Author Topic: Triggers for purchasing a home - what would you do?  (Read 1792 times)

ysette9

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Triggers for purchasing a home - what would you do?
« on: December 14, 2016, 02:47:31 PM »
Hi all,

We are 3-5 years away from FIRE in a HCOL place and are fortunate to have two well-paying jobs. We currently rent, have no debt, and plan on staying in the area for the long term. The time to FIRE is totally dependent on what we end up deciding to do for housing. Running the calculations from the NYT's rent vs. buy calculator tells us we need to stay put for approximately ten years to make buying make sense. We currently have a 2.5 year old and have narrowed down to a school and program we would like her to go to once she turns 5. That school happens to be in the general area of where we are renting now, and we like our current neighborhood. We are currently blessed with a very under-market rental and have been here over 4 years. The house sucks in some ways and I definitely don't want to live here long term, but for now, each month we stay here is extra money in Vanguard to buy my freedom.

We have put together a spreadsheet of cash flow, required stash size, and years to FIRE based on different purchase prices and HOA dues (or not). That helps us be really clear in the future when looking a open houses to be able to ask ourselves "Is this house worth an extra 1 year of work to get us X?".

In our spreadsheet I've listed a range of possible purchase prices, knowing full well that they are rather lowball for where we are. No matter what we do we'll have to shop hard to find something in our price range and have to accept compromises. That probably will be in the form of condo with HOA vs. house that needs a ton of work since I've ruled out more expensive places and living in a not-nice neighborhood.

We will spend the time going forward looking at that and figuring out what is important to us. We decided that we should look to buy and move when the appropriate triggers point to us that it is the right move to make. The problem is, what are those triggers? I could use your help brainstorming. Some possibilities include:

  • Kid going to school - was a factor before, but the school we're honing in on doesn't have that limitation
  • When I've had it up to *here* with no insulation, no central heat, and single-pane windows - I complain about this weekly, but it hasn't pushed us to move yet!
  • Lock in a low interest rate - My crystal ball is very fuzzy, but I don't see rates skyrocketing in the next few years. You?
  • Need to buy and get mortgage before we quit working - therefore need to purchase in 2-4 years
  • Renting no longer a good deal - it's possible our rent could go up a lot; mitigating that is over 4 years with barely an increase, very responsive, helpful landlords, and us doing our darn-dest to be good tenants

I really appreciate your thoughts.

Landslave

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Re: Triggers for purchasing a home - what would you do?
« Reply #1 on: December 14, 2016, 06:54:57 PM »
1.  If school is dependent on zone, that's your answer. If not, then appetite for commuter pain will dictate proximity to school.
2.  Are you decided for sure on staying in a HCOL locale?  There are periphery of urban core choices near good cultural opportunities all over.  And if you are talking about one of the outrageous cost cities, ANY other metro will FIRE you much sooner....something to consider.
3.  Rent is plastic in the sense that it is very credit rate dependent....and if the landlord is highly leveraged, he/she will be forced to raise rents commensurate with the gradual steady increases in commercial loans I foresee.
4.  If you can, in a few years, save the cash to buy a home you will be happy with, vs mortgage a home for 30 years, why would you NOT work and save and make a cash purchase?  There are MANY other associated costs with originating a loan that you will avoid by paying cash, and if you choose, you can actually buy a home which does not qualify for a mortgage at a great cash discount.  This doesn't mean you will have to paint or swing a hammer, but you can make value-added to a real estate purchase by swooping in with cash and then hiring the skilled trades needed to make it what you want.  In many places, if you live in the place full time as your primary residence for a year after the certificate of occupancy (CO) is issued for the dwelling, then you can act as your own general contractor (GC) and save about 12% on the renovation. 
5.  The FIRE date is not, to my thinking, the date at which you can eek out a scratch survival just so you say you are no longer working, but is the date at which you can live the lifestyle which will make you deeply contented and satisfied that you have attained the "dream" you are sacrificing for.
6.  The closer you get to the endpoint, the more you will likely want to remove/reduce risk that an uncontrolled variable thwarts you. Buying a home at a set cost and a fixed interest rate removes that element of risk. 
7.  You will never be unexpectedly forced to move from your nice, warm rental unit into a new drafty cold house in winter!  Ha!!
8.  I think there is nothing to stop rents from rising in the US.  The cost of housing is rising, the cost of financing that housing is rising, and the pent-up demand for housing is rising.  There are MANY MANY people in the nation living in "extended housing" (on mom's basement couch, etc), and they would enter the housing market if they had the option.  On the other hand, monthly mortgage payments drive housing prices, and if mortgage interest rates rise, then the price of homes will stagnate or possibly even sink.  Rents, much less so, and may even rise (see #3 above).
9.  You want to live a good life?  Find a medium sized college town city (200,000 population) with a large university and within 1 1/2 hours of a big airport,  where the housing market is fairly cheap.  That will give you educated culture, and access to the outside world with cost-contained flights, and will give you the option to take on a new avocation or vocation based on the buzz surrounding a university.   Ann Arbor Michigan would be an example.  So would several places in Texas.  And Atlanta, Georgia.  And right where MMM lives in Colorado.  If airports don't matter to you, Columbus would be a good choice. 
10.  The crux of the decision for you and your spouse and daughter revolves around your defined priorities.  The FIRE answers are simpler when you have a goal to attain.  An exercise in detailed pipe-dreaming, examination of values for what you want your FIRE life to be, and decisions based on the necessity of geographic location are foremost.  Decide what you want, and then connecting the dots to get there will be a checklist, not an meandering, mindbending trip into a chiasm void of obsfuscating enigmas. 

Tranquilo.  May all your problems remain first-world problems. 

-Landslave

ysette9

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Re: Triggers for purchasing a home - what would you do?
« Reply #2 on: December 15, 2016, 09:18:59 AM »
Thanks for the response! You gave me a lot to think about, so letís see what I can do for responses.
1.   School starts in 3 years and it looks like we can be FIRE in 3-5 years, depending on the housing selection. Therefore while commuter pain is something to consider, it doesnít weigh heavily on me.
2.   Yes, absolutely 110% sure that we are staying here. It is home. It is lovely. There are a thousand a one reasons I want to stay here and am willing to work extra years to make that happen versus moving somewhere else.
3.   This is interesting. I used to spend nights worrying about our landlord raising our rent a bunch since we are month-to-month and under market. However, 4+ years later that hasnít happened. That is no guarantee for the future however.
4.   Why would I not want to buy a home in cash? Simply because running the numbers gives me the answer that it means I have to work more years of my life. Why would I want to do that?
5.   I totally agree with you on the definition of FIRE date. That is factored into my calculations. I have heard from others that it is not unusual for expenses to go down once FIRE, but I am not counting on any of that.
6.   I agree with you on this. For that and the reason that we wouldnít be able to qualify for a mortgage with no income is a compelling reason to purchase something before FIRE.
7.   Haha. Though in our case it would more likely be moving from our cold, drafty rental into a warm [fill in the blank] 
8.   We are in a unique market where it costs less to rent than to buy, unless you buy and stay for a long time. Then again, we are also in a unique area where cost of housing has been going up for decades and decades at a greater pace than inflation.
9.   See #2 above
10.   I probably blathered on too long in my original post. I believe we have and continue to do this. The only question in play right now is WHEN to buy, and what would give us that push to do so now versus three years from now. That is the brainstorming I am asking for help on. So far #6 is the only compelling trigger I have come up with so far.

redbirdfan

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Re: Triggers for purchasing a home - what would you do?
« Reply #3 on: December 15, 2016, 10:57:43 PM »
I think you only have four real triggers based on currently provided info.  1. Your current rental stops being a good deal.  2.You happen upon a home that would be a good deal to purchase.  3. You believe you are in serious jeopardy of being priced out of the market for the forseeable future.  4.  You believe you will not be able to buy anything to your liking after FIRE.

Absent one of these four scenarios it sounds like your current situation is too good of a deal and/or too stable for there to be any real triggers that force you into home buying action.  That's a GREAT problem to have.  Just keep socking away the savings until you feel compelled to take the plunge.   

lhamo

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Re: Triggers for purchasing a home - what would you do?
« Reply #4 on: December 15, 2016, 11:55:01 PM »
I think you only have four real triggers based on currently provided info.  1. Your current rental stops being a good deal.  2.You happen upon a home that would be a good deal to purchase.  3. You believe you are in serious jeopardy of being priced out of the market for the forseeable future.  4.  You believe you will not be able to buy anything to your liking after FIRE.

Absent one of these four scenarios it sounds like your current situation is too good of a deal and/or too stable for there to be any real triggers that force you into home buying action.  That's a GREAT problem to have.  Just keep socking away the savings until you feel compelled to take the plunge.   

I think redbirdfan's #2 is the real trigger.  The others are all relative to #2.  You should get to know your preferred market better than any agent.  Keep your eyes on the listings and your ear to the ground.  It isn't really that hard to do.  I have been watching multiple zip codes in N. Seattle for nearly two years.  I can predict with about 80-90% accuracy which listings will be gone within days, and which ones will sit because they are overpriced or have other issues.  I know a good deal when I see it.  Soon we will have the cash in our accounts to be able to swoop in on one of those, when it hits the market. 

You may not be able to find something that is as cheap as your current rental, but I would identify a price range that would be worth it to you to consider paying a bit more in order to have the stability of ownership.  Then watch the listings like a hawk for homes in that price range.  Talk with neighbors as you walk around, run errands, etc.  Let anybody and everybody know that you are interested in buying if the right unit at the right price comes up. 

Good luck!

Roots&Wings

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Re: Triggers for purchasing a home - what would you do?
« Reply #5 on: December 16, 2016, 07:56:23 AM »
^ Agree, that's what I did too.

I didn't have to purchase a home immediately (sounds like you don't either), had my spreadsheet criteria comparison list, and could take my time watching the market until I found a great deal that I finally won.

Lost out on several first though :) And took about 1.5 years from seriously watching my target area like a hawk to the winning purchase.

Good luck!

ysette9

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Re: Triggers for purchasing a home - what would you do?
« Reply #6 on: December 16, 2016, 09:14:35 AM »
Good advice and I appreciate hearing the same thing from multiple people. I think we sort of realized that but hadn't crystallized it as clearly. An outside perspective helps. I have been watching the local real estate market ever since we moved into this area but we need to do more field trips to open houses and look with a more critical eye. I also need my husband to spend this much time researching so that we both recognize a deal when one pops up!