Cheap "starter" home or stretch "forever" home?

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srouen
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Cheap "starter" home or stretch "forever" home?

Post by srouen » Mon Jul 31, 2017 12:39 pm

New poster here. DW late 20s, DH early 30s, 2 kids (4 and newborn). HHI = about $110,000. Each saving about 15% for retirement now, including 6% company contributions. Have been maxing out IRAs for 3 years. Our jobs are both pretty stable, incomes expected to grow steadily but not dramatically.

We live in a HCOL area (DC area), will be here long-term (close to family), and are looking to buy a home in the next year or so before our oldest starts kindergarten. We have about $80k in cash available for a downpayment+closing costs (not incl. our emergency fund). Current rent: $1,600 (1 bd, 1 ba)

Options with schools and commutes we can live with:

- 2 br/1 ba condos, ~800 sq ft, fewer amenities, communal laundry: about $160-185k. PITI + HOA, utilities and routine maintenance would be ~$1500/month. This option would enable us to bump up our 401k and college savings, which I would really like... But even though we're used to small space living, I'm afraid we would probably only be able to comfortably fit in it for maybe 5-6 years as our kiddos grow and want to have friends over, stare at their zits in the bathroom for hours, etc. After that time, we could try to buy a larger place or rent a larger place until our kids are out of high school, which would be another 10 years. Comparable rentals currently rent for ~$3k-3.5k/month. Alternatively, we could just stay put and our future teenagers can deal with sharing a bathroom with their parents, allowing us to actually be able to send them to college...
- 2 br/2 ba condos, ~1200-1300 sq ft, with more amenities and in-unit laundry (!!!): about $320-350k. PITI + HOA + etc would be about ~$2400/month. We would be able to stay here indefinitely, unless we wanted to downsize after our kids are out of the house (so 17+ years). But we would be at the tippy top of our current housing budget and would not be able to boost our retirement savings until both kids are out of the daycare/preschool years.

Renting a home for 10 years when we're living in the same area permanently seems dumb... Buying a small place that we will outgrow seems dumb too... Being (a little) house poor also seems dumb... And continuing to save more of a downpayment for a larger place (rather than shovel that cash into retirement) for several more years seems dumb, since by the time we're ready to really comfortably buy a larger place our kids will probably be almost out the door and we won't even need the space for much longer.

Thoughts? Which option is the least dumb?

JGoneRiding
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Re: Cheap "starter" home or stretch "forever" home?

Post by JGoneRiding » Mon Jul 31, 2017 1:35 pm

Anything in between? All I cam say is no way would I go for 1 bath with 4 people. It won't be long at all before you want an upgrade for thay 1 thing alone. Even if just a half bath, but with 2 kids I personally wouldn't even look at anything that didn't have at least a 3/4 bath in master.

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bottlecap
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Re: Cheap "starter" home or stretch "forever" home?

Post by bottlecap » Mon Jul 31, 2017 1:44 pm

How much do you spend right now? $2,400 per month on $110,000 (even net) in the D.C. area doesn't leave you much leeway.

JT

chevca
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Re: Cheap "starter" home or stretch "forever" home?

Post by chevca » Mon Jul 31, 2017 1:45 pm

Option 2 seems better for your family. The first one seems awfully small for a family of four.

MattE
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Re: Cheap "starter" home or stretch "forever" home?

Post by MattE » Mon Jul 31, 2017 2:05 pm

Are you working in the city proper? Is commuting from one of the bedroom communities just not a plausible option? $350K total \ $2400 per month gets you goodish schools, great communities, and 2000+ square feet, 3+ BR, 2+ BA with land up the Red Line or out in Howard County....even up the Silver Line towards Chantilly you can do much better than that real estate-wise though my understanding is the schools are so-so.

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dm200
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Re: Cheap "starter" home or stretch "forever" home?

Post by dm200 » Mon Jul 31, 2017 2:07 pm

Based on your income(s) and accumulated savings, it seems that Option 2 would make the most sense (assuming that you believe it will meet your needs long term).

Cyclesafe
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Re: Cheap "starter" home or stretch "forever" home?

Post by Cyclesafe » Mon Jul 31, 2017 2:19 pm

Every starter family from the beginning of time has had the same dilemma.

In recent memory, starting off house poor worked best; more room, better schools, larger mortgage deduction, better chance of appreciation etc.

Four people in 800 ft2 sharing a bathroom works for millions; in Japan, they would fit 8 people in a condo that size. I grew up in a family of 4 in 600 ft2 and it was tough, but I survived and went to college.

Maybe the better compromise is to wait until you really need the space and then pull the trigger. In the interim, keep an eye out for good deals and pounce if something looks too good to pass up.....

srouen
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Re: Cheap "starter" home or stretch "forever" home?

Post by srouen » Mon Jul 31, 2017 2:45 pm

MattE wrote:Are you working in the city proper? Is commuting from one of the bedroom communities just not a plausible option? $350K total \ $2400 per month gets you goodish schools, great communities, and 2000+ square feet, 3+ BR, 2+ BA with land up the Red Line or out in Howard County....even up the Silver Line towards Chantilly you can do much better than that real estate-wise though my understanding is the schools are so-so.
DW works in the NoVA burbs, DH works in DC proper. We considered further out in FFX county but the commute would've just been hellish. Plus we would need to buy another cat. I have a very low tolerance for commuting.

srouen
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Re: Cheap "starter" home or stretch "forever" home?

Post by srouen » Mon Jul 31, 2017 2:46 pm

srouen wrote:
MattE wrote:Are you working in the city proper? Is commuting from one of the bedroom communities just not a plausible option? $350K total \ $2400 per month gets you goodish schools, great communities, and 2000+ square feet, 3+ BR, 2+ BA with land up the Red Line or out in Howard County....even up the Silver Line towards Chantilly you can do much better than that real estate-wise though my understanding is the schools are so-so.
DW works in the NoVA burbs, DH works in DC proper. We considered further out in FFX county but the commute would've just been hellish. Plus we would need to buy another cat. I have a very low tolerance for commuting.
*Car, not cat.

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Watty
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Re: Cheap "starter" home or stretch "forever" home?

Post by Watty » Mon Jul 31, 2017 3:04 pm

srouen wrote:Thoughts?
You numbers don't look right so it would be good to double check them. For example.

srouen wrote:- 2 br/1 ba condos, ~800 sq ft, fewer amenities, communal laundry: about $160-185k. PITI + HOA, utilities and routine maintenance would be ~$1500/month. .....Comparable rentals currently rent for ~$3k-3.5k/month
If you could buy it and then rent it out you would have $1,500 to $2,000 a month in positive cash flow.

If that is right then you could buy that, live in it for a year to qualify for a owner occupied mortgage application, then buy the bigger condo next year and use the cash flow to mostly pay for the larger condo's mortgage. (That is greatly oversimplified)

Also when you say
srouen wrote:- 2 br/1 ba condos, ~800 sq ft, fewer amenities, communal laundry: about $160-185k. PITI + HOA, utilities and routine maintenance would be ~$1500/month. ....
- 2 br/2 ba condos, ~1200-1300 sq ft, with more amenities and in-unit laundry (!!!): about $320-350k. PITI + HOA + etc would be about ~$2400/month.
You are saying that you can buy a place that is about twice as expensive and only have monthly expenses that are only 60% higher.

ResearchMed
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Re: Cheap "starter" home or stretch "forever" home?

Post by ResearchMed » Mon Jul 31, 2017 3:08 pm

srouen wrote:
srouen wrote:
MattE wrote:Are you working in the city proper? Is commuting from one of the bedroom communities just not a plausible option? $350K total \ $2400 per month gets you goodish schools, great communities, and 2000+ square feet, 3+ BR, 2+ BA with land up the Red Line or out in Howard County....even up the Silver Line towards Chantilly you can do much better than that real estate-wise though my understanding is the schools are so-so.
DW works in the NoVA burbs, DH works in DC proper. We considered further out in FFX county but the commute would've just been hellish. Plus we would need to buy another cat. I have a very low tolerance for commuting.
*Car, not cat.
Aw... and here I thought you'd be needing a therapy cat.
Or at least another regular "warm fuzzy" to cuddle when you got back from that brutal commute.

:happy
This signature is a placebo. You are in the control group.

srouen
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Re: Cheap "starter" home or stretch "forever" home?

Post by srouen » Mon Jul 31, 2017 3:13 pm

bottlecap wrote:How much do you spend right now? $2,400 per month on $110,000 (even net) in the D.C. area doesn't leave you much leeway.

JT
Our expenses are ~$5.3k/month on average. We've been able to save $3k/month on average in cash. I guess our income is actually a bit higher; I was going off base pay and didn't include bonuses and dependent care savings.

srouen
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Re: Cheap "starter" home or stretch "forever" home?

Post by srouen » Mon Jul 31, 2017 3:26 pm

Watty wrote:
srouen wrote:Thoughts?
You numbers don't look right so it would be good to double check them. For example.

srouen wrote:- 2 br/1 ba condos, ~800 sq ft, fewer amenities, communal laundry: about $160-185k. PITI + HOA, utilities and routine maintenance would be ~$1500/month. .....Comparable rentals currently rent for ~$3k-3.5k/month
If you could buy it and then rent it out you would have $1,500 to $2,000 a month in positive cash flow.

If that is right then you could buy that, live in it for a year to qualify for a owner occupied mortgage application, then buy the bigger condo next year and use the cash flow to mostly pay for the larger condo's mortgage. (That is greatly oversimplified)

Also when you say
srouen wrote:- 2 br/1 ba condos, ~800 sq ft, fewer amenities, communal laundry: about $160-185k. PITI + HOA, utilities and routine maintenance would be ~$1500/month. ....
- 2 br/2 ba condos, ~1200-1300 sq ft, with more amenities and in-unit laundry (!!!): about $320-350k. PITI + HOA + etc would be about ~$2400/month.
You are saying that you can buy a place that is about twice as expensive and only have monthly expenses that are only 60% higher.
I was unclear-- I meant to rent a larger unit (when we outgrow the small one) is currently $3k-$3.5k.

The P&I on option 2 are double option 1, but the HOA fees are on option 2 are lower relative to the home price.

Theseus
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Re: Cheap "starter" home or stretch "forever" home?

Post by Theseus » Mon Jul 31, 2017 3:29 pm

Not sure this will help but...

1. I would buy a middle priced house in the community where there are more expensive houses. This will appreciate more in a longer term or at least won't depreciate as much. I have first hand experience doing this twice.

2. Condo fees are a big drag. If you are a Boglehead you should avoid it like you avoid high fee mutual funds.

3. We - Americans...especially in suburbs - are used to a large amount of space. But my visits to Europe has surprised me as to how well they utilize space in all aspects of their home furnishing etc. Many apartments I stayed at we too small from a square footage but I never felt crammed for space at all.

4. Smaller space means you will spend less money as you don't have space to put the "junk" we all end up buying.

5. Less space uses less energy and hence costs less to operate.

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Re: Cheap "starter" home or stretch "forever" home?

Post by investnoob » Mon Jul 31, 2017 3:56 pm

One thing to consider is what the market is like for condos in your area. Especially if you are thinking of "climbing the property ladder." In my city, there are about 300 to 600 condos listed on any single day. New condos in trendy developments sell fast, but older units that go up for sale tend be a very tough sale later on down the line once condo fees have normalised.

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Re: Cheap "starter" home or stretch "forever" home?

Post by investnoob » Mon Jul 31, 2017 3:57 pm

investnoob wrote:One thing to consider is what the market is like for condos in your area. Especially if you are thinking of "climbing the property ladder." In my city, there are about 300 to 600 condos listed on any single day. New condos in trendy developments sell fast, but older units that go up for sale tend be a very tough sell later on down the line once condo fees have normalised.

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dm200
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Re: Cheap "starter" home or stretch "forever" home?

Post by dm200 » Mon Jul 31, 2017 4:04 pm

We have lived in a close in Virginia suburb for many decades. "Close in" is very expensive, as noted, but as also pointed out not having to buy another car and reducing the hassles of commuting to DC contribute to "quality of life".

Maybe I am missing something, but (compared to most folks) I don't see Option 2 as that much of a stretch.

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dm200
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Re: Cheap "starter" home or stretch "forever" home?

Post by dm200 » Mon Jul 31, 2017 4:06 pm

investnoob wrote:One thing to consider is what the market is like for condos in your area. Especially if you are thinking of "climbing the property ladder." In my city, there are about 300 to 600 condos listed on any single day. New condos in trendy developments sell fast, but older units that go up for sale tend be a very tough sale later on down the line once condo fees have normalised.
In this area, (close in Virginia suburb), generally condos (whether new or older) have held value quite well and have not suffered a lot over recent years.

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Re: Cheap "starter" home or stretch "forever" home?

Post by KATNYC » Mon Jul 31, 2017 4:53 pm

srouen wrote:New poster here. DW late 20s, DH early 30s, 2 kids (4 and newborn). HHI = about $110,000. Each saving about 15% for retirement now, including 6% company contributions. Have been maxing out IRAs for 3 years. Our jobs are both pretty stable, incomes expected to grow steadily but not dramatically.

We live in a HCOL area (DC area), will be here long-term (close to family), and are looking to buy a home in the next year or so before our oldest starts kindergarten. We have about $80k in cash available for a downpayment+closing costs (not incl. our emergency fund). Current rent: $1,600 (1 bd, 1 ba)

Options with schools and commutes we can live with:

- 2 br/1 ba condos, ~800 sq ft, fewer amenities, communal laundry: about $160-185k. PITI + HOA, utilities and routine maintenance would be ~$1500/month. This option would enable us to bump up our 401k and college savings, which I would really like... But even though we're used to small space living, I'm afraid we would probably only be able to comfortably fit in it for maybe 5-6 years as our kiddos grow and want to have friends over, stare at their zits in the bathroom for hours, etc. After that time, we could try to buy a larger place or rent a larger place until our kids are out of high school, which would be another 10 years. Comparable rentals currently rent for ~$3k-3.5k/month. Alternatively, we could just stay put and our future teenagers can deal with sharing a bathroom with their parents, allowing us to actually be able to send them to college...
- 2 br/2 ba condos, ~1200-1300 sq ft, with more amenities and in-unit laundry (!!!): about $320-350k. PITI + HOA + etc would be about ~$2400/month. We would be able to stay here indefinitely, unless we wanted to downsize after our kids are out of the house (so 17+ years). But we would be at the tippy top of our current housing budget and would not be able to boost our retirement savings until both kids are out of the daycare/preschool years.

Renting a home for 10 years when we're living in the same area permanently seems dumb... Buying a small place that we will outgrow seems dumb too... Being (a little) house poor also seems dumb... And continuing to save more of a downpayment for a larger place (rather than shovel that cash into retirement) for several more years seems dumb, since by the time we're ready to really comfortably buy a larger place our kids will probably be almost out the door and we won't even need the space for much longer.

Thoughts? Which option is the least dumb?
Are the kids the same gender? Will you have more kids?
We have just over 800 sq ft with 2 adults & I can't imagine 2 kids in our space.
Neighbors are doing it though, with the parents in the converted living room space while the kids (same gender) have the bedroom.
Prices are a bit higher here though, $700K 1 bedrooms with 2 bedrooms at $750K & rentals at $4k/month for 2 bedrooms/2Ba.

Friends lived in a 2B/2Ba condo with 3 kids for 8 years (9-year-old twins & 8 year old) and they outgrew it.
They move into their 3 Bed house in a few weeks.

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