First house - planning and sanity check - need feedback

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
engineerahead
Posts: 27
Joined: Wed Aug 21, 2019 11:57 pm

First house - planning and sanity check - need feedback

Post by engineerahead » Thu Oct 10, 2019 3:15 am

Hello everybody, there are some things regarding handling a first house I would like some opinions/advices about so I can cherry pick the answers correlating with my thinking (jk)
The long term plan is to get a dream house I wont change in the future and then save for FI/RE

The thing:
I am 26yrs old, have girlfriend and a 3 month old. There are many indicators that we need a new home for the future. I'm from the EU and expect some numbers to differ so I'll try to project them in a meaningful way.
We currently live in an upper floor of my mother's house (I own 1/3 of which, so we have two rooms and a bathroom; the kitchen is joint). The thing is that we are friendly but there are more and more little details that we would do other way etc. and time to time there is a unnecessary conflict about something stupid which makes me feel I'd be way better off in my own home.
From what it seems my girlfriends parents have blank parcels for their kids to build on. That is a reason why we plan to build a new home instead of renting or buying someone else's building. This comes with possibly greater expenses but brings a home that would be a perfect fit for us - I would like to build a more expensive home and plan to never move from it.
The current idea is around 100-120m^2 (1100 sqr ft if Im correct) house around 174k dollars (156k Eur) (for comparison its about 7,5x our net yearly income but this also correlates differently compared to US price/income ratio) as the top limit of home price (everything done except room furniture, other items and kitchen). From what I've seen the prices of houses differ a lot between US and EU and even between individual EU countries as well, from what it feels this price number in my country for a new building is on the higher end of a regular home many people own. We plan at least one another child along the way so we already plan the room number accordingly.

The approach:
Rational
Probably the best idea would be to stay at current home until the space is not enough (the current 2 room space is actually pretty big). Meanwhile we would be able to save quite impressive number of my income this way. I reckon this would suffice for up to 7 years. I could save and/or invest in the meantime with minding that 7years might sometimes still be too soon for stocks to bring interesting return. In my country any stocks that are held for longer than 3 yrs are not taxable income so bigger part of the savings would be free of income tax).
In the ideal unreal scenario thinking of 7% stock gains yearly, we would be able to save at least 75% of the price, inflation adjusted.
The downside is that both me and me girlfriend feel we would apprecciate better to change for our dream home sooner.

Feelings first
Actually thinking we would feel better with a big mortgage weight compared to how things are now. That would mean save as much as possible to provide 10 % (mortgage minimum down payment around here) and get the mortgage and home building ASAP. The mortgage payment would be anywhere between 20-35% of our income, leaving us a little on the side to save for a decent kitchen and household items, furniture as the house is being built in the meanwhile. The mortgage would be 30yrs one but from my calculations it should be able to be paid off in under 10 yrs, especially if I put any surplus money in stocks. (If I put anything I would have left into stocks each month, there is a possibility of those to be in plus numbers in around 10 yrs, I could take the tax free parts out and put them down to get rid of great chunks of mortgage or just pay the minimum mortgage payment and keep investing for the real long term.)

The combined:
Combination of the two, possibly connected to an upcoming recession. I don't expect to time anything, put the pitchforks down. The actual building would start in a year at best. By that time something will happen or not and there would be multiple different outcomes in accord to this. Either a recession starts (the thing I'm judging from is no fearful talk on the internet but the fact many industries regarding the one I'm emplyed in show a work decrease for up to 25%; especially connected to any industry from Germany).
So either a recession comes and I can postpone the home building according to this, possibly gaining better prices on the home thanks to the slowdown or funnel more of the free money to buy stocks in sale.
If the recession doesn't come by the time we're more ready for building, then we move onto the "Feelings first" part, getting a mortgage and starting building.

What I don't account for:
Any costs increases compared to current situation (except payments like water, electricity, etc. this I account for)
Increased costs of the child(children)
To combat the previous, I also don't account for salary bonuses and any pay increases along the way - I expect both the costs and salary to increase in some way
Any income increase from my girlfriend (her current income I take in account is a parent's security thing, not sure how you would call that in the US) This income is to be expected for the next 3-4 yrs, then she would probably get back to work and increase our joint income by a bit.
It's quite probable that the income will be greater than increased costs.


So that's all for now, sorry for the long post but I'm afraid I don't know how to compress this into TLDR and still relay all the information I need. If there is any information missing Ill edit it in as soon as possible.
I wonder what your thoughts are on the approach, financing and investment and would love to get some feedback on my thinking.
Last edited by engineerahead on Thu Oct 10, 2019 3:51 am, edited 2 times in total.

furwut
Posts: 1493
Joined: Tue Jun 05, 2012 8:54 pm

Re: First house - planning and sanity check - need feedback

Post by furwut » Thu Oct 10, 2019 3:33 am

I think there is a trend for people to skip the ‘starter’ home and move right into something more befitting a growing family.

For retirement many like to place the master bedroom/bath on the main floor. Since you plan on having an additional child a small nursery adjacent to the bedroom would be nice and could later be switched to a hobby room or small retreat area.

Kids bedrooms would be on the second floor and, after they move out, used as guest bedrooms. Eventually the entire second floor could be closed off to save on heating & cooling costs.

Topic Author
engineerahead
Posts: 27
Joined: Wed Aug 21, 2019 11:57 pm

Re: First house - planning and sanity check - need feedback

Post by engineerahead » Thu Oct 10, 2019 3:46 am

furwut wrote:
Thu Oct 10, 2019 3:33 am
For retirement many like to place the master bedroom/bath on the main floor. Since you plan on having an additional child a small nursery adjacent to the bedroom would be nice and could later be switched to a hobby room or small retreat area.
Thanks for the advice, I must admit the room possibly reutilized to hobby room sounds very interesting to me since I have a feeling I'll need one sooner or later.

User avatar
Watty
Posts: 17209
Joined: Wed Oct 10, 2007 3:55 pm

Re: First house - planning and sanity check - need feedback

Post by Watty » Thu Oct 10, 2019 10:05 pm

engineerahead wrote:
Thu Oct 10, 2019 3:15 am
I am 26yrs old, have girlfriend and a 3 month old.
In the US is you mix your finances together when you are not married then it can be a big mess if you break up. Be sure to get the right legal agreements in your country to define what will happen to the house and your finances if you break up.
engineerahead wrote:
Thu Oct 10, 2019 3:15 am
From what it seems my girlfriends parents have blank parcels for their kids to build on. That is a reason why we plan to build a new home instead of renting or buying someone else's building. This comes with possibly greater expenses but brings a home that would be a perfect fit for us - I would like to build a more expensive home and plan to never move from it.
Building a custom home is expensive and stressful. It would be good to spend some time doing some serious house hunting for an existing home since you may be able to get a better deal on an existing home. If nothing else seeing existing homes will give your more ideas about what you would want in a custom home that you might design yourself.

It sounds like you are at least a year from building, it would be good to save up as much as you can for the next year and then decide what you want to do then.

LittleMaggieMae
Posts: 37
Joined: Mon Aug 12, 2019 9:06 pm

Re: First house - planning and sanity check - need feedback

Post by LittleMaggieMae » Thu Oct 10, 2019 10:50 pm

1100 sq feet is "small" by American standards. I personally like the old style Mid Century "starter homes". :) Lots of people in my generation were brought up in 3 bed/1 bath houses around that size. They had a basement (sometimes full sometimes 1/2 area) that was usually "finished" at some point and sometimes had an extra bathroom with a shower added down there. If the living space wasn't expanded into the basement - they'd bump out the roof into a dormer and add bedrooms and a bath in the attic. Mind you it was usually a family of 4 or more living in the house. :)

That said... I've looked at atleast a Zillion 1200sq or smaller houses searching for rental properties. And a house that size is all about a good floor plan. In 1100 square feet you are getting a 10*10 bedroom with 2 11 * 10 bedrooms, a galley kitchen, and a full bathroom (tub, toilet sink with enough space for one person in the room to close the door). I wouldn't try to squeeze in a "nursery" or tandem room.. unless you plan to turn it into a walk in closet. You'd probably get more mileage from adding a 2nd bathroom - even if it's just a sink/toilet/shower stall.

So, not trying to talk you out of anything - I'm all for that size house. My suggestion is to add a 2nd bath. You might want a detached garage - be sure to add some yardage (meter-age??) so you can park a car, store stuff AND have a 'work area' (be sure it has electric service) . The garage is where you will go to escape the spouse and kids. :)

LittleMaggieMae
Posts: 37
Joined: Mon Aug 12, 2019 9:06 pm

Re: First house - planning and sanity check - need feedback

Post by LittleMaggieMae » Thu Oct 10, 2019 11:05 pm

Here are some things to consider when looking for a house that you will stay in for decades:
1.) where are the jobs for you and your spouse? You want to be centrally located (or close to the places you COULD work).
2.) is there transportation to the employers who may someday be your employer?
3.) Where do your relatives live - and do you want to be close to them or escape from them?
4.) What kind of city/town benefits or services does the area have (parks? sidewalks? walk to shopping/entertainment? city water or well? trash pickup? etc? )What MIGHT it have in the future? Every city/town/village whatever has "future plans".
5.) What quality of schools do you think you'll have in 10 years?

I think some of the biggest reasons people move are because of a job change or because they want better schools/services for their kids. I don't know anyone who's moved out of a house/neighborhood because they wanted a bigger house - they moved because of a new job (too long commute) or to access better schools.

crre
Posts: 38
Joined: Fri Apr 12, 2019 8:07 pm

Re: First house - planning and sanity check - need feedback

Post by crre » Thu Oct 10, 2019 11:06 pm

This comes with possibly greater expenses but brings a home that would be a perfect fit for us - I would like to build a more expensive home and plan to never move from it.
something that is very common around here is for a young couple to build one floor of a two story home, and add the second floor later when they have the money and the need. just make sure that the house is designed ahead of time to work both ways. then adding the second floor can be relatively painless from the builder's point of view.

could this be an idea that would work for you?

Post Reply