Author Topic: Need Advice: Buy bigger home, Rent current or sell Current  (Read 2867 times)

guzzler

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Need Advice: Buy bigger home, Rent current or sell Current
« on: August 15, 2014, 12:44:05 AM »
Hi all,

I am a badass mustachian.  Have done everything so far in FI direction.  Now I am facing a situation which I was never expecting:

I am 33 living in SF Bay area, one of the costliest places to live.  Married with 1 child.  Me and my wife are both content with software technology jobs and dont want to leave this area (at least for now). 

We bought a 3 bed, 1300 sqft house during the down market (2008) for 550K and now its worth about 730K.  I have had no intensions of selling this house from the start so I have done every bit to pay down the principal.  With an aggressive 15 year term loan, I will be debt free in next 10-12 years (seems long but debt free). 

Remaining loan in 385K.

Few things happened in recent past:
1) Wife changed jobs and now her commute is 1 hour one way
2) Second baby is on the way :)
3) My parents have moved to live with us

This makes a full house with 4 adults and a toddler.  With the new baby expected we feel we should buy a bigger 4 bed house which is closer to my wifes workplace.  4 bed houses range in 1.5 - 2 million $ range in that area, thats out of question.  So we have found a middle ground of 30 minutes travel one way.  Houses around there are in the range of 800-900K.

My dilemma:  What to do?  Which option is mustachian way?

1) Option 1:  Sell this house, put equity in new house:
730K - 5% commission (35K) = 695K
695k - 385K (principal) = 310K
New Loan = 500K approx
>> Pushes my FI away
 
2) Option 2:  Rent current home and buy a new home:
Current home will become investment property, which I was planning to buy anyway.
Rent will be lesser than the EMI since its a 15 year term.  I will lose 2-300$ a month.  But in long term (30 years) I will make money
Have to arrange for 200K in funds for downpayment by selling stocks and index funds
>> Pushes my FI away

3) Option 3:  Keep the same house:
Not enough space
2 hours of commute leaves my wife with no time
>> Might get FI quicker

« Last Edit: August 15, 2014, 02:18:02 AM by guzzler »

Aphalite

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Re: Need Advice: Buy bigger home, Rent current or sell Current
« Reply #1 on: August 15, 2014, 08:43:30 AM »
You have a fourth option that you may not have considered - sell and rent closer to work, since SF is a costly place (and getting costlier each year), renting might be cheaper than buying even if you are not building equity, additionally, since it's an up market for homes right now, if you sell and then buy, you're not really gaining anything in terms of finances. If you sell and then rent, you might come out ahead. Of course, the specifics depend on the numbers for rent

soccerluvof4

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Re: Need Advice: Buy bigger home, Rent current or sell Current
« Reply #2 on: August 15, 2014, 09:16:46 AM »
#3 is not an option in my view so you have to do something or she needs to find a job back closer to you live.

I too would probably sell the house and get my money out of it while the market is on an up tick.  Find the most affordable rental that makes sense and suck it up a bit till the right house to purchase comes along. I know probably easier said than done but seems safest at least imho.

guzzler

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Re: Need Advice: Buy bigger home, Rent current or sell Current
« Reply #3 on: August 15, 2014, 01:46:29 PM »
Thanks guys.  I started out with rental option but it quickly diminished due to high rental rates.  Eg 4 bed rental is in the range of 4-4500 pm and comparatively less number of 4 beds are available than 3 beds.

Thats adds up quite a bit,  even if i sell my house,  cash out and  rent for a year in order to wait for a market decline,  i lose straight 50k,  another year 100k.

This is her dream job,  really worked hard for it.  Changing residence is the only option at thw moment.

This is really frustrating.  House prices and rental prices are crazy here. 

babysteps

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Re: Need Advice: Buy bigger home, Rent current or sell Current
« Reply #4 on: August 19, 2014, 11:23:41 AM »
apologies in advance for reviving a napping thread...

Bias disclosure: my max commute was 1:45 *each way* so 3-1/2 hrs of commute daily. And yet it didn't seem soo bad at the time.  Wouldn't choose to do that now, though.  A few ideas:

A-consider living with it for 3 months of new job/commute and then decide. 

B-when you do decide, one more option to consider - option #5-renovate.  If you definitely want more room, and with housing prices so high, it could make $ sense to put an addition on your existing house.

C-quality of life-is your wife's 1 hr commute each way high quality (train or such, can work/relax/nap) or low (non-carpool driving in traffic)?  Are the parents helpful for household help & childcare? Or do they keep to themselves?  Or do they require a fair amount of help from you?  If they are helpful, that could mean your wife has more time than she used to (post-1st kid, pre-parents-moving-in).  Not saying they "should" be helpful, just that if they are it could have a positive effect on you & your wife's current lifestyle.

D-work velocity - is your wife likely to change jobs again within 5 years, even if promotion within same firm but different office?  Or is her worksite otherwise likely to change?  If so moving now might not be the best option...

E-and yet another option #6, if it's her dream job, how do you feel about yours?  Any interest in getting by on her income alone and you stay home?  Pushes debt-free further to future (might want to refi to 30yr before you step down) but could actually shorten time to FI depending on how spending adjusts...

With lots of change (2nd baby, parents moved in recently, new job), don't forget to treat yourself to some couple-alone time and self-alone time.  Sanity is precious! 
May you come to a decision that makes everyone as content as possible.

AccidentalMiser

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Re: Need Advice: Buy bigger home, Rent current or sell Current
« Reply #5 on: August 19, 2014, 11:57:17 AM »
I will lose 2-300$ a month.

Every SINGLE time I've kept a house and rented it out instead of selling it, I've regretted it.  I have rental properties, but they were selected specially to be rental properties, not just as hold-overs from a previous life situation.

I'd sell forthwith and move on with life.  You may break even on the money side, you won't on the time and commitment side.  You have a young family and your parents; I wouldn't take on a money-losing, part-time job in order to possibly gain some benefit in 20 to 30 years.