Should we upgrade our living situation (HCOL area)?

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investor_coffee
Posts: 38
Joined: Sat Jun 28, 2014 5:58 pm

Should we upgrade our living situation (HCOL area)?

Post by investor_coffee »

Hello Bogleheads,

Just curious what people would do in our situation. We are located in the California bay area (Santa Cruz, CA).

Here is a brief summary of our financial situation:

Martial Status: Married, no kids yet, but hoping for one within a year or two
Ages: 35&33
Combined Income: 220k (our jobs are pretty secure)
Current Investable Assets: 265k (75k taxable and 190k retirement)
Current Home Equity: 130k
Current Investments/Month: 4500 pretax and 2500 taxable

We currently own a downstairs condo we bought a couple of years ago before we were married, and are looking at upgrading to a single family. There are single family homes in the area for 700,000-750,000. We are happy in the condo, but ultimately it is still a condo and a single family would be nicer to be in for the long term (in theory). We really like the area, and are planning on staying here long-term (at least until retirement in our 50's hopefully).

The current payment (including HOA) for the condo is $2250/month. The single family would be around $3600/month. I think we can afford either one without too much of a problem.

The Boglehead in me doesn't want to move so I don't have to pay realtor + closing closts again (probably close to 30,000 total). But I don't know if I'm just being short sighted.

Right now our our goal was financial independence in 10-15 years. Buying the single family would delay that by a few years (we are ok with that).

Should we consider moving prior to financial independence or just wait until that is achieved?

The largest problem with waiting until financial independence to upgrade is that housing will probably cost significantly more then (of course one never knows for certain). And we would miss out on approx. 10 years of enjoyment of a single family residence.
Jack FFR1846
Posts: 18501
Joined: Tue Dec 31, 2013 6:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Should we upgrade our living situation (HCOL area)?

Post by Jack FFR1846 »

This is certainly a personal decision. On the financial side, the longer you stay in the condo, the less it will cost. If you stay there until retirement, you can move to a lower cost area earlier.

The single family may give you a better lifestyle at more expense and result in a later FIRE.

You really are the only one who can decide what is more important to you
Bogle: Smart Beta is stupid
Valuethinker
Posts: 49031
Joined: Fri May 11, 2007 11:07 am

Re: Should we upgrade our living situation (HCOL area)?

Post by Valuethinker »

investor_coffee wrote:Hello Bogleheads,

Just curious what people would do in our situation. We are located in the California bay area (Santa Cruz, CA).

Here is a brief summary of our financial situation:

Martial Status: Married, no kids yet, but hoping for one within a year or two
Ages: 35&33
Combined Income: 220k (our jobs are pretty secure)
Current Investable Assets: 265k (75k taxable and 190k retirement)
Current Home Equity: 130k
Current Investments/Month: 4500 pretax and 2500 taxable

We currently own a downstairs condo we bought a couple of years ago before we were married, and are looking at upgrading to a single family. There are single family homes in the area for 700,000-750,000. We are happy in the condo, but ultimately it is still a condo and a single family would be nicer to be in for the long term (in theory). We really like the area, and are planning on staying here long-term (at least until retirement in our 50's hopefully).

The current payment (including HOA) for the condo is $2250/month. The single family would be around $3600/month. I think we can afford either one without too much of a problem.

The Boglehead in me doesn't want to move so I don't have to pay realtor + closing closts again (probably close to 30,000 total). But I don't know if I'm just being short sighted.

Right now our our goal was financial independence in 10-15 years. Buying the single family would delay that by a few years (we are ok with that).

Should we consider moving prior to financial independence or just wait until that is achieved?

The largest problem with waiting until financial independence to upgrade is that housing will probably cost significantly more then (of course one never knows for certain). And we would miss out on approx. 10 years of enjoyment of a single family residence.
All as per Jack's advice

If you are thinking of having a family, you will need a bigger place.

And you can never get that 10 years back. Housing stress in our previous place (an apartment, with an alcoholic downstairs neighbour) cost us.

Where you live is a lifestyle decision, not just a financial one. For me, I waited (in a rising market) too long to trade up. Now I have a house I am happy with (London prices are as ridiculous as the Bay Area-- we are talking family homes for over USD 1000 per square foot) where I hope to live for at least another 20 years.

Owning 2 properties in a lifetime is not excessive. Whatever the hassle and cost (don't talk to me about renovations) living in a house I really like in an area I really like is important, day to day. I don't have anything like the nicest house on the street, but it is 'nice enough' and 'big enough' (more space => more junk). Also with a house as opposed to a condo you have more control over costs like repairs and maintenance.

Not having neighbours above my head or below my head is the very heaven.

I'd say go for the house you want, just don't go over the top. And good street and location over square footage: always. Location, location, location.
FreemanB
Posts: 374
Joined: Thu May 22, 2014 5:55 am

Re: Should we upgrade our living situation (HCOL area)?

Post by FreemanB »

I was faced with a similar situation after my daughter was born. Our last house just felt too small, particularly after she became increasingly mobile. Unfortunately, we were also in a HCOL area(Northern VA, DC metro region), so buying a bigger house meant a larger mortgage and higher payment. We eventually pulled the trigger though, and we are very happy with the decision. From a financial standpoint, there's no doubt that it will be more expensive in the long run.(Still very affordable to us, we didn't go crazy) However, you always have to consider that cost in relation to the value of comfortable home. That's a personal decision though, and your budget can only give you half of the equation. The rest is up to you.
Topic Author
investor_coffee
Posts: 38
Joined: Sat Jun 28, 2014 5:58 pm

Re: Should we upgrade our living situation (HCOL area)?

Post by investor_coffee »

Thank you for the replies, they are very helpful. I agree if we are going to move, moving sooner than later is probably better.
Valuethinker
Posts: 49031
Joined: Fri May 11, 2007 11:07 am

Re: Should we upgrade our living situation (HCOL area)?

Post by Valuethinker »

investor_coffee wrote:Thank you for the replies, they are very helpful. I agree if we are going to move, moving sooner than later is probably better.
The rule of thumb is you want to be able to say you have realistic plans to stay in the next place for 10 years. Of course life may change (and it will) but as a general principle, 10 years per home is not too bad on transactions costs.

My mother has lived in the same house for over 50 years: arguably this is overkill ;-). But the location was right.

And life counts. Better a home to be happy in *now* than in 10 years. It's shades of gray of course, no hard and fast rules on that.
kaudrey
Posts: 1143
Joined: Fri Nov 22, 2013 1:40 pm

Re: Should we upgrade our living situation (HCOL area)?

Post by kaudrey »

I agree that you will likely not regret such a move.

We live in a townhouse that I bought in 1999 (in HLOC northern VA/DC area). We thought about moving and getting a house, because I sometimes feel trapped in without having a yard.

We opted for a happy medium - we bought a cabin in the mountains and go there on the weekends. Different choice, but it added on another mortgage and obviously affected how much we were saving.

But, we are still on track for what we want to do in life, and I don't regret it for a minute.
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Go Blue 99
Posts: 1119
Joined: Thu Oct 09, 2008 3:42 pm

Re: Should we upgrade our living situation (HCOL area)?

Post by Go Blue 99 »

Go for the house. I was raised in a small 2 bedroom/1 bath condo, and it wasn't ideal. My parents bought the condo because they didn't want to borrow more money to get a single family home (HCOL area). By the time they improved their income situation years later, they were priced out of the SFH market. My mom says not buying the house is her single biggest regret to this day.
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PaddyMac
Posts: 1808
Joined: Fri Jul 09, 2010 10:29 pm

Re: Should we upgrade our living situation (HCOL area)?

Post by PaddyMac »

I'd say go for it too. When housing appreciates in value, say 10%, ten percent of $700K is more than 10% of a condo. Plus, houses appreciate better than condos. We sold a townhouse years ago for $150K in a tough market and stretched into a large house in CA for $460K. No regrets. The town home doubled in value, but the house tripled, during the large run up.

You mention $3600 payment, but do factor in all your expenses if you've never owned a real house - you need to budget for the gardens, exterior, drainage, plumbing, everything. Maintenance on a large house is expensive (we're just going thru $10K+ in deck repairs).
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