Let me start by saying that if it was just me, my husband, our 3-year-old and 10-month-old in our household, we'd have a 2,300-square-foot house (max), and this post wouldn't be necessary.
However, my 80-year-old mother, who has been diagnosed with Borderline Personality Disorder by two licensed psychologists, lives with us out of financial necessity (hers, not ours). I am her only child, and she is an only child, so I am her only family. So please, please think about how much space you would need to live with your mother (or mother-in-law) and still keep a couple shreds of your sanity intact before you judge me for what is undoubtedly a less-than-Mustachian-ideal proposition that I'm considering.
A few details about us - both 40 years old, both well-paying jobs, about $275k in retirement savings (should be higher, but have spent $150k during the past 12 years on OOP medical costs that are hopefully winding down), drive late 90s/early 2000s vehicles that were both bought used with cash, no other credit card debit aside from the last $6k of that $150k, put enough into our 401ks to get the maximum company matches. My husband's company also has a pension plan. We also plan to down-size our house in our early to mid-60s and have some money for the stash from that, too.
We have 2 rental properties: a small one that is meant to be a source of kids' college fund money that we bought for $50k about 5 years ago, is worth about double that now, and brings in enough rent each month to cover 2 months of costs. The housing market in our area is still recovering and has a fair amount of headroom to go. We have a good tenant in there who wants to stay for a while, so we'll probably hang on to it for at least a few more years before cashing it out. The second rental is a former personal residence, with a plan of selling in about 2 years to pay off our existing mortgage. It cash flows about $750 above the monthly expenses. I love real estate and have watched the market closely since I was about 20.
We used to live in a 3,800 square foot house. (Remember, my mother! Our sanity!) When my daughter was born, I wanted to have the option to become a SAHM at some point. We didn't see a way to get the house paid off relatively quickly (3-5 years) to do that, so we downsized to about 3,000 square feet. Then we were unexpectedly blessed with our son, and while 3,000 sq ft sounds like a lot of space, it's not given our family dynamics, and we're short one bedroom now. We're planning for the kids to share a room for a while, but that obviously won't work forever.
I don't regret buying our existing house, because we paid $312k for it 2 years ago, and our neighbors across the street just sold their house (same floorplan, very similar upgrades) a couple months ago for $387k. So it was a good buy in that respect.
There's a house I've been keeping an eye on that has a great layout for our situation. It's back to 3,800 square feet, but about 800 of that is an in-law suite that is set up in a way that would give my mom more privacy, which she has said she would like, and give us a little bit of much-needed separation from her. (Right now all of our bedroom doors are within 4 feet of each other, and her living space is the living/dining room that is smack in the middle of the house.)
The house I'm watching also has one additional bedroom, a better yard for the kiddos, it would cut my husband's commute from 20 minutes to 10 (I work from home), it's walking distance to grocery shopping and other basic necessities, it's in an excellent neighborhood with the highest rated schools, close to 2 major freeways, etc. It will have excellent resale potential, even 20 years from now.
It needs a cosmetic overhaul, although I don't feel like we'd have to do most of that immediately other than a pool fence for safety reasons. And we're open to doing as much of the work ourselves as we can, for the obvious financial savings and also to help instill the importance of sweat equity and handyman skills in the kiddos.
I'm thinking of offering $400k, it needs about $50k in work (although non-Mustachians would probably spend $100k easily), and would probably be able to re-sell for $500k in a year, not that we would plan to sell since we see this as being our long-term house. That offer price is about 10% less than list, so I'm not sure the buyers would even go for it. And I should say (don't shoot me, please!) that we'd probably have to take a temporary loan against one of our 401ks to cover some of the down payment/closing costs, since we don't have a ton of cash on hand because we've been working hard toward paying off the credit cards this past year. We'd re-pay the 401k once our current house sells.
If our large rental is able to be sold for $600k in 2 years, we'd have about $40k left over after paying off all mortgages and the $50k in renovations of the house we're considering. If it only sells for $500k, we'd still be about $60k in debt, and it would probably take us another 2 years to pay that off. Obviously, a crystal ball would come in handy here, but alas that's not available. We're not considering selling that property now because we have tenants in there with a lease until early 2017, and because it wouldn't sell for those numbers right now. If we stay put, selling the large rental at $500k in 2 years, we'd have about $80k left over after paying off all mortgages, and I'd probably be fairly comfortable with me staying home at that point.
A couple of other considerations - 1) My husband is a very easygoing, laid back guy, but being in close quarters with my mom is starting to get on even his nerves. I want him to have his sanity. 2) If we do this, it will probably delay me staying home for at least a couple more years. But living in a home where it's easier for the kiddos to be out playing in the yard and have room to do things like plant a garden with them, a shorter commute for my husband, and walking distance to grocery shopping and other basics may be worth it. 3) It's entirely possible my mother may be with us another 10 years or more - her parents lived to their mid-80s, and while she's on common meds (high blood pressure, high cholesterol, diabetes), she hasn't had any major health incidents. 4) When she's no longer with us, the in-law suite could possibly be used for my in-laws, who are about 15 years younger than my mom, and even down the road by our kiddos when they are grown if they want to stay with us while saving up for a house of their own.
If you're still sticking with this, thank you for reading this far. Let me know what you think from a financial perspective, and again, please be gentle given all the circumstances.
