Should I purchase a bigger (& more expensive) home?

[younginvestor2013]

Thanks for the input everyone.

I'm leaning towards staying put, for the following reasons:

1. If I do have a SO, and we want to move into a bigger place together, I'd rather both jointly decide on said place, that way it is a mutual decision with equal weighting.

2. I agree that the bedroom/office will mostly sit vacant.

3. I don't have parties that often or visitors that often anyway.

4. If I were to use about $80-100k as a downpayment, that would put a big dent in my invested in the market portfolio. I'm hoping with my current nest egg, plus contributions and earnings, that in 10 years, I will have investable assets of $1,000,000 in today's dollars at the age of 38. Purchasing a condo would delay this. This is a goal of mine because I think it would give me the freedom to leave the corporate world and pursue more freelance type work.

 

[younginvestor2013]

Thanks for the input everyone.

I'm leaning towards staying put, for the following reasons:

1. If I do have a SO, and we want to move into a bigger place together, I'd rather both jointly decide on said place, that way it is a mutual decision with equal weighting.

2. I agree that the bedroom/office will mostly sit vacant.

3. I don't have parties that often or visitors that often anyway.

4. If I were to use about $80-100k as a downpayment, that would put a big dent in my invested in the market portfolio. I'm hoping with my current nest egg, plus contributions and earnings, that in 10 years, I will have investable assets of $1,000,000 in today's dollars at the age of 38. Purchasing a condo would delay this. This is a goal of mine because I think it would give me the freedom to leave the corporate world and pursue more freelance type work.

I should note (and this is probably a discussion for another day), that I anticipate a sizable inheritance. I don't (fully) base decisions off this, but this would be in the "back of my head" if I were to "pull the trigger" and leave the corporate world, as mentioned above in #4, at the age of 38-40 with only $1m invested. I know, things can change, but if it weren't for this expectation, I would feel much less comfortable leaving the corporate world.

 

[daylatedollarshort]

I completely understand the logic of renting a room for a party, but I don't understand why one would feel obligated to pay for someone's hotel stay.

It would be cheaper than buying a bigger condo for guests to stay in.

 

[Music Lover]

2. I agree that the bedroom/office will mostly sit vacant.

As someone pointed out, a laptop on the couch or kitchen table may be all that is needed. I still have a tower computer, but send the signal to my TV and can do my computer stuff from the comfort of the couch. As it's a 67" TV, that has the added advantage of a huge screen, which may come in handy if you're dealing with large or multiple spreadsheets.

 

[jkern]

This x1000.

I am not in your shoes, but if I was, then my answer would be NO. Guest room? Wasted space (as discussed previously). Home office? Is that *really* needed? Do you have a desktop computer? Some of my *best* w*rk has been done in my recliner or my kitchen table. I *do* have a dedicated office space but it's rarely used and really is wasted space.

I am also of the mindset that real estate (especially your primary home) should never be used in calculating NW and the condo market is just too volatile for my liking. BUT...that's MY opinion. There are LOTS of folks out there that would disagree with me. I won't say they are right or wrong, but for me, I would stay put.

I don't know why you would not include Real Estate in your NW. I have a friend that had as her primary residence a $1.35M townhouse (paid in full). Late last year she moved in with her boyfriend and recently sold her townhouse and now has $1.25M in the bank. Her primary residence most certainly had value that can be turned into cash at any given moment.

 

[CaliKid]

That's a lot of mortgage for that salary in my opinion. Maybe I missed it but do you expect significant raises in the coming years? I know my job, more of a variable income like a sales job, had many years with 25-50% increases so $85k one year, $120k the next, $180k two years later, etc.... If that was the expectation then I wouldn't sweat it. On the other hand there is a lot to be said for living lean when you are young so you can afford to retire one day.

 

[daylatedollarshort]

I don't know why you would not include Real Estate in your NW. I have a friend that had as her primary residence a $1.35M townhouse (paid in full). Late last year she moved in with her boyfriend and recently sold her townhouse and now has $1.25M in the bank. Her primary residence most certainly had value that can be turned into cash at any given moment.

I also live in the Bay Area and prices can be pretty boom and bust. Homes that were bought in 2007 at a price of $1.25M might have been worth $500K less a few years later. Some areas had very high foreclosure rates. Housing here has been a good investment for long time owners but it has been a wild ride.

 

[ExFlyBoy5]

I don't know why you would not include Real Estate in your NW. I have a friend that had as her primary residence a $1.35M townhouse (paid in full). Late last year she moved in with her boyfriend and recently sold her townhouse and now has $1.25M in the bank. Her primary residence most certainly had value that can be turned into cash at any given moment.

I won't detract from the OP's questions, but as I mentioned, this is MY thinking and opinion; not yours. My experience (and that of those that I know, family, specifically) is that the cost of ownership over the long term lags that of the markets. I am glad your friend made some money in real estate...but let's not forget the very large number of folks that lost their asses by "investing" in a home, too. Point being, I don't look at my home as an investment and I don't look at like a "cash cow". Odds are if I sold today, I would have "doubled" my money from when I bought it in 2012...but if I were to add in taxes, maintenance, etc. then the return would certainly lag behind what I would have earned in my VG accounts.

Edit: Here is a blog post that I think is worth the 5 minute read: https://chrisreining.com/the-american-dream-is-a-financial-nightmare/

 

[younginvestor2013]

Update:

So I think I am going to hold off, for now at least, on this. I am curious to hear others' thoughts on liquidating funds from my portfolio that would be used as a downpayment? And holding those in a savings account for the time being? They have realized some nice appreciation, and I'd hate for the market to drop, say 10%, then have to sell.

Or is this too much market timing??

 

[W2R]

Update:

So I think I am going to hold off, for now at least, on this. I am curious to hear others' thoughts on liquidating funds from my portfolio that would be used as a downpayment? And holding those in a savings account for the time being? They have realized some nice appreciation, and I'd hate for the market to drop, say 10%, then have to sell.

Or is this too much market timing??

I would just invest it like the rest of your portfolio, unless you are sure you will need it in the next year or so.

 

[gcgang]

If you do have to sell, don't do it after market declines, do it now!

If you don't have to sell, don't.

 

[brucethebroker]

1. Housing is all about having a place to live. "Bigger places" are frosting.
2. Sleep on the couch and offer your bedroom to guests.
3. Buying another home and keeping this one as a rental will involve 2 payments, and eventual making both for a month or two a year (when rental is vacant-if you can escape this for years, you will be one lucky landlord). How do you feel about that?

Having said that, I wish I had kept many of my first homes as rentals. They were great houses and I knew all the blemishes. I am a big believer in rental property, and have had good and bad over the years. But it is a business and you will have vacancies. Taking money that could go into a retirement account (for downpayment, etc.) is merely transferring it from one investment bucket to another, as long as the numbers work on the investment property.

If you decide to move up, today's interest rates make it a no brainer. This will most likely change over the coming years. If so, you will wish you had pulled the trigger.