Author Topic: Total and utter real estate noob seeking Mustachian advice…  (Read 1300 times)

newgirl

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Total and utter real estate noob seeking Mustachian advice…
« on: October 13, 2017, 09:54:47 AM »
My partner and I are starting to think about where to live next year. We are tired of our current apartment. It’s very inconveniently located for my work, lacks storage, and has a terrible kitchen. The square footage and rooms/bathrooms are good, though.

We are on the fence about rent vs buy. In most of the financial calculations, I think that buying would work in our favor vs renting as long as we keep our budget to <$280k, which is totally doable in our area. I have a few specific scenarios that I’m interested in hearing a second opinion on…

Scenario 1: Stay in current apartment. This means a long commute for me but zero commute for DH as we live across the street from his work. It’s about a 15 minute drive to daycare which we would have to make every day (we drive to daycare, drop kid off, then I get the bus and continue to my work).
Rent: $1640 for 3 bed/2 bath apartment. Will probably go up next year to be closer to $1700 if history is any guide.

Advantages: Good space/sq. footage in apt, good layout, the things I don’t like aren’t dealbreakers. Room to add another kid or remote working office space if needed.
Disadvantages: Rent is pretty high, location isn’t the best or easily accessible to public transit. Drive to daycare is pretty long and needs to be done 4x a day (DH and I drop kid off, DH drives back to work/home, DH drives to pick kid up, DH drives kid home). The miles and time add up.

Scenario 2:
Rent townhouse across the street from daycare. Walk to daycare. 2 bed/2 bath, so we’d lose a bedroom and some square footage, but we’d gain a small yard, garage, and a downstairs family room. $1600/month in rent. None on the market to buy at this point in time.

Advantages: great location, upgraded in all the areas I care about (better kitchen, better layout/space, better storage, yard/outdoor space). Roughly same or a bit less in cost than we are paying now.
Disadvantages: ??? No major ones that I can think of… DH loses easy walk to the office, but he only would need to go in once a week or so, or if his boss is in town. I would still catch the bus to work but my commute time would be shortened from 40-45 min down to about 30 min.

Scenario 3:
Buy different, smaller townhouse also within walking distance of daycare. 2 bedroom/1.5 bath, no bonus room. Purchase target would be about $160k with 10% down. All-in monthly payment (PITI + HOA) estimated around $1215/month. Currently there are a few units for rent in this complex, rents vary from $1450-1550/month. The idea behind Scenario 3 would be to buy, live there for a few years or until DD is out of daycare, then rent the unit out as an income stream while we move to our “forever home.”

Advantages: good location, mortgage payment much cheaper than renting, build equity, future income possibilities.
Disadvantages: To buy at our target price point, the available townhomes are pretty small and the layout is not my favorite. No bonus room and the living/kitchen is a little tight. I think we could make it work as a family of 3 but if we upgraded to family of 4 we’d be bursting at the seams.

My favorite option is scenario 2, but that’s because the townhome is the most “livable” for us/me in terms of location, size, layout, etc. We’d still be renting under that scenario and not building any equity or laying the groundwork for a future income stream from a property rental which is something I feel we need to be looking at. Scenario 3 makes a lot of sense from a financial perspective, but the size and layouts of the townhomes make me really nervous about trying to force us into a space that won’t work for us just because the money is better.

It’s possible that a townhome would come up for sale in the Scenario 2 complex, which might be the best of both worlds, except that in looking at recent prior sales, the prices in this complex are much higher - $230-$250k range – but the current rents are not much higher than the cheap complex (around $1600/mo), which makes the math not quite as appealing as Scenario 3.

Interested to hear thoughts/opinions/things I’m not considering…

clarkfan1979

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Re: Total and utter real estate noob seeking Mustachian advice…
« Reply #1 on: October 13, 2017, 03:10:24 PM »
Any chance that you could buy a small single family home in the area and then build an "addition" later if you need the space.

tralfamadorian

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Re: Total and utter real estate noob seeking Mustachian advice…
« Reply #2 on: October 13, 2017, 04:19:07 PM »
Scenario 3:
...$160k with 10% down...$1215/month.

Normally $160k with $1450-1550/mo rent could be a good candidate for renting down the line.  But with the $1215/mo PITIA, it sounds like the HOA eats all the profit. 

Dittoing clarkfan's suggestion to look for a HOA free SFH as an alternate scenario 3. 

newgirl

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Re: Total and utter real estate noob seeking Mustachian advice…
« Reply #3 on: October 13, 2017, 05:11:27 PM »
The HOA is $185/month, which is a little on the high side it's true. But some of the negatives of the $1215 estimate come from PMI being required at 10% down and me using a conservative interest rate assumption.

I just had a bank close down my oldest credit card because it hadn't been used in years. My credit score unbelievably dropped 100 points in a single month because of it. I'm not sure how much it will recover or how long that will take, so I increased the interest rate assumption a bit. If we held off buying another year or two until we had enough to do 20% down and had no PMI, my score would have recovered by then (I'm hoping/assuming) and the monthly payment would be more like 1050-1100.

SFH in our target area don't come much lower than $250k and that would be at 2 bedroom and 1 bath and needing some improvements. The potential rents for small houses are a bit higher but not much more than $17
00 a month and that would be if we spent the money to update the place. We don't really want to take on a full on fixer project for our first place, either. But even for total teardowns I don't see SFHs listed for $160k so it just didn't seem like the math worked out quite as well... but yeah the HOA would eat a lot of the profit and that's not an expense we can get rid of.

Sigh.

Kroaler

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Re: Total and utter real estate noob seeking Mustachian advice…
« Reply #4 on: October 24, 2017, 01:04:02 PM »
Option 4.   

Find a place that reduces the overall family commute time by as much as possible.   

So.     Your commute + spouse commute+ daycare commute = as low as possible.

Megma

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Re: Total and utter real estate noob seeking Mustachian advice…
« Reply #5 on: October 25, 2017, 08:19:38 AM »
If you stay in scenario 1 house for another year, would you be able to save enough to buy a scenario 3 house with 20% down in a year? If not, how long do you think it would be before you can get the 20% mark for a downpayment?

Financially, I think this is your best choice even though scenario 3 house isn't the most livable for you, it is large enough and has some good qualities. Live there for a few years until you save enough to buy your forever house, then turn it into a rental (do more through rental math to make sure it would be a good enough one).

Another consideration, you say you will stay there until DD is out of daycare, are you planning to have any more kids (it seems like you have 1 now)? If you are going to have another child in 1-3 years that would change the considerations, especially if you buy one.