Help with a real estate decision

[FIREd]

Here is the dilemma. DW works downtown. We currently live down the street from her work, so her commute is very short. We are thinking about buying a house in an area 20 miles from downtown. That location would be great for retirement, but it would require a serious commute for DW, which we don't want. If traffic is light, it could be a 30-40 minute commute. But during rush hour, it would take significantly longer. That's probably why the area is still affordable. We have talked ad nauseam about it with DW and I feel like we have lost the perspective on the problem.

Here are the 2 options:

Option 1 - buy later. Keep renting close to DW's job, save a bunch money, and buy when DW retires - cash hopefully. It sounds like the right thing to do, but it seems to be a very conservative plan. On one side, this could allow us to take advantage of a softening of the real estate market if interest rates go up in the next few years. On the other side, prices could continue to increase and outpace the savings we are allocating for the purchase. So, with this option, there is the fear of being unable to afford a home in that area by the time we are ready to purchase.

Option 2 - buy now. As long as DW keeps her current job, continue renting a small apartment close to DW's work and list the house on airbnb for example to offset some of the carrying costs. Positives: with DW still working, we have a very good income and we could lock in a mortgage with an attractive rate. So we would not have to dip much into our savings. We would also lock in a purchase price that is still attractive. Negatives: we will have to pay for rent on the apartment and PITI on the house for a while, which is doable on our income. When DW retires, we can then move into the house and pay it off.

Most people tell us to go for option 2. But I would rather have the perspective of people I know are good with money. And maybe you can come up with a 3rd option.

 

[W2R]

Option 1 is the only one that makes sense to me.

Bear in mind that I am not there, so I have no feel for the local real estate market. I do know that it is easy to get "real estate buyer fever" and feel as though you HAVE to buy right away. Been there, done that. You don't, and if you feel you do then IMO maybe you are gambling. Also, I am a fan of keeping things simple and remaining as unencumbered as possible when in a location where you have not lived for very long.

 

[Buckeye]

For me, the potential additional cost of buying the other house at a later date is much lower than the waste of my life spent commuting and sitting in traffic. You may be dead tomorrow. Don't throw time away today! Money (usually) grows over time. Time doesn't.

 

[REWahoo]

Option 1 is the only one that makes sense to me.

Bear in mind that I am not there, so I have no feel for the local real estate market. I do know that it is easy to get "real estate buyer fever" and feel as though you HAVE to buy right away. Been there, done that.

I'm in this camp, too.

You and your DW have recently experienced a couple of major changes in your thinking regarding when and where you will retire, right? Although you "know" you want to live in that location when the time comes, isn't it possible that could also change?

I suggest leaving all your options open until you get much closer to pulling the plug. Yes, there is some risk you'll find yourself on the wrong side of the curve on the next housing boom/bust cycle, but you are young and can always adjust, bide your time and wait for the right opportunity.

OTOH, that soul-sucking daily work commute will surely hasten your DW's target retirement date.

 

[Senator]

Option 1.

If interest rates go up, prices will come down. Is that the only place that would be good to retire at? Two house payments, 2x the taxes, etc.

You might decide to move somewhere else in two years anyway.

 

[Walt34]

I'm also in the "keep my options open" camp. Of course eliminating a bad commute is high on my priority list. That's why I was essentially "house poor" for ~5 years after my divorce. But to me it was worth it.

 

[Meadbh]

I also vote for Option 1. Stick with the conveniently located rental apartment while DW is working. Walking to work is a huge plus. Why take on the financial and economic burden of a second property? You don't really want to be a landlord, do you? When DW retires, you have all your options open, including staying put, buying a house at the other location, or moving somewhere else entirely.

I recommend you avoid property porn and open houses while DW is still working!

 

[pb4uski]

I guess it depends how sure (or not) you are about the area where you want to be once you both retire.

How about a couple other options? If you're sure about the area then my favorite would be to buy and rent out the house and continue to rent/live near DW's work. Another possibility would be to buy a building lot in the area you want to protect you from increased prices (this assumes that building costs will not increase as fast as the value of the lot).

 

[Alan]

I'm also in favor of option 1. We went through a similar move of moving into an apartment when we moved State for my job in 2004. DW retired at that time so it was me with the 10 minute commute. We had 6 years before I ER'ed but there was no way I would have swapped a rented apartment we liked and was really convenient to where I worked than move out to the 'burbs' and have a 30 minute commute in Houston traffic if I was really lucky.

A few weeks ago we had an 8:30 appointment at Houston International Airport for an interview to get Global Entry status. It is normally a 20 minute drive, even at 7:30, so we left at 7:30 and got stuck in traffic 'cos of a wreck and we only just made the appointment time. We are currently staying with our daughter in Santa Monica and today ventured out for a 25 minute drive to the Science Museum and fortunately the grid-lock was on the opposite side each time. I am so pleased not to have face possible traffic grid-lock on a day to day basis.

I also had the same thoughts as REW that it could hasten the time it takes for your DW to quit work if she had an awful commute.....

 

[FIREd]

I guess it depends how sure (or not) you are about the area where you want to be once you both retire.

How about a couple other options? If you're sure about the area then my favorite would be to buy and rent out the house and continue to rent/live near DW's work. Another possibility would be to buy a building lot in the area you want to protect you from increased prices (this assumes that building costs will not increase as fast as the value of the lot).

I thought about buying a piece of land and building later. We could buy a couple acres in a good location for cash right now. I have decided against it for several reasons however (concerns about access to water, very restrictive building codes, etc...). As for renting out the house, I would only consider short term rentals (rent to tourists for a week). This location is too tenant-friendly for my taste, so I do not want to become a traditional landlord.

 

[Meadbh]

I thought about buying a piece of land and building later. We could buy a couple acres in a good location for cash right now. I have decided against it for several reasons however (concerns about access to water, very restrictive building codes, etc...). As for renting out the house, I would only consider short term rentals (rent to tourists for a week). This location is too tenant-friendly for my taste, so I do not want to become a traditional landlord.

They are the highest maintenance type of rentals. Many of them want to party. You will be commuting to the house frequently to maintain it and deal with problems. This is a Really Bad Idea.

 

[Animorph]

Option 1, unless the new house is your ideal home and you are willing to pay for it.

 

[aja8888]

Option 1, then save as much cash as you can and when the time is right, just buy the house. Rates may be higher, prices lower, cash is King.

 

[clifp]

Option 1 Keep it Simple Stupid.

I'll make the same caveat W2R I don't know anything about your local real estate market maybe it is undervalued and very hot.

If you do end up with Option 2. Make sure you are very familiar with tax rules with respect to converting a rental property in a primary resident and vice versa. There are some significant benefits the primary one being able to exclude $500K in capital gains, but there are also some gotcha with respect to recapturing depreciation.

 

[FIREd]

The results so far support my gut feeling.

 

[Another Reader]

A lot of things could change in the next few years. Saddling yourself with a piece of unoccupied real estate would not make sense to me. Taxes, maintenance, insurance and utilities all add up. What if you change your mind or a health issue arises and the market has not changed or has gone down? It would cost you a lot of money to sell something you did not use.

Buy a house where you want to live when it's time to move. If that area appreciates out of reach, you will find somewhere else just as nice. Without having to worry about commuting then, a lot more options will be available. And you will have a lot more in savings and investments available to put in the purchase.

 

[Ronstar]

I would do Option 1. My BIL and SIL are doing a variant of your Option 2 and it's not going well.

 

[RunningBum]

Option 1. Your needs and wants may change in the future, and renters could be hard on your house anyway. I would've suggested buying land if you had the right location so you could build what you like as the time gets close, but I see that you've considered that already.

 

[Texas Proud]

How much longer does she plan to work

You can do a long commute for a year pretty easily...


But, if she is planning to work many more years.... I would not buy right now... unless you are SURE that is where you want to be...

You did forget option 3... buy the house and rent it out until you retire... and keep living where you are...

 

[MichaelB]

Is this a dream house or unique opportunity? If so, perhaps you should buy it now.

Otherwise, your search for housing unavoidably includes the commute to work as a requirement. What are the chances that, once retired, your profile of a desirable location changes? With no commute needed will consider different options?

 

[ivinsfan]

How much longer does she plan to work

You can do a long commute for a year pretty easily...


But, if she is planning to work many more years.... I would not buy right now... unless you are SURE that is where you want to be...

You did forget option 3... buy the house and rent it out until you retire... and keep living where you are...

I was also wondering why this one wasn't on the table. More rent money, hopefully a lot less hassle. You are in a financial position to screen, screen, screen looking for perfect tenants. Only ties up a year at a time.

 

[FIREd]

Is this a dream house or unique opportunity? If so, perhaps you should buy it now.

Otherwise, your search for housing unavoidably includes the commute to work as a requirement. What are the chances that, once retired, your profile of a desirable location changes? With no commute needed will consider different options?

This is not a dream house or unique opportunity.

The housing options available for a short commute are very expensive and unappealing to me. So with no commute, then yes, I would consider different options, like this one about 20 miles away.

It is possible that a location one finds desirable today may not be so desirable tomorrow. Things change. But then, why ever become a homeowner.

 

[FIREd]

I am a landlord already. The last thing I want to do is double down, especially in a location famous to be unfavorable to landlords. If anything, I'd prefer to be out of that landlording business altogether.


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[Meadbh]

I am a landlord already. The last thing I want to do is double down, especially in a location famous to be unfavorable to landlords. If anything, I'd prefer to be out of that landlording business altogether.

Then I think you have your answer.

 

[haha]

This is not a dream house or unique opportunity.

The housing options available for a short commute are very expensive and unappealing to me. So with no commute, then yes, I would consider different options, like this one about 20 miles away.

It is possible that a location one finds desirable today may not be so desirable tomorrow. Things change. But then, why ever become a homeowner.

Why indeed? If I remember you had previously planned on retiring to SE USA, a very different ball game from where you are now.

It is quite possible that you could rent for your entire lifetimes, and still be better off than buying on the current SF market.

One of my sons has been looking for a family home in NE SF. OMG, what a wild scene. He has decided to rent at least until he gets a better lay of the land.

I do agree with the other posters, under no circumstances take on a 20 mile commute in Bay Area traffic. IMO, a person has time and energy for work, maintaining health and self, maintaining a love relationship and children if any. An owned home always adds considerably to this, even if you live next door to work. Add in a commute, and you will have gone tilt.

If you are very sure that you want to stay in the city, it might change this, since SF is the poster city for geographically and rule limited expansion.

Ha