Help - Need to Make a Decision about a House

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tylerrr
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Help - Need to Make a Decision about a House

Post by tylerrr » Tue Jul 19, 2016 10:30 pm

I'm struggling with this decision...

I appreciate any thoughts/feedback....

What would you do if you had a guaranteed 5k per month income without working? I'm guaranteed this monthly income for rest of my life because of some wise decisions I made the past 20 years and some luck.

Here's the deal:

I have no debt. I rent an apartment right now with my GF in Cambridge, MA so I still save a lot of money each month, which I keep plowing into the PP and stock market each month to increase my net worth.

I have never owned a house with a yard. I really want a dog and a yard and some more space where I can invite people over more regularly. I could even rent a room for AirBNB in a house.

If I buy a house, I would also be able to get some payment from my GF or a roomate of some sort.

The areas around Boston, where I want to live, we're talking about 650k for a house. My mortgage monthly payment would be around 3500.00 for my situation on a 30 year loan.

Can anyone here justify me buying a house in this range? Or am I crazy to even think about it?

Basically, I think I would enjoy the lifestyle more of having a small ranch house with a nice lot(.3 acre) compared to living in apartments the rest of my life.

But if I buy a house, my liquid cash stash will go down significantly because of the down payment and my monthly housing bill will obviously go way up from where it is now....

Any feedback?

thanks

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BRUTE
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Re: Help - Need to Make a Decision about a House

Post by BRUTE » Tue Jul 19, 2016 10:58 pm

why doesn't tylerrr rent a similar house for a year first? then he can tell if it's really all that.

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tylerrr
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Re: Help - Need to Make a Decision about a House

Post by tylerrr » Tue Jul 19, 2016 11:03 pm

BRUTE wrote:why doesn't tylerrr rent a similar house for a year first? then he can tell if it's really all that.
Great suggestion....I've thought of that too!

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chenda
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Re: Help - Need to Make a Decision about a House

Post by chenda » Wed Jul 20, 2016 2:13 am

How important is it you stay in this area - do you anticipate living here long term, after you FI ?

Obviously you could get this house much cheaper somewhere else, but would you want to move ?

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Eureka
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Re: Help - Need to Make a Decision about a House

Post by Eureka » Wed Jul 20, 2016 5:42 am

How is the housing market around Boston? If it is likely that the prices go up (like they are where I live; I have never made as much money by anything but owning my own apartment), then you can always resell, often even with a nice profit, if you change your mind.

Also, it is not forbidden to work, I guess. So if you move to your new house with yard and garden and dog and friends visiting, maybe the price of having to work a bit to create some income to cover the extra costs is worth while?

ThisDinosaur
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Re: Help - Need to Make a Decision about a House

Post by ThisDinosaur » Wed Jul 20, 2016 7:17 am

I am generally pro ownership if it saves you money long term. 650K sounds like a big number, but more important would be the costs of living in the house AFTER its paid off. Taxes+insurance+HOA should be less than what you would otherwise pay in rent, in my opinion, to make it a good financial decision. For ERE, large one-time purchases are less of a problem than commitment to large on-going expenses.

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tylerrr
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Re: Help - Need to Make a Decision about a House

Post by tylerrr » Wed Jul 20, 2016 1:12 pm

ThisDinosaur wrote:I am generally pro ownership if it saves you money long term. 650K sounds like a big number, but more important would be the costs of living in the house AFTER its paid off. Taxes+insurance+HOA should be less than what you would otherwise pay in rent, in my opinion, to make it a good financial decision. For ERE, large one-time purchases are less of a problem than commitment to large on-going expenses.
Good point...There would be no HOA because it will be a residential house. Taxes are very high...About 8k per year. Homeowners Insurance is probably 100 per month. No PMI.

So after it gets paid off, my expenses would be much less than renting a similar place.

To the other poster above, yes, I want to live around Boston for probably 10 years or more.

KevinW
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Re: Help - Need to Make a Decision about a House

Post by KevinW » Wed Jul 20, 2016 1:24 pm

IMO, owning a modest home outright is a good move for early retirement. The tradeoff is that, when you run the numbers, investing all the capital in home equity looks like a worse ROI than investing in securities and using the returns to pay rent. My counterargument is that 1) it's close, 2) you need to account for return risk, and 3) a home provides shelter under the table without going through the taxman or other middlemen. There's some risk of tax policy turning against "the rich" who live off investment income, and much less of it turning against "retired homeowners."

I like the idea of a trial run, perhaps renting or house-sitting, first. You say you've never lived in a freestanding house. There is a significant burden in keeping one running. Lawn care/landscaping, dealing with gross plumbing problems personally, pests, minor fixtures breaking all the time, etc. None of it is difficult, but it's relentless, which can be draining. As a tenant this stuff is either managed for you behind the scenes, or when you do notice a problem, you make a phone call and then have the luxury of forgetting about it. I miss that sometimes.

IlliniDave
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Re: Help - Need to Make a Decision about a House

Post by IlliniDave » Wed Jul 20, 2016 2:14 pm

I wouldn't tie myself to a $650K house for any reason, unless my net worth was something like 3-4X that. I didn't understand the connection between the "guaranteed" $5K/mo income and the house. But if the implied question is whether a $5k/mo income and a $3,500 mortgage payment plus $750/mo in taxes is a good good idea, well, to me it sounds awful risky.

ThisDinosaur
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Re: Help - Need to Make a Decision about a House

Post by ThisDinosaur » Wed Jul 20, 2016 2:48 pm

Yeah, I'm curious about the nature of that 5K guaranteed monthly income, if you don't mind sharing.

If you think the employed man-hours and/or significantly reduced spending money is worth owning this house, that's fine. There is nothing morally wrong with luxury purchases. You just need to be aware of the huge opportunity cost of losing that 650K and/or 3.5K/mo for THREE DECADES. <--CAPS to emphasize that mortgages are generally frowned upon on this board.

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BRUTE
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Re: Help - Need to Make a Decision about a House

Post by BRUTE » Wed Jul 20, 2016 2:51 pm

IlliniDave wrote:plus $750/mo in taxes
wow so paying $750 in rent even after owning the damn thing? that must be a nice yard.

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tylerrr
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Re: Help - Need to Make a Decision about a House

Post by tylerrr » Wed Jul 20, 2016 3:16 pm

Just to clarify, the 3500 per month would include taxes, insurance, and mortgage. That's the entire payment.

I don't want to get into specifics, but I'm guaranteed 5k per month income unless the USA implodes in a catastrophic situation, which is unlikely in the next 30 years IMO.

So yes, I'd be left with 1500.00 per month after my house payment meaning I'd definitely work at least part time, which I do any way and want to continue doing....

Does that make sense?

JamesR
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Re: Help - Need to Make a Decision about a House

Post by JamesR » Wed Jul 20, 2016 5:57 pm

How much does it cost to rent the equivalent house?

Don't forget to factor in the maintenance costs of the house in terms of major repairs or replacing the hot water tank or some other random component, or if you end up not being happy about some part of the house (which you won't realize until living there for several months) then you need to renovate it to fix that (such as the way the room flows, or having a door to the patio in the right spot, or whatever).

Toska2
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Re: Help - Need to Make a Decision about a House

Post by Toska2 » Wed Jul 20, 2016 8:29 pm

Because no one else said it;
1. Buy/rent a house in a cheaper area. That's quite a sum to pay, admitting that the object is to remodel/landscape/dogwalk.

2. Buy a larger undeveloped plot away from town for your outdoor plans.

3. Talk to a farmer for renting a garden plot and pet their dog.

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BRUTE
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Re: Help - Need to Make a Decision about a House

Post by BRUTE » Wed Jul 20, 2016 10:56 pm

4.get a friend with a dog, visit once a week, gain all benefits of dog ownership but none of the downsides

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tylerrr
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Re: Help - Need to Make a Decision about a House

Post by tylerrr » Wed Jul 20, 2016 11:50 pm

JamesR wrote:How much does it cost to rent the equivalent house?

Don't forget to factor in the maintenance costs of the house in terms of major repairs or replacing the hot water tank or some other random component, or if you end up not being happy about some part of the house (which you won't realize until living there for several months) then you need to renovate it to fix that (such as the way the room flows, or having a door to the patio in the right spot, or whatever).
equivalent houses cost 3k or 3.5k to rent.

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Riggerjack
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Re: Help - Need to Make a Decision about a House

Post by Riggerjack » Thu Jul 21, 2016 8:35 am

I'm a big supporter of homeownership. But...
Home prices in my area are thru the roof. several coworkers are buying and selling their houses right now. I hear things like " it was on the market for 9 days without an offer, what's wrong with it? " or "we have an offer (he really said bid) in right now, the last 2 houses we tried to buy we were out bid, so we have a $25k escalation clause on this one."

This says 2007 to me. Rent what you want, wait until prices drop, buy what you want. When rates go up, prices will come down. You have the resources to take advantage of this.

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tylerrr
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Re: Help - Need to Make a Decision about a House

Post by tylerrr » Thu Jul 21, 2016 2:13 pm

thanks everyone. I got some sound advice here....That's why I posted this dilemma to get some feedback!

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Dragline
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Re: Help - Need to Make a Decision about a House

Post by Dragline » Thu Jul 21, 2016 2:45 pm

+1 on the "trial run renting". You may find that to be a better solution long-term, unless you were looking to diversify your investments anyway (i.e., rent out the house at some point in the future).

SimpleLife
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Re: Help - Need to Make a Decision about a House

Post by SimpleLife » Thu Jul 21, 2016 5:11 pm

I'm sure this isn't the answer you are not looking for, but you're asking us for input into something very vague, that you say is designed to satisfy an emotional need for a dog and having people over more often. I don't see the correlation between how often you can have people over in a house you own vs. an apartment or house you rent.

You also don't specify where this 5K in guaranteed income is coming from and whether it is or is not tied to the house, though you mentioned AirBNB earlier. I think you want to buy a house and are looking for people to lean in that direction, as you are clearly rationalizing the decision to buy this house. It serves no purpose other than to allow you to have a dog and a yard. You can get that renting, but what is the benefit to cost ratio? No rational person buys a 650K house to satisfy a subjective emotional need to have a dog or so they can have people over more often....You can do both in an apartment or a rented house as well, and neither provide strategic benefit.

At the end of the day, 5K "guaranteed" income (nothing is guaranteed other than our deaths) and 3.5K just for a mortgage rounded up to 4K when you factor in maintenance, leaves you spending 80% of your so called guaranteed income on having a dog and having "people" over more...Does that sound like something YOU would tell someone to do?

George the original one
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Re: Help - Need to Make a Decision about a House

Post by George the original one » Thu Jul 21, 2016 5:54 pm

Make sure you know how much property taxes go up in your locale. Is there a cap? Are there many special levies? Are the proceeds of property tax going into the government workers' pension plan and is that pension plan underfunded?

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tylerrr
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Re: Help - Need to Make a Decision about a House

Post by tylerrr » Fri Jul 22, 2016 11:13 am

SimpleLife wrote:I'm sure this isn't the answer you are not looking for, but you're asking us for input into something very vague, that you say is designed to satisfy an emotional need for a dog and having people over more often. I don't see the correlation between how often you can have people over in a house you own vs. an apartment or house you rent.

You also don't specify where this 5K in guaranteed income is coming from and whether it is or is not tied to the house, though you mentioned AirBNB earlier. I think you want to buy a house and are looking for people to lean in that direction, as you are clearly rationalizing the decision to buy this house. It serves no purpose other than to allow you to have a dog and a yard. You can get that renting, but what is the benefit to cost ratio? No rational person buys a 650K house to satisfy a subjective emotional need to have a dog or so they can have people over more often....You can do both in an apartment or a rented house as well, and neither provide strategic benefit.

At the end of the day, 5K "guaranteed" income (nothing is guaranteed other than our deaths) and 3.5K just for a mortgage rounded up to 4K when you factor in maintenance, leaves you spending 80% of your so called guaranteed income on having a dog and having "people" over more...Does that sound like something YOU would tell someone to do?
I'm sorry you felt moved to use a nasty tone towards someone simply soliciting for helpful advice and thoughts.

I'm not looking for justification, I was looking for non-hostile opinions. I have 5k guaranteed income and it's not from property. You can choose to believe that or not. If the home goes up in value and I have additional income from doing work that I love, it very well may make sense in my situation.

I haven't made a decision yet.

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tylerrr
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Re: Help - Need to Make a Decision about a House

Post by tylerrr » Fri Jul 22, 2016 11:15 am

George the original one wrote:Make sure you know how much property taxes go up in your locale. Is there a cap? Are there many special levies? Are the proceeds of property tax going into the government workers' pension plan and is that pension plan underfunded?
Great question. I don't know if there are caps on property tax increases in my city. I'll check that and was wondering the same because I'll always be paying tax no matter if the property gets paid off....

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Re: Help - Need to Make a Decision about a House

Post by llorona » Fri Jul 22, 2016 3:34 pm

You also might want to research the cost of public utilities and factor them into your equation. If you're currently renting, you may be paying for gas and electric yourself, but the cost of water, sewer, garbage, recycling, etc. are probably rolled into your rent. Costs vary by municipality, and if you're in an expensive area they can really add up. I was floored when I received our first water/sewer bill -- it runs about $80/month. The actual cost of water is only about $8 - the rest is mandatory fees. Out here, people on higher ground actually pay more because the water company adds a surcharge for porting water up the hill.

Don't forget to include the cost of maintenance, both monetary and time. Houses need a lot of work to keep them from crumbling back into the ground. Even if you're a DIY-er, costs (and headaches) can pile up. We try to stay on top of repairs and such, but it still seems like something goes wrong every other week.

My last piece of advice is that at the price point in your local market, try to find a home that doesn't require a bunch of modifications. If you're going to pay $650K, you might as well find a house that you like in its current form, not one that's going to require an extension or kitchen remodel.

None of this is intended to deter you. I adore owning a home! However, you should go into homeownership with eyes wide open with regard the monetary and time expenditures you will incur.

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tylerrr
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Re: Help - Need to Make a Decision about a House

Post by tylerrr » Fri Jul 22, 2016 4:08 pm

llorona wrote:You also might want to research the cost of public utilities and factor them into your equation. If you're currently renting, you may be paying for gas and electric yourself, but the cost of water, sewer, garbage, recycling, etc. are probably rolled into your rent. Costs vary by municipality, and if you're in an expensive area they can really add up. I was floored when I received our first water/sewer bill -- it runs about $80/month. The actual cost of water is only about $8 - the rest is mandatory fees. Out here, people on higher ground actually pay more because the water company adds a surcharge for porting water up the hill.

Don't forget to include the cost of maintenance, both monetary and time. Houses need a lot of work to keep them from crumbling back into the ground. Even if you're a DIY-er, costs (and headaches) can pile up. We try to stay on top of repairs and such, but it still seems like something goes wrong every other week.

My last piece of advice is that at the price point in your local market, try to find a home that doesn't require a bunch of modifications. If you're going to pay $650K, you might as well find a house that you like in its current form, not one that's going to require an extension or kitchen remodel.

None of this is intended to deter you. I adore owning a home! However, you should go into homeownership with eyes wide open with regard the monetary and time expenditures you will incur.
thanks! Yes, I lived in the Bay Area for 12 years, and that is one of THE MOST expensive places to buy/own a house. Very difficult....Boston is similar, but not quite as bad....

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