Author Topic: Feels expensive, not frugal  (Read 2316 times)

ridebikeseveryday

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Feels expensive, not frugal
« on: March 03, 2018, 05:51:16 PM »
Hi all, long time lurker, now reaching out for a sanity check or face punch or other.

Basically, this house seems to check a lot of boxes towards a frugal life, but it is really damn expensive. I'm also nervous as hell as a first timer. Suck it up, search elsewhere, buy fixer upper, don't buy now?

Background:
  • early 30s couple, first home buy. We are not hardcore mustachians, but we are eager learners.
  • We are about 75% of the way to a minimum FI number, OR we're 50% of the way to our goal of a very comfy FI number that would allow us to weather some very rough seas (If either of our jobs become not fun, we'll pull the trigger at minimum. But for now, we legitimately enjoy them and couldn't do them on as hobbies.)
  • We save about 50% of our income per year.
  • Kids are on our 1-3 year time horizon because biology.

House
  • 3bd, 2ba, 1700 sqft
  • Small yard, patio.
  • Updated kitchen, 1 updated bathroom, rest is freshly painted 1980s stuff.
  • Has owned (not-leased) solar
  • Near bike trails
  • Schools are 7 or 8/10, really close as well.
  • 12 minute drive commute for one of us (time of day and location make bike commuting unsafe), 8 minute bike commute for the other.
  • 5 minutes by bike to grocery store
  • 5 minutes by bike to hardware stores and shops
  • Located in Louisville CO, effectively a suburb of Boulder CO ($$$)

The Good
  • To me, the house is not small, we can grow a family in it for 10+ years. Not huge either.
  • The updates are valuable to us. We're not so handy that we could bang out an upgrade to a 40 y/o kitchen without derailing life for a year. Any future upgrades we can do at our own pace and shop carefully for them.
  • Location is good, commutes are short, conveniences are at hand.

The Bad
  • Asking is right around 600k (supported well by comps)
  • Anywhere within a few miles (which retains commute balance) seems similarly expensive. Most places outside a 3 mile radius also have lower grade schools - no idea how to quantify.
  • The house is not some magical unicorn in location, layout, or otherwise.
  • Interest rates have risen meaningfully in the last 90 days (4.4%+ now)

Now that I've gotten to the bottom of this post, I almost feel that impending face punch. But I also know that the 530k house has no solar, adds to both commutes, and I'm sure we're probably biting some of the bullet with those upgrades... Still. 600k is boat load of money and I hate being so leveraged.

Also, comparable rentals are between 2400 and 2600 - exceeds interest + insurance + taxes.

Thanks in advance, I'm braced for impact.
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Gin1984

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Re: Feels expensive, not frugal
« Reply #1 on: March 03, 2018, 06:19:04 PM »
What are you earning?  And how much do you have invested?

ridebikeseveryday

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Re: Feels expensive, not frugal
« Reply #2 on: March 04, 2018, 02:52:34 PM »
Earn 160, saved 600.

brooklynmoney

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Re: Feels expensive, not frugal
« Reply #3 on: March 04, 2018, 08:49:09 PM »
The price doesnít seem outrageous compared to your income and savings. If you are really thinking of staying there for 10 years or more I would say do it, as long as itís convenient to not only current jobs but potential future employment centers.

ridebikeseveryday

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Re: Feels expensive, not frugal
« Reply #4 on: March 04, 2018, 09:32:58 PM »
Yep, it's very close to future work opportunities, which was a big consideration for putting down roots in this area. Quick bike ride to an in-town tech center that is constantly building new warehouses and factories, and Boulder is a 20 minute bike ride on really nice separated paths.

It would not be a 10 year place if Amazon moves in to the area, but then again, that would probably make it appreciate better for as long as we held on to it.

The interest rate increase calculations alarmed me. By equating monthly payments (interest, principle, insurance and tax), a house in this range effectively costs 30k more with a .5% increase in interest rate. i know Yellen has moved on, but is the potential for another .75% increase or more out there?

Neo

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Re: Feels expensive, not frugal
« Reply #5 on: March 05, 2018, 04:58:26 AM »
Just wanted to say props on saving $600k in your early 30s. Keep up the good work. Personally I would buy a fixer since you dont have kids and can more easily live in the mess for a bit. If you really don't feel comfortable doing the rehab you could use a 203k loan for the really big stuff and repair easier stuff yourself. Good way to get instant equity and not overpay.

ridebikeseveryday

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Re: Feels expensive, not frugal
« Reply #6 on: March 05, 2018, 07:31:10 AM »
Thanks. Mostly luck on the savings. Decided to follow other people's advice from very early on without really understanding why, except a massive aversion to debt.

Thanks for the 203k tip. Had no idea that was a thing, will be asking potential lenders.

We've talked about avoiding fixer-uppers so we can spend our time elsewhere, but I also really like that the upgrades are your preference, not the prior owners. However, the last fixer upper we saw went under contract in 12 hours before we could make a decision. 570k for 1300 ft2. Had potential, but in retrospect it would have taken a lot of work and knocking down walls, even building new external walls. I've also been told upgrades only retain 1/2 the cost as value? So wouldn't we likely (at least for the big work) spend more in the long run?

Neo

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Re: Feels expensive, not frugal
« Reply #7 on: March 05, 2018, 07:35:12 AM »
If that were true then people wouldnt make gobs of money flipping houses. Think of a 203k like flipping a house but you live in it when the flip is over. Every market is different but it works very well where I live.

afox

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Re: Feels expensive, not frugal
« Reply #8 on: March 05, 2018, 05:55:00 PM »

If you make 160k you are in the 95.6 percentile for incomes, this is for all ages, id bet you are in 99th percentile for your age:
https://dqydj.com/income-percentile-calculator/

If you saved 600k from age 18-32 you are in the 99% tile for savings
https://www.shnugi.com/retirement-account-value-percentile-calculator/?min_age=18&max_age=32&retqliq=600000

Very impressive performance, you must be making some smart choices!




ridebikeseveryday

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Re: Feels expensive, not frugal
« Reply #9 on: March 06, 2018, 07:03:24 AM »
If that were true then people wouldnt make gobs of money flipping houses.... Every market is different but it works very well where I live.
Neo, where do you live? Colorado seems ripe for that. House prices have been growing at near double digits for 4 years or so, just slowing a bit now.

Also, we saw at least 3 houses that were flipped while we searched, one was bought at 387, sold for 530 with a small kitchen upgrade and some basic touch up. However, we never saw any true flip-ready houses on the market... they all seemed to change hands off-market. Any ideas on how to tap into that type of home? Know somebody?

Relevant to the original post, our offer was accepted, so now we get to rush around making hasty decisions about stuff that we don't know much about :/

But thanks all for the feedback!

Also re: savings rate, a guy at my work is at least a full 5 years ahead of us towards FI, so I've got a good rabbit to chase in that regards!

Neo

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Re: Feels expensive, not frugal
« Reply #10 on: March 06, 2018, 07:09:22 AM »
I live in Ohio. Look at foreclosures for fixers. You can also do tax auctions. If your area is really competitive it may take more hustle to find a deal.

ridebikeseveryday

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Re: Feels expensive, not frugal
« Reply #11 on: March 06, 2018, 07:16:43 AM »

If you make 160k you are in the 95.6 percentile for incomes, this is for all ages, id bet you are in 99th percentile for your age:


So we make 160k combined, 600k saved combined. So we're down in the 80%s for income, but still up at 99.7/99.8% for savings!! Indicative of most people not saving early enough!

waltworks

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Re: Feels expensive, not frugal
« Reply #12 on: March 06, 2018, 08:59:26 AM »
Man, this is OT as hell - but I remember going out to Louisville to hang out with my wife (girlfriend at the time) and oh my god, it was a dump 15-20 years ago. The idea of paying $600k for a house in Louisville is hard for me to comprehend (though we're back in the Boulder area regularly and I'm aware that it's been hyper-gentrified like everything in the Boulder county/Greater Denver area). How close are you to Sweet Cow? :)

Hell, you can live in a similar house in Steamboat and ski/mountain bike every day out your door (great schools, too) for about the same price. Then again, not many jobs there.

That said, congrats. You can easily afford it and it sounds like you like the location and community. I think you'll do just fine.

-W

ridebikeseveryday

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Re: Feels expensive, not frugal
« Reply #13 on: March 07, 2018, 07:06:47 PM »
How close are you to Sweet Cow? :)

Definitely the most important question. 5ish minute bike ride.

And ya, re: former dump, I'm bummed that our current landlord bought a bunch of property in Louisville and it's double digit grown every year in the last 10 years. It helps to have also been named "best town in america" twice. It's gotta be rigged. I'm just glad it's way less crowded than Boulder and still close enough to trails to not fire up the ole gas guzzler to get there. OH YA, the median home price in the last 6 months was something like $730k. wtf.

If I found a killer job in Steamboat today, I'd also find something inexcusable on the home inspection. ACTUALLY, my 10 year plan is to retire to be-my-own boss that will free me from living in the flatlands.
« Last Edit: March 07, 2018, 07:09:04 PM by ridebikeseveryday »

waltworks

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Re: Feels expensive, not frugal
« Reply #14 on: March 07, 2018, 08:41:30 PM »
Sounds like you are on the same trajectory as we were in our early 30s. Wife finished grad school, we had a kid on the way, and we got sick of Boulder crowds/lack of good from-town trails and lit out for the mountains.

FWIW, when you're at that stage - the only 2 ski towns we found with decent schools were Steamboat and Park City. We ended up doing PC for a variety of reasons (mostly better mountain biking and easier airport access).

-W

kenmoremmm

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Re: Feels expensive, not frugal
« Reply #15 on: March 08, 2018, 04:47:00 PM »
keep in mind that when your $160k income drops to $80k when that biological clock gets louder and explodes, your previously easy mortgage payment will feel a lot less easy. not to mention extra food, doctor's visits, etc.

ridebikeseveryday

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Re: Feels expensive, not frugal
« Reply #16 on: March 09, 2018, 04:17:35 PM »
keep in mind that when your $160k income drops to $80k when that biological clock gets louder and explodes, your previously easy mortgage payment will feel a lot less easy. not to mention extra food, doctor's visits, etc.

Haha, I like that it explodes. That's how I imagine it at this stage. So ya, I guess the nice thing is that even when it does explode, part time and/or working from home some percentage is an option. But trying to keep a lid on that explosion for now.

That does bring up another topic. I did a bunch of net present value calculations - basically no real dollars today benefit for a 15 year mortgage. That's WITHOUT any tax benefit. With tax benefits (not likely) then the 30 year is better. My assumption is that we would take cash equal to the difference in mortgages and put it in the stock market at 5% average returns. The money spent on mortgage 30 years from now is basically free in today's dollars. I see two benefits - 1. we can continue to gamble in the stock market as it suits us, and 2. it gives us way more flexibility if one of us became unemployed, voluntarily or not. I assume the downside is that we won't have paid it off sooner and be free and clear, but there will be options to pay it off in stock market cash or refinance in the future...