Final Decision - Housing

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MindTheGAAP
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Final Decision - Housing

Post by MindTheGAAP »

All,

Have posted before and we have two options - we have actually found a house that we think would be fantastic for our family of 5 but I wanted to get a pulse check from folks before we finalize a decision over the next few business days.

Renovate the current house - estimated cost of $150k but we're about $10k in sunk costs right now (ignoring for purposes of analysis). We are aware this could be more than ballpark and could also take longer. This would change the downstairs of our house for the main living areas but we know there is further updates/ maintenance on the horizon - new carpet, update secondary bathrooms, etc. (we have replaced 1 furnace and water heaters, but we know more is coming like furnace #2, condensers, etc.) Wife isn't a huge fan of the road our house is on because it is a major through-fare for the subdivision which means noise and little lack of privacy.

Purchase house - final offer from builder of home: $784k. Cost if we'd have built it as-is with them: $916k. We know this includes their inflated price for the 'design' upgrades, etc. but that's the information available. They had listed the house for $875k and dropped it to $825k. I am wary of overpaying knowing that the market is cooling, and interest rates are on the up. The house is laid out how we'd want it to be, and even has some bonus things like a 4-car garage and is a 1-acre lot. We would need to put in a fence since it is a new build and we'd need to be fine with living in the development while they build/finish the houses around us. Nice thing is that it would be energy efficient since it is a new build vs. ours from 2006 (not old, but not well insulated either and in Texas, it's definitely impactful on utilities, particularly in the summer/ 8 months of the year). edit: we could sell our current house for approx $400k with about $90k of equity in it

Current income: $300k/annually - single income with SAH wife to our 3 kids (6,5,2). We are young (30/31) but have done alright on the investment front so far. Have $160k in cash, $90k in house equity, $25k in taxable, $4k in HSA (invested), and $250k in retirement. The only loan we have is for her vehicle at 1.99% ($45k).

What say you? Are we stupid to consider it? Our payment would be close to 2x what we have right now. We would continue to max out my 401k & our HSA each year, with the goal to help our kids with college using funds saved in the taxable brokerage account ($1k/mo funding). I will say it is tempting to do because it is a "rip-the-band-aid" type situation where we have a definitive timeline on the move versus the remodeling and firmer known costs. We also think that long-term, unless something remarkable happens and they don't finish the development or something like that, the new house would appreciate much more than our current one, even with investments in it. I am just wary of over-committing on the monthly and so I am looking for more experienced folks to weigh-in, if you don't mind.

TIA.
Last edited by MindTheGAAP on Thu Oct 18, 2018 10:11 pm, edited 1 time in total.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
onourway
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Re: Final Decision - Housing

Post by onourway »

What do you owe on the current house (in other words, how much will you be increasing your debt to go to the new house)?
Topic Author
MindTheGAAP
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Re: Final Decision - Housing

Post by MindTheGAAP »

onourway wrote: Thu Oct 18, 2018 10:07 pm What do you owe on the current house (in other words, how much will you be increasing your debt to go to the new house)?
Would effectively double our loan amount so we're not close to paying the current one off, either.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
runner540
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Re: Final Decision - Housing

Post by runner540 »

For reference here's one of OP's previous threads: viewtopic.php?f=11&t=260846&p=4156406#top

OP, I'm in DFW and have noticed a "calming to the market. My answer is a conditional yes - here are the conditions:
1. You have tons of life and disability insurance in place.
2. You and spouse commit to not spending any bonuses/raises for a while (years) and put it toward savings/debt paydown
3. You don't deplete your cash savings
4. Have you accounted for increased property taxes? Depending on the area, it could be $1500-2000 per month.
Topic Author
MindTheGAAP
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Re: Final Decision - Housing

Post by MindTheGAAP »

runner540 wrote: Thu Oct 18, 2018 10:16 pm For reference here's one of OP's previous threads: viewtopic.php?f=11&t=260846&p=4156406#top

OP, I'm in DFW and have noticed a "calming to the market. My answer is a conditional yes - here are the conditions:
1. You have tons of life and disability insurance in place.
2. You and spouse commit to not spending any bonuses/raises for a while (years) and put it toward savings/debt paydown
3. You don't deplete your cash savings
4. Have you accounted for increased property taxes? Depending on the area, it could be $1500-2000 per month.
1. I have $2M in life insurance and have $10k/mo in LTD insurance should anything happen
2. We recognise that it may be tight for a while and would need to be frugal to stockpile. Example of this would be just taking existing furniture to the new house and live with it long-term until we have plenty of cash in the bank
3. At 20% down, we'd need to put about $155k down but would get about $80k from sale of our house. We'd have a cushion, still (correct me if I'm wrong here)
4. We have accounted for it - it would basically double our payment in regard to PITI - surprisingly the insurance would only go up by about $300/yr.

Welcome any additional thoughts/ insight.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
onourway
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Re: Final Decision - Housing

Post by onourway »

So, I don't think you're stupid to consider it, but it's a bit of a stretch. My main concern would be the single income. Are you oil and gas, being in Texas? If so, that's an extremely cyclical industry and you could find yourself looking for work suddenly in a few years, which could coincide with a significant drop in your home's value (even if you aren't in O&G your house price will likely be tied to their fortunes). If your job is secure, and you are comfortable with where this additional money would come from in your budget, it sounds do-able to me.
runner540
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Re: Final Decision - Housing

Post by runner540 »

MindTheGAAP wrote: Thu Oct 18, 2018 10:22 pm
runner540 wrote: Thu Oct 18, 2018 10:16 pm For reference here's one of OP's previous threads: viewtopic.php?f=11&t=260846&p=4156406#top

OP, I'm in DFW and have noticed a "calming to the market. My answer is a conditional yes - here are the conditions:
1. You have tons of life and disability insurance in place.
2. You and spouse commit to not spending any bonuses/raises for a while (years) and put it toward savings/debt paydown
3. You don't deplete your cash savings
4. Have you accounted for increased property taxes? Depending on the area, it could be $1500-2000 per month.
1. I have $2M in life insurance and have $10k/mo in LTD insurance should anything happen
2. We recognise that it may be tight for a while and would need to be frugal to stockpile. Example of this would be just taking existing furniture to the new house and live with it long-term until we have plenty of cash in the bank
3. At 20% down, we'd need to put about $155k down but would get about $80k from sale of our house. We'd have a cushion, still (correct me if I'm wrong here)
4. We have accounted for it - it would basically double our payment in regard to PITI - surprisingly the insurance would only go up by about $300/yr.

Welcome any additional thoughts/ insight.
You sound like a planner - proceed! Is this your spouse posting?? viewtopic.php?p=4172779#p4172779
Topic Author
MindTheGAAP
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Re: Final Decision - Housing

Post by MindTheGAAP »

runner540 wrote: Thu Oct 18, 2018 10:24 pm
MindTheGAAP wrote: Thu Oct 18, 2018 10:22 pm
runner540 wrote: Thu Oct 18, 2018 10:16 pm For reference here's one of OP's previous threads: viewtopic.php?f=11&t=260846&p=4156406#top

OP, I'm in DFW and have noticed a "calming to the market. My answer is a conditional yes - here are the conditions:
1. You have tons of life and disability insurance in place.
2. You and spouse commit to not spending any bonuses/raises for a while (years) and put it toward savings/debt paydown
3. You don't deplete your cash savings
4. Have you accounted for increased property taxes? Depending on the area, it could be $1500-2000 per month.
1. I have $2M in life insurance and have $10k/mo in LTD insurance should anything happen
2. We recognise that it may be tight for a while and would need to be frugal to stockpile. Example of this would be just taking existing furniture to the new house and live with it long-term until we have plenty of cash in the bank
3. At 20% down, we'd need to put about $155k down but would get about $80k from sale of our house. We'd have a cushion, still (correct me if I'm wrong here)
4. We have accounted for it - it would basically double our payment in regard to PITI - surprisingly the insurance would only go up by about $300/yr.

Welcome any additional thoughts/ insight.
You sound like a planner - proceed! Is this your spouse posting?? viewtopic.php?p=4172779#p4172779
That's her - she thought it got lost in the ether as a new user and so I just came in and tried to replicate the gist of her post. And yeah, I'm guilty of being a planner!
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
Topic Author
MindTheGAAP
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Re: Final Decision - Housing

Post by MindTheGAAP »

onourway wrote: Thu Oct 18, 2018 10:23 pm So, I don't think you're stupid to consider it, but it's a bit of a stretch. My main concern would be the single income. Are you oil and gas, being in Texas? If so, that's an extremely cyclical industry and you could find yourself looking for work suddenly in a few years, which could coincide with a significant drop in your home's value (even if you aren't in O&G your house price will likely be tied to their fortunes). If your job is secure, and you are comfortable with where this additional money would come from in your budget, it sounds do-able to me.
I'm not in O&G, I'm in Accounting and Finance. We've seen a good boom thanks to the Corps moving here lately (Toyota, etc.) that's been positive for the Corporate/ professional environment in DFW.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
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Watty
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Re: Final Decision - Housing

Post by Watty »

MindTheGAAP wrote: Thu Oct 18, 2018 10:01 pm Purchase house - final offer from builder of home: $784k.
....
Current income: $300k/annually
It sounds like the house would have maybe a $4,000 a month mortage payment with taxes and insurance and a $600K mortage.

That is $48K out of your income. As long as your job is secure and you can get a new job easily if you need it then you can afford it. If you are something like a doctor and could easily find a similar job tomorrow then I would go for it. Over the next ten years you will have about three million dollars in income and even though you will pay a lot of taxes you could easily have it paid off quickly if you wanted to.

If you are some sort of executive that is one job reorganization away from being out of a job then I don't think that you can really afford it since you could be in big trouble quickly if you lost your job. Instead you might look for something like a house in your current neighborhood that is already remodeled and not on the busy road so you would not have the risk and hassle of spending a year remodeling your home.
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MindTheGAAP
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Re: Final Decision - Housing

Post by MindTheGAAP »

Watty wrote: Thu Oct 18, 2018 10:41 pm
MindTheGAAP wrote: Thu Oct 18, 2018 10:01 pm Purchase house - final offer from builder of home: $784k.
....
Current income: $300k/annually
It sounds like the house would have maybe a $4,000 a month mortage payment with taxes and insurance and a $600K mortage.

That is $48K out of your income. As long as your job is secure and you can get a new job easily if you need it then you can afford it. If you are something like a doctor and could easily find a similar job tomorrow then I would go for it. Over the next ten years you will have about three million dollars in income and even though you will pay a lot of taxes you could easily have it paid off quickly if you wanted to.

If you are some sort of executive that is one job reorganization away from being out of a job then I don't think that you can really afford it since you could be in big trouble quickly if you lost your job. Instead you might look for something like a house in your current neighborhood that is already remodeled and not on the busy road so you would not have the risk and hassle of spending a year remodeling your home.
It would actually be closer to $5k/mo but your point is still effectively the same in that we have sufficient coming in as long as we’re comfortable with the inherent risk of a higher hurdle?
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
Regattamom
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Re: Final Decision - Housing

Post by Regattamom »

Is this DFW? If it is, I wouldn't do it. Not yet, anyway. I have been watching the market for the past four years (in anticipation of a possible move). The higher-end homes have been losing value recently, and I'm not convinced they are done coming down. Just my thoughts.
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MindTheGAAP
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Re: Final Decision - Housing

Post by MindTheGAAP »

Where in DFW have you been looking? That’s not a snarky question but just out of curiosity. It’s been rocket ship here in Allen/ Lucas/ McKinney/ Frisco etc with all of the corps moving in. Though a home builder friend has said that there is more and more inventory in Frisco for new builds now.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
Flyer24
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Re: Final Decision - Housing

Post by Flyer24 »

Doubling your mortgage payment is quite an undertaking. I lived in Texas for a while and remember how high those property taxes were. It would make me nervous taking such a big leap in payment especially on one income. Kids also get more expensive as they get older.
Regattamom
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Re: Final Decision - Housing

Post by Regattamom »

Colleyville, Trophy Club, Keller, SouthLake, historical areas of Fort Worth and Monticello. We would need access to Fort Worth and DFW airport. There are a lot of houses ($700k - 900k) that have been on the market for months and prices have been dropped.
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Watty
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Re: Final Decision - Housing

Post by Watty »

MindTheGAAP wrote: Thu Oct 18, 2018 11:07 pm It would actually be closer to $5k/mo but your point is still effectively the same in that we have sufficient coming in as long as we’re comfortable with the inherent risk of a higher hurdle?
Pretty much. That would be $60K a year so it is only 20% of your gross income which should be doable but it would be more of lifestyle decision than a financial decision. If that is $20K a year more than the alternatives then you should easily be able to cut that out of other parts of your budget if having that house is more important to you than something like vacations.

In addition to the job security I would also look why your net worth is not very high for your income. If you just recently started making that much then it may be too soon but buy a big house.

You have a car loan with your income which seems odd so there is a possibility that you could be overspending and that could be why you don't have a higher net worth.

If you are spending a lot then you might have to cut back your lifestyle even more at first since you would likely have a lot of expenses with a new house like furnishing it, landscaping, etc.
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MindTheGAAP
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Re: Final Decision - Housing

Post by MindTheGAAP »

Regattamom wrote: Thu Oct 18, 2018 11:24 pm Colleyville, Trophy Club, Keller, SouthLake, historical areas of Fort Worth and Monticello. We would need access to Fort Worth and DFW airport. There are a lot of houses ($700k - 900k) that have been on the market for months and prices have been dropped.
This would fit that bill. Originally $875k and has dropped by 10% based on their “final” number
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
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MindTheGAAP
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Re: Final Decision - Housing

Post by MindTheGAAP »

Watty wrote: Thu Oct 18, 2018 11:27 pm
MindTheGAAP wrote: Thu Oct 18, 2018 11:07 pm It would actually be closer to $5k/mo but your point is still effectively the same in that we have sufficient coming in as long as we’re comfortable with the inherent risk of a higher hurdle?
Pretty much. That would be $60K a year so it is only 20% of your gross income which should be doable but it would be more of lifestyle decision than a financial decision. If that is $20K a year more than the alternatives then you should easily be able to cut that out of other parts of your budget if having that house is more important to you than something like vacations.

In addition to the job security I would also look why your net worth is not very high for your income. If you just recently started making that much then it may be too soon but buy a big house.

You have a car loan with your income which seems odd so there is a possibility that you could be overspending and that could be why you don't have a higher net worth.

If you are spending a lot then you might have to cut back your lifestyle even more at first since you would likely have a lot of expenses with a new house like furnishing it, landscaping, etc.
Agree that it could be higher - more due to the fact that I jumped from one established consulting firm to a help start a new one two years ago. That pushed my earnings up significantly but was a result of higher risk. We have put in a lot of money into retirement $120k over last 24 months to make the most of being able to subcontract as our own LLC. The car loan was really just because I’m getting more in interest on my CDs at Ally than the cost of the auto loan. And since we were considering this project, it was worth it to us to have the cash on hand.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
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Watty
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Re: Final Decision - Housing

Post by Watty »

MindTheGAAP wrote: Thu Oct 18, 2018 11:33 pm That pushed my earnings up significantly but was a result of higher risk.
If your job is still risky then I would be cautious, I doubt that you have worked during a recession.
Flyer24
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Re: Final Decision - Housing

Post by Flyer24 »

If you are at a higher risk start up company, then I would not make this big jump in mortgage. Wait a little bit. It is too much of a gamble.
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MindTheGAAP
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Re: Final Decision - Housing

Post by MindTheGAAP »

Flyer24 wrote: Thu Oct 18, 2018 11:56 pm If you are at a higher risk start up company, then I would not make this big jump in mortgage. Wait a little bit. It is too much of a gamble.
Consulting firm running at about $4M this year with high growth rate. Exit to sell down the road and I, as it stands, get 5% of any sale.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
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MindTheGAAP
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Re: Final Decision - Housing

Post by MindTheGAAP »

Bump just to get any further input where possible.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
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Re: Final Decision - Housing

Post by texasdiver »

Interest rates are rising.

What's the interest rate on your current mortgage compared to the rate you can lock in now? Is it worth walking away from a good rate that we may never see again in our lifetimes?

We lived for over a decade in Central Texas so I have a sense of the market there. Neighborhoods seem to be almost disposible compared to other parts of the country because there are no real geographic boundaries (views, rivers, hills, shorelines) that permanently define neighborhoods as upscale or downscale as is the case in the east and west coasts. In Texas it's mostly just lines on a map. The hot neighborhoods today are likely to be replaced by new ones in a decade or two. The only real exceptions seem to be the exclusive enclaves like Highland Park. I'm always a bit shocked to drive around huge parts of the DFW area that were once considered upscale suburbs decades ago and now suddenly are not, like much of Arlington for example. That doesn't really happen so much in other parts of the US.

Honestly if it were me and I had 3 kids poised to start elementary school my #1 criteria would be the school system. Are you in the same school district either way? Also think about the school/work/recreation commuting life that you are facing for the next 15 years. School/soccer/job/dance lessons/shopping etc. etc. Our TX life changed dramatically for the better when we moved closer to schools and work and eliminated at least an hour of running around in the car every day.

In TX you can still buy into top quality public school systems. The mortgage difference between a $400,000 home and a $800,000 home will be insignificant by comparison to 3 private school tuitions. So if you are on the edge about private vs public school it's amost certainly going to be much much cheaper to buy into the public school district you like vs putting 3 kids in private school.
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