When to upgrade house vs location uncertainty

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Dietmar
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Location: Seattle

When to upgrade house vs location uncertainty

Post by Dietmar » Sun Apr 12, 2020 9:32 am

I'm looking for some advice or insight on what to do about my house situation. My wife and I (early 30s) bought our current 2 bedroom house in Seattle 3.5 years ago with the understanding that it was a hedge for several reasons, and we’d be happy if we stayed there for 5 years:
• The rapidly growing housing market in Seattle (fear of being priced out)
• Sticker shock and not totally sure what we were comfortable budgeting
• Not totally certain about what neighborhood we wanted to live in
• We could have two small children share a bedroom for several years

Well, we recently had our first baby and are already feeling more crunched (moreso due to layout/noise concerns than actual square footage, although it is tight for guests), and I am anxious thinking about how to make things work when we have our second child (next couple years). Plus there are a few cosmetic-ish repairs/upgrades that we have been thinking about whether or not to do (refinishing floors, new kitchen countertops + sink + backsplash, new kitchen appliances).

It's not too uncomfortable, but it's not going to be our long term house due to the space/layout issues, which will only be solved by a new house. So we've been thinking about our next move for the last few months (although on pause now due to the pandemic). Our budget is now a lot bigger and I'm willing to drop $$$ to get a bigger house, but I have some reservations about whether or not desires would change in a few years and we would be looking at moving again. I really want to avoid the transaction costs of selling a $1.5M+ house after only a few years. For example, I work in the suburbs and the reverse commute is actually pretty bad unless I leave early. I can get pretty stressed out by heavy traffic, so I am concerned about the commute becoming less and less tolerable over the years. There's also the vague concern that as our kids get older we will want to live in the suburbs, although currently that is not an appealing lifestyle for us.

Some stats:
• My income is about $220k + $110k RSUs plus wife's $70k for a total of about $400k
• $300k equity in our house from rapid appreciation, $450k in retirement accounts, $650k in taxable accounts.
• Currently save about $70k/year into tax advantaged retirement accounts and haven't been spending any of my RSUs. Childcare will be expensive, so that’s not totally figured in to our budget.

Any advice? I would like to stand pat for another year or so due to the new recession and see what prices drop to for a $1.8~2M 4 bedroom house that seems to check all the boxes. I think we can afford upwards of $2M without feeling too stretched (especially if we put more down), but it seems a bit crazy to me. We saw a 3 bedroom house for $1.5M that we liked a lot, but we were concerned about eventually wanting a more dedicated guest room, as well as that houses should become a good amount cheaper in the coming year.

SanAntionetta
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Re: When to upgrade house vs location uncertainty

Post by SanAntionetta » Sun Apr 12, 2020 3:21 pm

I’m following along because we are in a similar situation although the #s are different. We bought our house before we had kids and didn’t think about how living on a busy street or having an uneven backyard so they cant have a play set would impact us. We just had our second child and will either have to finish our basement or move. The market over here in CT stinks though we are sure to lose $, but otoh nicer houses are cheaper right now too.

I’m interested to find out if others bought a stretch house and grew into it or continued to incrementally but better houses or just made do with what they had.

Some things for OP to consider
- layout that works for young children may not be imperative for older children. I really wanted an open concept house so I could watch them while cooking at night but my friend pointed out that when they are 3/6 it won’t really matter anymore.
- as someone that’s had a 90 minute commute and now has a 10 minute commute, that extra time with your kids is priceless.

I’ve only lived in the suburbs with kids. I grew up in the country totally unwalkable, no neighbors, and I’m not subjecting my kids to that. I also wouldn’t be comfortable in an urban setting but would consider living in a town.

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lthenderson
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Re: When to upgrade house vs location uncertainty

Post by lthenderson » Sun Apr 12, 2020 9:35 pm

Dietmar wrote:
Sun Apr 12, 2020 9:32 am
Any advice?
Every house I have ever bought seemed perfect at the time. Every house I sold was because there were just flaws with it that I couldn't fix. I have come to believe that there is no such thing as a perfect house that will last my lifetime. Also, every house I have bought has also improved in location. I have come to believe that the location has brought me more happiness than the qualities inside the house. Because the house I currently live in has a pretty much ideal location for me, I am been much more willing to overlook the layout flaws and find other ways to compensate for them.

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Watty
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Re: When to upgrade house vs location uncertainty

Post by Watty » Sun Apr 12, 2020 11:39 pm

Dietmar wrote:
Sun Apr 12, 2020 9:32 am
I think we can afford upwards of $2M without feeling too stretched (especially if we put more down), but it seems a bit crazy to me.
With your income and RSUs I would assume that you have some sort of tech job.

You are making really good money right now but it is a big assumption to think that you will have that income for the 15 or 30 years that would be the length of the mortage that you would need to buy a house like that. Having a million dollar + mortage is more than a stretch even though you could make the mortage payment.

You are also in your early 30s now. Don't underestimate how job hunting and layoffs for a tech job changes when you in your 40s and 50s.
Dietmar wrote:
Sun Apr 12, 2020 9:32 am
Well, we recently had our first baby....
The way you say "first baby" sort of implies that that you might be planning on more.

I would be cautious about overextending yourself while you are still having kids.

The reason is that you could need expensive fertility treatments for the next kid or if you have a kid with even minor health issues you may have additional expenses and daycare for a kid with health issues might not be a good option. You might also choose to have a stay at home parent and go down to one income for a while especially if you have more than one kid.

Schools are very hard evaluate and school ranking are approximate at best but since you have kids pay a lot of attention to the schools when you buy your next house. You don't need the very top rated schools but avoid areas that have mediocre or bad schools. Don't talk yourself into schools that are not at least OK.
Dietmar wrote:
Sun Apr 12, 2020 9:32 am
....
$300k equity in our house from rapid appreciation
.....
Any advice?
Do you have something like strong family ties to Seattle?

If not you should try to keep an open mind about relocating to a less expensive area. It was a long time ago but when I was a computer programmer in the 1980's in Silicon Valley, which has always been expensive, I moved to a much less expensive area that also had a better quality of life and that worked out well for me.'

Even back then one thing I saw was that in Silicon Valley some of my older coworkers had grown kids that were well into their 20s that were still living with their parents and that was not always a good situation. The problem was that they did not have high paying jobs so they could not afford to move to an apartment even with roommates.

There is no telling where your kids will end up but you might consider what it will be like for them when they grown up and if they are trying to afford to live near you in Seattle.

I have moved around and I am in Atlanta now which still has reasonable housing, you can get a nice house with good schools in a nice suburb for around $300K. In many areas $500K will get you a McMansion. Some prime or downtown areas can cost a lot more though.

I have a grown son now and he is married and was able to comfortably afford to by a nice house that is about ten minute from us which is nice especially since we get to frequently see our grandkids. Virtually all of his high school and college classmates that stayed in the area were able to buy nice houses when they were in their 20s. Most of them went to college and are doing well in their jobs but we have friends that have a son who was severely dyslexic and barely graduated from high school. At one point he was working in a chain muffler shop which is a good honest job but I am sure that it did not pay a lot. Even on his salary he was able to afford to buy a small older house in a marginal but not terrible area.

Anyway in probably 80% of the country you can buy a fairly nice house for the $300K in home equity that you already have. I'm not saying that you should move to Atlanta since there are lots of pros and cons and I've gotten razzed about doing this before but here is an example of they type of house you can get in the Atlanta suburbs for around $300K, but some parts of town are a lot more expensive.

https://www.realtor.com/realestateandho ... 68?view=qv

A lot of the country has housing like this.

When the pandemic is over it would be good to check out other parts of the country to see if you can find a less expensive area that you would want to move to.

If you work for a large company then you might even be able to transfer to a less expensive area, when I worked in California I knew several people that were able to do that. I don't know their details but it was obvious that that did very well financially.

My son has a degree in Computer Science and he and his friends with CS degrees all have not had any problem finding very well paying jobs even though they are not make as much as you do. They may be a bit different than what you are doing now but there are tech jobs pretty much everywhere.

With the pandemic and possible recession/depression if I was you I would just stay where you are for a while and keep saving like crazy until things get sorted out. In a couple of years you would likely only need to have a small mortage to buy another house there or you might decide to move to a less expensive area and be pretty much financially independent even if you decide to keep working.

You have about five years until you kid will start school so there is lots of time to decide what you want to do before then.

If you do decide that you want to move to a different part of the country then you may want to do that before your oldest kid starts middle school(time does go quick!) because it becomes a lot harder for them to move after that.

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lthenderson
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Re: When to upgrade house vs location uncertainty

Post by lthenderson » Mon Apr 13, 2020 7:55 am

Watty wrote:
Sun Apr 12, 2020 11:39 pm
Anyway in probably 80% of the country you can buy a fairly nice house for the $300K in home equity that you already have.
These sorts of posts never fail to amaze me. In my neck of the woods, $300K would by ANY house in town even if it was occupied and the owner had no intention of leaving. We live in the ritzy part of town now with houses on multiacre lots and I thought I was swinging for the fence when I put down $175k.

prairieman
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Re: When to upgrade house vs location uncertainty

Post by prairieman » Mon Apr 13, 2020 9:53 am

We went the upgrading route as the kids grew up into their school years. In hand sight, I’d have rather switched locations before they reached school age. The reason is that our kids did not want to move later (when we did!) because they were firmly entrenched in the neighborhood. It turned out OK; they grew up happy with lifetime friends. But I felt trapped into enduring a neighborhood that we no longer wanted to live in. Those we liked most had moved on and the neighborhood atmosphere changed as many houses converted to noisy rentals, each with many cars parked outside. Maintenance of houses around us went downhill compared to when we moved in. When our kids moved on to college, we bolted. We left the nicest house in a rundown neighborhood and those houses definitely had negative impact on the value of our house.

quantAndHold
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Re: When to upgrade house vs location uncertainty

Post by quantAndHold » Mon Apr 13, 2020 10:01 am

lthenderson wrote:
Mon Apr 13, 2020 7:55 am
Watty wrote:
Sun Apr 12, 2020 11:39 pm
Anyway in probably 80% of the country you can buy a fairly nice house for the $300K in home equity that you already have.
These sorts of posts never fail to amaze me. In my neck of the woods, $300K would by ANY house in town even if it was occupied and the owner had no intention of leaving. We live in the ritzy part of town now with houses on multiacre lots and I thought I was swinging for the fence when I put down $175k.
Are there any high paying tech jobs within a 30 minute drive? Or any decent paying jobs at all?
Yes, I’m really that pedantic.

Topic Author
Dietmar
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Location: Seattle

Re: When to upgrade house vs location uncertainty

Post by Dietmar » Mon Apr 13, 2020 10:16 am

I appreciate the concept of geographic arbitrage, but it’s not really a valid option for us while in the earning phase.
I am in tech but not as a software engineer. There are a few other companies I could work at in my career path, but they are pretty much all in Seattle or the Bay Area (and we have little interest in the Bay Area). So my career is not nearly as portable as your typical software engineer, although the upside is that ageism is less of an issue. And my wife is in academia, so her portability is even more limited (but job is secure).

More than anything, though, Washington is one of the few places that is really appealing to us to live in, in terms of lifestyle (amazing outdoors, large city, progressive, fulfilling careers). We are willing to pay more to live here.

I agree that location is the most important factor in terms of picking a house. We like the energy/vibrancy/culture/feel of a walkable residential neighborhood of the city, hence why we are still looking near our current neighborhood. I would love to have a 10 min or biking commute too, but I feel that I would be trading one issue for another by moving closer to my job.

Regarding schools, the public schools in northeast Seattle are the best in the city. Not as good as Redmond or Mercer Island, but still good.

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Dietmar
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Re: When to upgrade house vs location uncertainty

Post by Dietmar » Mon Apr 13, 2020 10:22 am

Maybe to re-summmarize:
  • We want to be in the Seattle area for the foreseeable future (5-10 years)
  • Our current house is bordering on uncomfortable, and it will become uncomfortable with child #2
  • Do we go for a modest increase in size with the knowledge we may want to change neighborhoods or upsize again in 5 years, or do we go bigger for a house that should be comfortable for all anticipated needs?

DH0
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Re: When to upgrade house vs location uncertainty

Post by DH0 » Mon Apr 13, 2020 10:44 am

If your career situation is stable upgrade to a larger house that will last you for the foreseeable future (ideally until the kids are through school). As the kid(s) grow up it will become harder and harder to move due to ties to the community, plus there are the transaction costs and the stresses of selling one house and buying another. You don't want to have to go through this again in 3–4 year. With interest rates where they are a $1–1.5M mortgage is really not that expensive for someone with your income.

stoptothink
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Re: When to upgrade house vs location uncertainty

Post by stoptothink » Mon Apr 13, 2020 10:55 am

quantAndHold wrote:
Mon Apr 13, 2020 10:01 am
lthenderson wrote:
Mon Apr 13, 2020 7:55 am
Watty wrote:
Sun Apr 12, 2020 11:39 pm
Anyway in probably 80% of the country you can buy a fairly nice house for the $300K in home equity that you already have.
These sorts of posts never fail to amaze me. In my neck of the woods, $300K would by ANY house in town even if it was occupied and the owner had no intention of leaving. We live in the ritzy part of town now with houses on multiacre lots and I thought I was swinging for the fence when I put down $175k.
Are there any high paying tech jobs within a 30 minute drive? Or any decent paying jobs at all?
5yrs years ago you could buy a really nice house in my area. Now, it is literally impossible to buy a SFH home within ~25 miles of me for $300k; that '15 $300k home is now $450k+. What happened: the Silicon Slopes.

stan1
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Re: When to upgrade house vs location uncertainty

Post by stan1 » Mon Apr 13, 2020 11:00 am

Dietmar wrote:
Mon Apr 13, 2020 10:22 am
Maybe to re-summmarize:
  • We want to be in the Seattle area for the foreseeable future (5-10 years)
  • Our current house is bordering on uncomfortable, and it will become uncomfortable with child #2
  • Do we go for a modest increase in size with the knowledge we may want to change neighborhoods or upsize again in 5 years, or do we go bigger for a house that should be comfortable for all anticipated needs?
You have a two bedroom house in a location with a less than desirable commute. You expect to need a four bedroom house and want a better commute. I would not be looking at 3 bedroom houses unless they have a den, bonus room, basement, etc. that would give you the extra space you expect to need.

Look for a buying opportunity during downturn. In 2009 owners of the best located and maintained houses generally tried to put off selling until the market returned but there were some buying opportunities. Can expect the house flippers will be back but do need to be careful buying some of those houses. The best houses won't be flipped. The house was discounted for a reason. That said I think 2021 will be unlike anything we've seen in our lifetimes so being flexible might be your best course of action.

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lthenderson
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Re: When to upgrade house vs location uncertainty

Post by lthenderson » Mon Apr 13, 2020 11:01 am

quantAndHold wrote:
Mon Apr 13, 2020 10:01 am
lthenderson wrote:
Mon Apr 13, 2020 7:55 am
Watty wrote:
Sun Apr 12, 2020 11:39 pm
Anyway in probably 80% of the country you can buy a fairly nice house for the $300K in home equity that you already have.
These sorts of posts never fail to amaze me. In my neck of the woods, $300K would by ANY house in town even if it was occupied and the owner had no intention of leaving. We live in the ritzy part of town now with houses on multiacre lots and I thought I was swinging for the fence when I put down $175k.
Are there any high paying tech jobs within a 30 minute drive? Or any decent paying jobs at all?
What do you consider a high paying job? Compared to the cost of living, yes there are high paying jobs. Would someone with a high paying job here be able to afford the cheapest of rent in say San Francisco, absolutely not.

Lalamimi
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Re: When to upgrade house vs location uncertainty

Post by Lalamimi » Mon Apr 13, 2020 11:12 am

Are you in a good school district now? Nice street, area? Have you considered remodeling and adding on to the house? We have been married 45 yrs, purchased current home 2 yrs ago - over 3K sq ft on an acre, largest home ever. We both grew up in 2 bedroom houses with siblings, and my brother and I actually slept in living rooms in 3 of the places we lived until I was 13.
Our first house was 1954 ranch 1850 sq ft, nice lot, nice house. Neighborhood went to hell. Moved when kids were entering 2nd and 6th grades. Lived there until 2006, moved to our "weekend, future retirement" place on 10 acres outside Austin. Then I had to return to Houston to work, bought a 1900 sq ft house, $100K in 2012. Sold both places and bought this one to be near kids, grandkids and for DH to build his shop (that replaced 2 large garages on the 10 ac place).
My dear daughter and her husband paid over $1MM for 4300 sq ft house in Houston last year, had second child a month later. In area he wanted, but not the right high school. I see them moving in 10 yrs. I hope not. Stability in a good neighborhood is wonderful.

HomeStretch
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Re: When to upgrade house vs location uncertainty

Post by HomeStretch » Mon Apr 13, 2020 11:17 am

lthenderson wrote:
Mon Apr 13, 2020 7:55 am
Watty wrote:
Sun Apr 12, 2020 11:39 pm
Anyway in probably 80% of the country you can buy a fairly nice house for the $300K in home equity that you already have.
These sorts of posts never fail to amaze me. In my neck of the woods, $300K would by ANY house in town even if it was occupied and the owner had no intention of leaving. We live in the ritzy part of town now with houses on multiacre lots and I thought I was swinging for the fence when I put down $175k.
I was amazed for the opposite reason. $300k would not buy a house in my town except the affordable single family housing built in a busier/noisier area. Land values are high.

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Watty
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Re: When to upgrade house vs location uncertainty

Post by Watty » Mon Apr 13, 2020 11:25 am

Dietmar wrote:
Mon Apr 13, 2020 10:16 am
I appreciate the concept of geographic arbitrage, but it’s not really a valid option for us while in the earning phase.
I am in tech but not as a software engineer. There are a few other companies I could work at in my career path, but they are pretty much all in Seattle or the Bay Area (and we have little interest in the Bay Area). So my career is not nearly as portable as your typical software engineer, although the upside is that ageism is less of an issue. And my wife is in academia, so her portability is even more limited (but job is secure).
One thing to keep an eye out for is what positions might be available with the customers who buy your product or possibly supply materials to make your product. If you make some mission critical widget then some customer who owns 1,000 of them might find your skills very valuable and you might be able to transition into some sort of management roll with them.

Since you have specialized skills a huge question to consider is if someone will be doing what you do fifteen years from now. If not then I would be real hesitant to take out a 15 year mortage based on your current income. Things change quickly, it is easy for forget but iPhone was only introduced 13 years ago in 2007 be cautious about assuming that your current skill set will always be in such high demand.
Dietmar wrote:
Mon Apr 13, 2020 10:22 am
Maybe to re-summmarize:
  • We want to be in the Seattle area for the foreseeable future (5-10 years)
  • Our current house is bordering on uncomfortable, and it will become uncomfortable with child #2
  • Do we go for a modest increase in size with the knowledge we may want to change neighborhoods or upsize again in 5 years, or do we go bigger for a house that should be comfortable for all anticipated needs?
As I said in my prior post to me it would make sense to wait a couple of years before you move since that would give time to get past the pandemic and the risk of a bad recession or depression.

I would put off any move for at least a year, with your high income and being busy with the new baby you may not realize just how bad the economy is right now for most people.

If you wait a while that might also allow you to get to the point where you have a healthy baby#2.

If your current place seems small you may be able to improve that some by decluttering, getting a storage unit, or getting different furniture that is laid out better and used the space more effectively. I have not used one but you might see if you can find an interior designer that specializes in effectively using small spaces.

One option to consider would be to sell your current house then you could rent a bigger place out in the "burbs" near your job to see if you really want to live out there. That would be a lot better than buying a place that you plan on selling in five years and you might be able to rent a much nicer place than you could afford to buy now. That would leave your with around a million dollars in your taxable account so there would be no risk of being priced out of the housing market.

That would also allow you to save up more so that you would not need to have a huge mortage if you buy an expensive house there.
lthenderson wrote:
Mon Apr 13, 2020 7:55 am
Watty wrote:
Sun Apr 12, 2020 11:39 pm
Anyway in probably 80% of the country you can buy a fairly nice house for the $300K in home equity that you already have.
These sorts of posts never fail to amaze me. In my neck of the woods, $300K would by ANY house in town even if it was occupied and the owner had no intention of leaving. We live in the ritzy part of town now with houses on multiacre lots and I thought I was swinging for the fence when I put down $175k.
Yeah, some people that have only lived in expensive areas don't understand what it is like in other parts of the country. This is especially a problem for people that don't have high incomes who don't have a lot of choices in high cost of living areas.

When you look at the average housing prices it is also misleading since in some of the expensive areas the average house is not as good as in less expensive areas. The OP mention that they bought a two bedroom house which I assume is single family home and not a condo. Those are almost nonexistent where I live.
quantAndHold wrote:
Mon Apr 13, 2020 10:01 am
Are there any high paying tech jobs within a 30 minute drive?
There can be more than you might think even in rural areas.

In rural areas a medium size farm is a multi million dollar business, when you are in an airplane flying over all those funny looking circles and squares most of those are good size businesses. It varies but they may use things like half million dollar(or a lot more) tractors that are computer controlled using satellite data. Cows may be milked by barn size robotic milking systems. Drones may also be used to inspect the fields. There are still also lots of people using 40 year old tractors so I am not saying that high tech is dominate but there is a lot of being used.

Being a user of high tech is different than being the person who designs it so the pay may not be as high but in a low cost of living area it can be enough to support a better life style.

Many college towns are also located in low cost areas.

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