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WWYD: House Hunting
DH and I are hoping to buy a house if we can before LO arrives, which for me means we're closed and moving in June.
We put an offer on a house on Sunday and didn't get it. It was at the top of our budget, but well within our means in a great school district. It was big enough for now, though we'd eventually upgrade in maybe 10-12 years, but there would be no rush b/c the public elementary school is great. We would be saving some, but not much if we did this. The house was a 4/2. We're going to keep looking in this and other highly rated public school districts, BUT...
Two houses just came on the market in our neighborhood. One is the exact replica of our current rental 3/1 which we are fine in, though I'd love an additional bathroom. They are priced much lower and if we bought our mortgage with property taxes would only be about $350 more than our current rent - which means we'd continue saving like we are now which is a lot! We also think in 7-10 years we'd have enough savings to upgrade without selling and could use the house as a rental and make some extra monthly income on it.
Schools are not as good and we'd probably do private montessori or other non parochial private school for a year or two and our upgrade would be to a better school district.
WWYD?
Re: WWYD: House Hunting
Ok, so I don't know your financial situation at all so here are a couple of things to consider.
- If the market goes up in 10 years, can you afford a bigger house and keep your old one? Sure you save money each month with a lower mortgage, but lets assume the market does bounce back over the next 10 years and doesnt go down yet. You would need a larger down payment and larger monthly income to be able to afford both a larger house and hang onto your other one. Is the savings enough per month to be able to do that?
- What if rental prices go down?
- With 2 houses comes 2 property taxes. Would rent cover the property tax? You also have to consider insurance for both properties.
I think its smart to buy well below what you can afford and within a certain price range if you plan to rent your place out in 5-10 years, but I'd just consider the above scenarios.
One thing though.. I'd try to get at least 2 bathrooms to make this a liveable situation for you and get you more rent in the future. That will also help you with resale in the future if you decide to not rent it out. Sure you can live with one bathroom, but you'll be much happier with 2 w/ kids and house guests visiting the kids
Cooking Blog
Super good points, thanks, T.
We're not set on keeping anything we buy as a rental - it would of course depend on the rental market as well as buying/selling market. Lots to consider. It's just something we've talked about as a potential option assuming it made the most financial sense now.
We are saving quite significantly now and hopefully that will continue, along with increases in our salary (though of course anything can happen) that would allow us to get into a higher priced home as prices increase maybe with selling, maybe not.
I really want a 2nd bathroom especially once we have a potty trained kid and I think it would definitely help resale value.
I also like being under budget so that if something awful happens (one of us is injured, loses our job) we wouldn't have to scramble to make our payments each month and potentially lose the house.
Thanks for the thoughts.
Good luck M! I'm sure you will find something. I'd just go ahead and look at the smaller houses too and just see what pops up and then make the decision maybe.
Cooking Blog
Honestly? We have one bathroom now and it's already annoying, and we have no kids. Just sharing with DH is sometimes a pain because the bathroom is pretty small and sometimes we have to compete in the morning getting ready for work! When there are guests over, it's also an issue because you're sharing with more people, plus I hate that all our personal stuff is out all over the place (there's not enough cabinet/drawer space to store everything away.)
So, personally, I would not want to have a kid with only one bathroom if I had a choice. Yes, it can be done, but I don't think it's ideal.
Knowing me, I'd also hate to buy a cheaper house in a school district I didn't like with so many unknowns up in the air. Who knows where the housing/rental market will be in 10 years, how big your family will be, what your work situation will be, etc. I would probably play it on the safe side and try to hold out for a house with more than one bathroom in a good school district that may cost a little more.
Hi there,
I have a few thoughts (what shock!)
First, when you are budgeting, don't forget that all of your mortgage interest is tax deductible. So even if your monthly expenses are $350 more, after taxes you will be pocketing more money each month.
As I'm sure you've heard, location is the first and only rule of real estate that matters. Always buy in the best location you can afford. Of course, that will be a happy medium between the amount of house you need, the price you are willing to pay and the location. But nothing will protect your investment more. This is just as true for rentals as it is for your primary residence. Not just for rental income but for a quality of tenant.
I often counsel clients about holding on to properties until they are able to buy without the need of selling so that it can be held as a rental. This is a great way to build your net worth and add to your financial stability for years to come.
Consider whether or not owning rental property will be right for you. It does take a fair amount of attention and sometimes the attention isnt on your schedule
Even if it isnt in the middle of the night, it will take time. And there will be times when it isn't covering the expenses. But that's ok, you have to look at it as a long term investment, not a short term. If you have to pay money each month for a while to hold on to it, that's fine because in the long run, it will cover its expenses and then some. Also, selling it just because it isn't breaking even will cost you more in the long run. Look at it as the tenants are subsidizing your investment until it pays you. Will you be able to pay during times when the income isn't covering the expenses? Will you be able to cover vacancy periods? Obviously, you can't answer these questions now as it is years away but it is something to consider. Another great thing to remember is that your property taxes will increase by only 1-2% each year. Yay 
Aside from my cautions, owning rental property is a great investment and an outstanding way to stay in front of inflation. As the cost of living increases, so do rental rates generally. Owning rental property also provides for emergencies if necessary as it is one of the most accessible equity sources available. I'm not saying that you take every drop of cash out of the home just for kicks but if there were hard times or serious health issues, for instances, it is a resource that is available to help you through those times. The rates are just about the best you'd ever be able to get (rates are cheapest on a primary residence and even though a non-owner occupied property would have a higher rate, it is incredibly low compared to other loans and sources).
Now, about the buy small now or buy the larger home now. Even with all I said above, in my honest opinion, I think you would be better off buying your long term house now and saving for a investment property in the future, if that is what you want to do. It sounds like you are well situated for buying a home that would fit you and your growing family. Buying a small home that would only suit your needs for a few years is a very short time in the grand scheme of things. These coming years are going to be a time of great change for your family and I think you'd be better in the long run to be in a home that you could feel comfortable in for many years to come, even for 40 years if need be. And if I can add my two cents even further, I think this is a great time to buy and to get into a neighborhood that you really like.
Well, all that being said, its just my humble opinion. Just trying to add a few thoughts to go over. Good luck with everything!
Lighthouse State Beach, Santa Cruz.
FWIW, I would never buy a home that I was hoping to move out of again in such a short time frame (i.e. 1-2 years). I think it's always a good idea to think of a house as a place to live first and foremost, not as an investment vehicle. The latter is icing if the value increases but with the market still as unstable as it is I wouldn't count on being able to get out of the house if/when you need to.
I typically love Gannon's advice, but I have to disagree with the idea of rental properties as an easily accessible source of cash in emergencies. If I suddenly needed substantial funds, I would prefer the ease of selling off some of my mutual funds than deal with pulling equity out of a house.
I would wait for the bigger house in the right neighborhood to come up rather than settling for something similar to what you already have. If you think about it, you won't really gain anything by buying substantially the same house as you have now--you'd just be taking on the risk of a mortgage with no improvement in lifestyle. You guys will be fine where you are for a while, even with a baby. Heck, lots of people (me included) grew up in small 2BR/1BA apartments for a family of five! I never felt deprived or like we were missing something. Babies just need the basics, and it's not until they're older than you'll probably really need more space.
What I'm trying to say is, be patient. At least that's what I would do.
I'd wait for a house in the neighborhood you want rather than settle for something cheaper and less desireable.
And FWIW, my husband was one of 4 kids who grew up in a 1 bathroom home and he said it was challenging but it all worked out. So it can be done, may not be convenient but it can be done.
IUI #1 10/12/11 (Bravelle + HCG + Prometrium & acupuncture) = 10/26 BFP! Beta #1=250, Beta #2= 615. 1st u/s 11/8.
I would also wait for a house in a neighborhood you really like if you can afford it. Also, don't settle for 1 bathroom if you want to live there for 5 or more years!
We bought a townhome in '09 in a neighborhood that we didn't think was terrible, but not awesome either, b/c that was what we could afford. After a few things happened we don't feel that safe there anymore, but we're totally stuck! Hopefully our attitudes about the area will improve, but I'm telling you this b/c it's a testament to going for the neighborhood you really want. You could wind up stuck in a home and it really sucks to know you can't do anything about it.
Thanks for the kind words RocknVoll. I think that is a good point, mutual funds etc would offer a very liquid asset. The only thing I would add is that I see a great benefit to investment properties and using their equity if needed because you still retain the asset, as opposed to a fund or stock that you would tyupically liquidate to get the cash. Not trying to argue at all, I thought RnV made a great point.
Good luck in your decision, it isn't easy.
Lighthouse State Beach, Santa Cruz.
I guess I'd think about it another way. Yes, you can still retain the house if you pull only some portion of the equity out, but you own less of the house than you did previously. In a similar manner you could sell only a portion of your portfolio and retain the rest.
I do believe that real estate can be a great part of one's overall financial portfolio, but I would build a good securities portfolio before delving into real estate investing. But that's just me!
Coming in late but I would personally continue to look in the area with a great school district. There are plenty of parents who find themselves in less than ideal situations when they own a house in an ideal area that have less than great schools but don't want to fund a private school education (or just prefer a public school education which plenty of people do). Sometimes they can get into highly rated neighboring charters but that is it or miss because you can't guarantee acceptance. Adding up private school for 2 kids for kinder-12th grade (not to mention college, grad school etc.) helped us make the decision to focus a ton on the district verus the "area." And I know it's not popular to make decisions based on API scores but there are many reasons a school with a 900+ API is considerably better than one with a 790+ API...I don't think it's just about the score..the score means more than just the testing. And if you buy a home in a district that has high API's an increase in housing prices propbably is probably not too far behind if they are not already high.
Also, when we bought our house it was a 3/1 and it didn't take long before I insisted that we add a second bathroom. :oP