in general.

Incomes: Both are generally stable. I don't see huge jumps in income but steady steps. My job is stable but sensitive at times due to  nature of my work.
Future: We don't have specific plans for kids but my wife definitely wants one or two. I'm kind of meh(lol) but it's mostly just because I am always scared about more responsibility or expenses(I know I'm lame).

I should also mention I work from home a lot and it's always been a desire to get a better office situation then we currently have. We want to have one bedroom for guests/potential baby(we are not trying yet) and also a dedicated office for me(should be able to lock it)
=-=-=-


Question is...is this a good idea? I see this town as really booming. Everyone is talking about it being the next Portland and maybe that's exaggerated but we are getting a lot of out of town buyers who just seem to want to live here because it's a good place. We have a good rental situation right now so I hesitate. It's super cheap and my landlord doesn't believe in raising rent. We live below a mountain and I love it.

However, I really don't like the space. It's old and inefficient and half of our yard is asphalt(wtf). It feels like time to move on and sort of a necessary step for us to have a family. As much as I would love to stay in this neighborhood the only thing we could buy in our price range would require another $100k to make into a habitable place. A 1200 square foot house here would sell for $315,000 easily.

So....to me this $290k townhouse we are looking at feels like a big step. However the mortgage payment would be $1100 a month at the most, it's super efficient, excellent materials, and there actually is a little yard and no shared walls. It's within two miles of downtown and work for both of us. I should also mention that we have managed to survive with only one car and we could continue to do this if we stay within two miles.

I should also mention there is an emotional aspect. I have gone back and forth on this as I am really intrigued by the whole "Rent for life" arguments I have read from GCC, Jcollins and others. It's really opened my eyes that buying a house is not a must. However, sometimes I just feel like we want to try it. Maybe it is just a luxury that we want and we need to look at it like this. Something about just owning our own place feels like a good next step for us. We also want to be in a place that is new, good efficient use of space, and just feels better.

So once again I hope this didn't drag on for people and thanks for reading. I am open to any advice like...financially is this wise and also just people who have bought homes and what their perspective is on the emotional aspects of home ownership. I know a lot of people say it's not worth it but then I think those are also people who have gone through the experience and I wonder if we just need to try it.

Thanks everyone for any advice. Really appreciate this community.

lhamo

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Re: Case study. Should I pull the trigger and buy a townhouse?
« Reply #1 on: October 23, 2016, 04:20:35 PM »
If I were in your position I would buy.  The key issues are the currently relatively low costs and the rapid gentrification/rising costs.  In a college town.  I think it will likely be a very good investment for you, even if you eventually decide to sell.  A few things to consider, based on me living in a similar type of unit (3br, 3.5 ba 1500 sq ft with attached garage on first floor):

1)  First and foremost, is it on an arterial street?  This is the one thing I really dislike about our current rental.  It isn't that bad from about 10pm-5am, but other hours of the day there is pretty steady traffic outside and while I can kind of tune it out it is annoying.  Especially because there is a place where the pavement was patched badly right outside our unit and when trucks go over that at high speed (people tend to speed on this street) they make these really jarring metal on metal bumping noises.  I will never rent or buy on an arterial street again, unless I can get a setup like my last rental (on a busy street, but our unit was at the back of the building so insulated from the street noise quite a bit). 

2)  What is the arrangement of the bedrooms, and how will that affect their usefulness with small kids?  Many of the 3br townhouse layouts have a single small bedroom on the first floor, living space on the middle floor and the remaining 2br on the upper floor.  That can work if you plan to use the main floor BR as an office/guest room, but it is really a problem if you have two small kids of different genders.  You can co-sleep for awhile, or have the kids share a room, but at some point somebody is probably going to have to sleep in that main floor bedroom.  IN our case, that somebody is me.  I gave my DS the master, because he needs a large desk for his computer/school work, and put my DD in the other upstairs bedroom because I didn't feel comfortable having her two floors away in a bedroom with the garage on one side and the busy street on the othe. 

3)  Is the garage really usable as a 2-car garage?   Mine is supposed to be a 2-car garage, but the layout of the complex means there is no way to physically get two cars in at the same time.  And if I do park even one car inside and then the tenants in the unit across from us park their car outside their garage, I can't get mine out.  Basically the garages are for storage, not for cars.  YMMV since yours are unattached, but I didn't realize this issue until I had aleady signed the lease so thought it worth pointing out.

Good luck making your decision.   I'd love to buy a fancy view house in Seattle, but I think I will most likely end up buying a townhouse.  I do like having a separate unit but not a lot of yard to maintain. 

MountainTown

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Re: Case study. Should I pull the trigger and buy a townhouse?
« Reply #2 on: October 23, 2016, 06:39:01 PM »
Thanks for the reply.

I really appreciate what you're saying about arterial streets. In fact, I almost bought a great house down the road except it was on a way busier corner. I decided not to cuz the noise was just pretty annoying. TO answer your question, no, this is a pretty quiet street...yet it is close to a main thoroughfare so good access.

Hmm...it's a two level, so all three bedrooms are upstairs. Honestly I am not thinking too far ahead like that. I mean I guess I figure if we need to reassess our situation in 6 to 8 years that's okay. That being said, there is a master with master bath(and WIC), another bath room on the top floor and two bedrooms. On the bottom floor is the powder room.

Good question on the garage. I can look at it. Again, it's not a huge concern of mine. We only have one car right now so I did plan on mostly using it for storage(there is no basement in this townhouse). It might be nice to just use half for storage and the other half for a car. In the future we may get another car but I would imagine we will try to stay a one car couple as long as possible...and if we do have to get another we can just put it in on the street. It's pretty safe here.




MountainTown

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Re: Case study. Should I pull the trigger and buy a townhouse?
« Reply #3 on: October 23, 2016, 06:44:06 PM »
I'm curious if anyone thinks we should just try to upgrade our rental situation? Right now...we are paying under market rent so most likely we would give up a great location and still pay 1600 to 1800 a month for a 3 bedroom house.


slugsworth

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Re: Case study. Should I pull the trigger and buy a townhouse?
« Reply #4 on: October 23, 2016, 07:38:37 PM »
I don't understand your math on the PITI. . . if you put $70k down, which is most of the cash you say you have saved (and 20% of purchase price not including any closing costs)  - and we assume a 30 year mortgage at the average rate (3.56%) I show a payment of $1,267. Adding in TI, I think you are going to be $1,500+. This isn't a big difference, but I wanted to share it.

Houses tie you down to an area, if I was in Eugene, Bellingham, Salem. . . or any of the other smaller college towns I would be a bit scared to lock myself into an area where jobs may not be available in the future especially if I was younger.

If you needed to rent this house out, it looks like it would cover its own expenses. . .barely.

Is this new location going to increase your need for a car/increase your commute?


MountainTown

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Re: Case study. Should I pull the trigger and buy a townhouse?
« Reply #5 on: October 23, 2016, 08:14:33 PM »
I used this calculator for mortgage payment. A $220,000 loan(the example you used and yes approximately what I could put down) would be 995.28. http://www.dollartimes.com/loans/mortgage-rate.php?length=30&amount=220000

TO answer your question...no I don't think this would increase our commute substantially or need for a car. It's 1.7 miles vs 1.1 so half a mile is not a big deal. I talked to my wife(She does more of the biking and she was good with it). It would also put my closer to work so it would allow me to bike a lot more(not that I couldn't before...just makes it a little easier).

Thanks for your post slugsworth. I hear what you are saying. Are you of the opinion that it's better to always rent so you stay mobile? I have always felt that way too but then the reality is I have been year for 15 years(left for one year in between) and I have always found decent work here. Though it's definitely tougher to find work here than other places

letired

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Re: Case study. Should I pull the trigger and buy a townhouse?
« Reply #6 on: October 23, 2016, 09:48:41 PM »
I would make very sure that the interest rate you're using is realistic. Ditto your insurance and property tax numbers. When I was buying, the number all the calculators used to estimate property tax was Way Off.

MountainTown

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Re: Case study. Should I pull the trigger and buy a townhouse?
« Reply #7 on: October 23, 2016, 10:32:50 PM »
Hmm yea I ran it again at 3.92% to be more conservatibe and my monthly payment was just under 1100(i also did loan amount of $225,000 to allow me to keep 10k in savings). I figure taxes would be about 250 a month, and I believe insurance isn't more than 150 a month...that's how I came

I should mention that these won't be finish for about 3-5 months so there would be some time to save more $$. We could probably do $2200 a month.