Home Question, What Would You Do?

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theappleman
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Home Question, What Would You Do?

Post by theappleman » Tue Dec 04, 2018 11:36 pm

Husband and I are 39 YOA, have 2 kids (4 and 6), living in a relatively HCOL area. Bought a home 10 YA before kids, was great for the two of us but as the kids are getting bigger we are finding that it is less than ideal for raising a family. The issues include that it lacks a neighborhood; adequate bathrooms, bedrooms, closets, and play areas; and is on a busy street. Existing home was purchased for 400K and we currently have 200K remaining on the loan (20 yr fixed at 3.0%). The advantage of staying in the house is that it will be paid off by our late 40's and will allow us to retire early, which is appealing to my husband and I as our work lives can be stressful. With that said, we feel limited by the existing home and have concerns that as time goes on, these issues will be amplified and lead to general dissatisfaction with our living arrangements. The idea of living in neighborhood with other families/children appeals to us.

Alternatives
1) renovate existing house to improve bedroom, closet, bathroom situations. Does not improve issues regarding lack of neighborhood or being on a busy street. Cost likely $100K to $150K, and would have to live in the house through a renovation.
2) purchase a larger, newer home in the same city that we are currently in, but that would address the issues we are having. Approximate cost $725K-800K.

Financials
total income/yr: $450K (both incomes stable, no plans for anymore children)
taxable accounts: $350K
retirement accounts: $1mil
cash: $100K
529: $90K

Considerations
-cost of option #2 includes a sizable property tax increase ($9000 to $18,000) and an increase in mortgage expenses (3% at 20 yr to 4.875% at 30 year)
-cost of the renovation of the existing home (option #1) will likely not be recovered upon sale as the homes value will likely be limited by its location (busy street).
-school systems would be similar for both options, schools are excellent and do not anticipate need for private schooling.
-existing home is older and poorly insulated, mechanicals are dated. I am not sure there is going to be a big difference in operational costs for the current home vs a larger, but newer home.
-I do not anticipate that our existing home will sell at a profit. My guess is that it will sell for what we paid for it or slightly less. The real estate market in our city has been soft in the past 2-3 years, especially with homes priced > $600K

Questions
-I am not sure this is answerable, but, how much would our retirement timeline be affected by selecting option #2?
-What would you do?

Silk McCue
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Re: Home Question, What Would You Do?

Post by Silk McCue » Wed Dec 05, 2018 10:18 am

The picture that comes to my mind is you and your children enjoying the new home and neighborhood for at least the next 15 years until your youngest turns 19. Plenty of room to live in and enjoy and a quiet street is a nice perk.

Life is for the living and if you need to make some changes that push your retirement out a couple/few years I think it might just be worth it. Once the kids move out you would be able to sell and downsize if you like. The likely appreciation of the new home compared with your current home will likely provide a nice return at that time.

Cheers

Jack FFR1846
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Re: Home Question, What Would You Do?

Post by Jack FFR1846 » Wed Dec 05, 2018 10:40 am

With your income and savings, move to a nicer neighborhood, nicer house over this coming weekend. No question whatsoever.
Bogle: Smart Beta is stupid

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leeks
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Re: Home Question, What Would You Do?

Post by leeks » Wed Dec 05, 2018 10:44 am

Definitely move to a neighborhood with other families. Having neighbors with whom you become friends is the easiest kind of social interaction and nearby playmates for your kids is ideal. Being part of a community of other parents facilitates things like trading child care on school closing days, carpooling to extracurriculars, etc. The ability of your children to walk/bike to their friends' houses and to a park (independently as they get a bit older) will allow them to get outside more (not just for organized sports) and to squeeze in quick playtimes (like going out just for a half hour before dinner). They will be able to facilitate much of their own social life without needing the parents to always organize "playdates" and drive them around everywhere.

Flyer24
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Re: Home Question, What Would You Do?

Post by Flyer24 » Wed Dec 05, 2018 10:45 am

It doesn’t sound like there is much you like about your current house. I wouldn’t do the renovations. At your income, you should be able to enjoy the area where you live. I wouldn’t want to live on a busy street either.

mervinj7
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Re: Home Question, What Would You Do?

Post by mervinj7 » Wed Dec 05, 2018 11:10 am

Straightforward question...straightforward answer... just move and be happy. Good luck!

On a related note, at your income levels and savings have considered getting a 15 year mortgage instead of a 30 year mortgage? Or if the liquidity issues doesn't work out, pay extra on your mortgage payment so you can still finish paying off the new house in 20 years, as per your original mortgage schedule.
Down Payment: $200k from your current house (25% down)
Purchase Price: $800k
Mortgage: $600k

PI @ 4.875, 30 Years = $3125
PI @ 4.375, 15 Years = $4552
Property Tax: $18k/year= $1500
Home Insurance: $3k/year= $250

PITI: $6302/month for 15 years
PITI/Income Ratio: 16.8%

So, even with a 15 year loan you would be at fairly comfortable margin for PITI to income ratio. However, the real challenge will be convincing KlangFool... (e.g. purchase price to gross income ratio, "house-poor" status).

bungalow10
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Re: Home Question, What Would You Do?

Post by bungalow10 » Wed Dec 05, 2018 11:21 am

Move.

We are in an $800k house with $18k (UGH) property taxes on quite a bit less income than you (single income, $230-$350k depending on the year).

Being in a neighborhood and having space to have friends over is worth it. We have tons of kids at our house regularly. My three are 11, 9, and almost-6 and I love that we can have family, friends, and entertain with no issues. Also love that we live in a neighborhood full of families.

I'd move ASAP if I were you.
An elephant for a dime is only a good deal if you need an elephant and have a dime.

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jharkin
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Re: Home Question, What Would You Do?

Post by jharkin » Wed Dec 05, 2018 11:27 am

Jack FFR1846 wrote:
Wed Dec 05, 2018 10:40 am
With your income and savings, move to a nicer neighborhood, nicer house over this coming weekend. No question whatsoever.
+1... you can easily afford a 700k house with those numbers. And if you paid 400 for the house you are in 15 years ago are you really sure it hasn't appreciated at all??? That seems unlikely.


FWIW I am in the same boat. early 40s, elementary school kids and 10 years of living in a house with 1!! bathroom and no closets. It feels nice only having a bit over 1 years salary left on the current loan @3.5% but we need more space. We are planning to buy 500-600 on a 200 income+ 200ish in equity from the old house. Your ratios look better to me in both absolute and relative terms :sharebeer
Last edited by jharkin on Wed Dec 05, 2018 11:34 am, edited 1 time in total.

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Kenkat
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Re: Home Question, What Would You Do?

Post by Kenkat » Wed Dec 05, 2018 11:34 am

I was in a similar situation long ago. 2 year old with another on the way. Two story house that was nice, but small living space in relation to bedrooms, busy street and less than ideal yard. We moved to a new house 50% more expensive - ranch home on a dead end cul de sac with a super nice yard. One of my better decisions; this house is home in a way the other never probably would have been. We have been here 20 years now; there were lots of kids in the new neighborhood and many good times with neighbors. I would move if in your situation.

wilked
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Re: Home Question, What Would You Do?

Post by wilked » Wed Dec 05, 2018 11:39 am

Me reading your post

....analyzing information
....debating pros / cons
....considering alternative
[Get to the part where your income is 450K]
Clear answer - move to better neighborhood that meets your requirements

il0kin
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Re: Home Question, What Would You Do?

Post by il0kin » Wed Dec 05, 2018 11:45 am

Move, in a heartbeat. You have far more in assets than the home purchase price and your income even on the high purchase price end is still under 2x gross income. Life is for living - enjoy your new home with your family! :sharebeer

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Meg77
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Re: Home Question, What Would You Do?

Post by Meg77 » Wed Dec 05, 2018 12:11 pm

I agree; it seems moving is worth it. I'd have a hard time spending $150k to renovate a home when you don't think you'll recoup much of the cost of the renovation. AND that project doesn't get you to dream house status as it only can fix so much. Upgrading to a $800K home costs $400K versus $150K, but presumably you'd retain that value (hopefully even see appreciation) and get it back when you sell and downsize later.

You have the money in taxable, cash and home equity to make the upgrade without increasing your mortgage amount and still have $50k in savings. I'm not suggesting that you do that, but you could (though personally I'd put down at least 50% and double your mortgage debt at most). And presumably you'd downsize again later when the kids are grown and have those funds available for retirement again.

Therefore the actual financial hit as far as your retirement planning goes is as follows:
--The difference in cost to live in the newer home each year (2% on the $200K loan plus $9k in property taxes)
--The difference in appreciation of your funds if they stay invested in the market/cash/home equity versus being invested in your home - which is unknowable but may not be very different over the next 15 years.

The higher cost of living is around $13k in year one if you don't increase your debt. That's not insubstantial, but it's also not likely to make or break your retirement plans over 15 years given your income and assuming a decent savings rate. We can't know how different your taxable account would be if invested in the stock market versus the new home, but betting that your returns after taxes will be substantially more than the 3% or so you can expect in home appreciation each year is not a bet I'd be willing to place a huge amount of money on. So I don't think the home upgrade will delay your retirement by much, if at all.
"An investment in knowledge pays the best interest." - Benjamin Franklin

Thegame14
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Re: Home Question, What Would You Do?

Post by Thegame14 » Wed Dec 05, 2018 12:21 pm

Is there a nearby town with a house in the middle price range of current home vs this other house that is double the cost? Can you find another home for $600K with a neighborhood and good schools and still have a legit commute to work?

wfrobinette
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Re: Home Question, What Would You Do?

Post by wfrobinette » Wed Dec 05, 2018 5:40 pm

theappleman wrote:
Tue Dec 04, 2018 11:36 pm
Husband and I are 39 YOA, have 2 kids (4 and 6), living in a relatively HCOL area. Bought a home 10 YA before kids, was great for the two of us but as the kids are getting bigger we are finding that it is less than ideal for raising a family. The issues include that it lacks a neighborhood; adequate bathrooms, bedrooms, closets, and play areas; and is on a busy street. Existing home was purchased for 400K and we currently have 200K remaining on the loan (20 yr fixed at 3.0%). The advantage of staying in the house is that it will be paid off by our late 40's and will allow us to retire early, which is appealing to my husband and I as our work lives can be stressful. With that said, we feel limited by the existing home and have concerns that as time goes on, these issues will be amplified and lead to general dissatisfaction with our living arrangements. The idea of living in neighborhood with other families/children appeals to us.

Alternatives
1) renovate existing house to improve bedroom, closet, bathroom situations. Does not improve issues regarding lack of neighborhood or being on a busy street. Cost likely $100K to $150K, and would have to live in the house through a renovation.
2) purchase a larger, newer home in the same city that we are currently in, but that would address the issues we are having. Approximate cost $725K-800K.

Financials
total income/yr: $450K (both incomes stable, no plans for anymore children)
taxable accounts: $350K
retirement accounts: $1mil
cash: $100K
529: $90K

Considerations
-cost of option #2 includes a sizable property tax increase ($9000 to $18,000) and an increase in mortgage expenses (3% at 20 yr to 4.875% at 30 year)
-cost of the renovation of the existing home (option #1) will likely not be recovered upon sale as the homes value will likely be limited by its location (busy street).
-school systems would be similar for both options, schools are excellent and do not anticipate need for private schooling.
-existing home is older and poorly insulated, mechanicals are dated. I am not sure there is going to be a big difference in operational costs for the current home vs a larger, but newer home.
-I do not anticipate that our existing home will sell at a profit. My guess is that it will sell for what we paid for it or slightly less. The real estate market in our city has been soft in the past 2-3 years, especially with homes priced > $600K

Questions
-I am not sure this is answerable, but, how much would our retirement timeline be affected by selecting option #2?
-What would you do?
I had a 525k mortgage with 11k in taxes on less than 1/2 of what you earn and a SAHM. Maxed out 401k and both IRAs and a grand a month into taxable.

Now you just said the RE is soft for houses over 600k yet you want to go into 800k. You can afford it, no issues there. However, Every $x dollars you go up in price the market gets smaller and smaller.

Best advice I ever got from a realtor was "Do not buy a house over X in this area or it will take 2X to 5X the time to sell." Find out what that $ value is in your area. I I'd ask for listings the last 2 years, list price, sales price and days on market then analyze that data to see what the market really has been doing. I guarantee you'll see a dramatic shift in avg DOM at some 100k level. I bet it's going to be about 600k based on your comment. But how soft at 600k vs 700k vs 800k. If DOM is something like 60, 90, 200 stay under 800 if it's 60, 90, 95 then 800 is ok. Keep in mind of rates climb that price is likely to move downward. ALWAYS think about resale when buying a house.

MathWizard
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Joined: Tue Jul 26, 2011 1:35 pm

Re: Home Question, What Would You Do?

Post by MathWizard » Wed Dec 05, 2018 6:33 pm

Making major improvements will not pay off, since the neighborhood does not change.

Also, look at the school situation. With young kids you want to get them into a nice
school system.

Moving is probably the better option.

You decided to have kids and kids are expensive, with housing being part of that.

stan1
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Re: Home Question, What Would You Do?

Post by stan1 » Wed Dec 05, 2018 6:44 pm

Jack FFR1846 wrote:
Wed Dec 05, 2018 10:40 am
With your income and savings, move to a nicer neighborhood, nicer house over this coming weekend. No question whatsoever.
I agree. You can't fix the neighborhood or the busy street and the money you put into trying to fix the other issues will still leave you with a home you don't enjoy. Get the current home ready for sale and start shopping for a new home that meets your needs now that you have a better understanding of what they are. Stay there for 20 years until the kids are out of college then downsize if you want.

ebrasmus21
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Re: Home Question, What Would You Do?

Post by ebrasmus21 » Wed Dec 05, 2018 7:09 pm

mervinj7 wrote:
Wed Dec 05, 2018 11:10 am
Straightforward question...straightforward answer... just move and be happy. Good luck!

On a related note, at your income levels and savings have considered getting a 15 year mortgage instead of a 30 year mortgage? Or if the liquidity issues doesn't work out, pay extra on your mortgage payment so you can still finish paying off the new house in 20 years, as per your original mortgage schedule.
Down Payment: $200k from your current house (25% down)
Purchase Price: $800k
Mortgage: $600k

PI @ 4.875, 30 Years = $3125
PI @ 4.375, 15 Years = $4552
Property Tax: $18k/year= $1500
Home Insurance: $3k/year= $250

PITI: $6302/month for 15 years
PITI/Income Ratio: 16.8%

So, even with a 15 year loan you would be at fairly comfortable margin for PITI to income ratio. However, the real challenge will be convincing KlangFool... (e.g. purchase price to gross income ratio, "house-poor" status).


This was quite funny, thanks for making me laugh.

prairieman
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Re: Home Question, What Would You Do?

Post by prairieman » Wed Dec 05, 2018 7:16 pm

wilked wrote:
Wed Dec 05, 2018 11:39 am
Me reading your post

....analyzing information
....debating pros / cons
....considering alternative
[Get to the part where your income is 450K]
Clear answer - move to better neighborhood that meets your requirements
Agree 110% with this post.

theappleman
Posts: 2
Joined: Tue Dec 04, 2018 10:28 pm

Re: Home Question, What Would You Do?

Post by theappleman » Wed Dec 05, 2018 11:24 pm

Thank you all for the insightful and helpful comments, I appreciate you taking the time to provide your experiences and wisdom. I especially appreciated the comments from those that had made similar moves for the same reason and how that positively impacted their family's overall happiness. One of my bigger concerns was, will moving make us happier? The answer appears to be a resounding yes.
In regards to particular suggestions, comments and questions;

MERVINJ: I had and will still consider a shorter term mortgage, however, I have some hesitancy locking myself into a larger payment (15yr mortgage) when I could pre-pay principal and effectively reduce my mortgage term without being locked into it. The difference in rates between the 15yr and 30yr fixed (0.5%) did not seem to be a premium enough to warrant the commitment. I am happy to be convinced otherwise.

JHARKIN: For the purpose of this discussion, I am assuming the worst and hoping for the best in regards to the existing homes current resale value.

THEGAME14: I had considered the option of purchasing something in the middle of the presented options, but my concern based on what I am seeing in the local market, is that while this will likely solve most of my issues, it will likely not solve all. Certainly, if I can find a home in that middle range that ticks all the boxes, then great.

WFROBINETTE: The resale value and ability to at least maintain value is a big concern for me and one of the reasons that I mentioned that moving would place me into a "softer" part of the market. I see it in the short term as a benefit in that my ability to negotiate current pricing is favorable. In the long term, I am not so sure. My sense is that we will hold this home until the kids are at least into college, a timeline of 15-20 years. Does the local housing market's current conditions have any predictive value for where they may be 15 years from now? With such uncertainty, is it worth the concern? I don't know.

Again, thank you all for your comments and insights, they have been incredibly helpful.

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Misenplace
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Re: Home Question, What Would You Do?

Post by Misenplace » Thu Dec 06, 2018 12:31 am

After echoing the almost unanimous advice to move, I have three words for you:
Location, location,location.
Put your home on the market ASAP, and start looking. But be picky about location for your next home. You will be there for a long time. You need to move to a better neighborhood/street- you can change most everything else if you want to.
Yes you will pay more in RE taxes, but it will be worth it to your quality of life.

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unclescrooge
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Re: Home Question, What Would You Do?

Post by unclescrooge » Thu Dec 06, 2018 12:57 am

I'd repaint the insides and list your house. Move to a better location.

There only changes I'd make to you current house are tearing it down and building a duplex or triplex. :mrgreen:

techland
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Re: Home Question, What Would You Do?

Post by techland » Thu Dec 06, 2018 1:19 am

Have you considered staying in your house for a bit longer and paying down the mortgage/saving more money for a new down payment? And then possibly renting it out + buying a new home?

The advantage here is that you could get some income stream, hopefully gain some appreciation AND you don't have to deal with a home sale contingency when you buy the new house.

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