Am I making a mistake?

[semtex]

sigh, the true story is my wife in love with mid end house. I refused to bid higher and lost it. She really mad at me.

That's why I tried to figure whether the Mc is a better deal comparing to the mid end one.

[brewer12345]

Heh, then you are screwed no matter what you do.

[semtex]

My wife is reading this thread too. I got to speak nice.

In fact, we have another choice, another house at same area.
A 3600SF tudor, build 1932, 10k tax. Current owner replaced tons of stuff, roof, furnace, floor, kithen, bath...
The asking is 690k, very possible we will get it at 670k.

One thing special about this house, it has a seperated apt in the house, 800SF, which is not legal. But current owner rents it out in the past years. It kicks in rent 1k/month.

My agent said the renting is illegal, but people do it anyway. Not sure about it.

[semtex]

Mc Mid end Tudor
House Purchase Price $760,000 $680,000 $670,000
Down Payment $100,000 $100,000 $100,000
Down Payment Requirement 20% 20% 20%
Primary Mortgage Amount ($608,000) ($544,000) ($536,000)
Property Tax ($16,500) ($14,500) ($10,000)
Interest Rate 6.13% 6.13% 6.13%
Second Mortgage Amount ($52,000) ($36,000) ($34,000)
Second Mortgage Rate 8.50% 8.50% 8.50%
Term 30 30 30
Base Pay $200,000 $200,000 $200,000
Paid Bonus $0 $0 $0
Self Employment Income $0 $0 $12,000
Mortgage Interest ($41,660) ($36,380) ($35,720)
Total Income $200,000 $200,000 $212,000
State Tax Rate 6.000% 6.000% 6.000%
State Tax ($6,350) ($6,787) ($7,817)
Bonus State Tax Paid ($1) ($1) ($1)
401k Contributions ($30,000) ($30,000) ($30,000)
Payroll Deductions ($6,000) ($6,000) ($6,000)
Itemlized Deductions ($64,510) ($57,667) ($53,537)
Adjusted Itemlized Deductions ($63,640) ($56,797) ($52,427)
Exemptions ($9,900) ($9,900) ($9,900)
Total Deductions ($109,540) ($102,697) ($98,327)
Taxable Income $90,460 $97,303 $113,673
Federal Tax Due ($15,462) ($17,173) ($21,266)
Bonus Federal Tax Paid $0 $0 $0
Average Federal Tax Rate 17.09% 17.65% 18.71%
Implied Federal Tax Rate 9.43% 10.47% 12.08%
Social Security Tax ($6,045) ($6,045) ($6,045)
Bonus Social Security Tax Paid $0 $0 $0
Medicare Tax ($2,378.00) ($2,378.00) ($2,552.00)
Bonus Medicare Tax Paid $0.00 $0.00 $0.00
SDI ($31) ($31) ($31)
Total Tax ($30,267) ($32,415) ($37,711)
Monthly Net Pay $11,144 $10,965 $11,524
Effective Tax Rate 18.46% 19.77% 21.43%
Monthly Mortgage Payment ($4,112.99) ($3,595.28) ($3,530.57)
Monthly Association Fee ($110.00) ($110.00) ($110.00)
Monthly Mortgage + Tax+other ($5,597.99) ($4,913.62) ($4,473.90)
Child Care ($1,000.00) ($1,000.00) ($1,000.00)
Commute ($0.10) ($0.10) ($0.10)
Monthly Allowance $4,546 $5,052 $6,050

[Achiever51]

Quote:

Originally Posted by BarbaraAnne Some thoughts based on our experience: I think you really want this home and are trying to justify it. It looks good on paper and you are imagining the lifestyle that you will have. We did the same thing when our kids were young and bought the mcmansion. It is spacious and the schools are exemplary. However, there are downsides: We have over 4,000 square feet to heat, a/c and maintain. It gets really old to replace water heaters, a/c units, paint etc and is expensive. It seems like something is always breaking and frankly I hate cleaning it! Our taxes are very high and we would rather use that money for travel. In addition, we have to pour a lot of money into our home to keep it "updated" so that we can sell it. I would rather use the money for experiences for our family. When you live in an expensive area (the homes in neighborhoods around ours are 2 to 10 times the value of our home/neighborhood) the kids your kids grow up with tend to be spoiled and indulged. There is a lot of materialistic peer pressure and you don't want your kid to feel deprived. The neighbors tend to be very materialistic also. We are glad we live here because the schools are good. However, if I were to do it over, I would have moved to a smaller home in a less expensive area that still had very good schools, but I would have wanted my kids to grow up with other kids that were more appreciative and didn't feel "entitled". Believe me, it rubs off on your kid! It takes a lot to keep them "grounded". In addition, if you want your child to be successful in school it is hard to stand out in a school where there is so much wealth that almost all the kids have tutors and private coaches that work with them from before they enter kindergarden. Where we live, it is almost impossible to make sports teams, unless you are a super athelete at a young age. I think my kids would have been much happier with less pressure. They did well in school, but they would have been outstanding in a less-pressured environment.

We must live in the same neighborhood! I concur 100% with BarbaraAnne. We bought our house in 1998 when I must admit that I was caught up in the "gotta have it" phase of my life. We wanted the house because we love to entertain. OK, we had some great parties -- but what were we thinking?

In retrospect, I wish we had bought a much smaller home. At the time, we convinced ourselves that the costs were worth it because the schools were so much better, etc., -- and they are -- but it was quite a challenge to raise a grounded child when all his/her friends are driving the latest cars, going on incredibly elaborate vacations, etc. Fortunately, like BarbaraAnne, our children did fine in school -- but the pressures were huge!

Now, as we enter retirement, my DH and I -- plus the two dogs and cat -- are rambling around in a home that is much, much too much to care for. I hate the upkeep and look forward to regaining my sanity once we sell this house and do a major downsizing. In the meantime, I got to figure out what to do with all the furniture and other "stuff" that we "had" to have to fill this place!

My vote: YES, you are making a mistake!

[tryan]

Quote:

My wife is reading this thread too

No need for analysis paralysis ... Which one does she want?

[semtex]

Answer is obvious. Sigh.

More about my love, the tudor. It is big enough(2800SF + 800SF). The apt is on the other side of the building with its own entry and parking. I like it very much, the big dard beam, unique structure. It is very solid, even after 75 years, amazing. If the rent will cover the property tax, only thing left is the morgage.

But it is on a main road, location not attractive. Very limited appreciation room. The Mc is on a very quite st.

How you guys view the apt, could I view it as a stable income? What will happen when I got caught?

[chinaco]

It is tough when spouses do not see eye to eye on financial priorities.

If you are OK with spending the money... that is a personal decision.

The main risk that I see If one of you lose a job, you may be in a crisis financially and have to sell the house at a reduced amount to move it quick. I did not see your age. And I do not know how much you have for a down payment or how long you will be paying the Mortgage. But... You stated that you have stable jobs. You never can tell when a health problem might occur or one of you loses one of those stable jobs. If the mortgage is for 20+ years, that is a long time for stuff to happen.

[semtex]

Guess I have to pass the tudor, since no one likes the renting idea.

We are all good citizens.

[donheff]

Quote:

Originally Posted by semtex My wife is reading this thread too. I got to speak nice.

Bummer. You must be getting a mega-dose of "I told you so." I hope DW has a good sense of humor.

[tryan]

Quote:

How you guys view the apt,

It'ld be a head ache having the tenants right outside your door ... sharing the yard ... couldn't do it.

[Brat]

In my old neighborhood informal 'mother-in-law' units were common. The homes were older and very large, their original owners probably had live-in staff. They weren't sanctioned by zoning. I am not aware of any issues because home owners were VERY careful about tenant selection. Ultimately the city made such uses legal because they wanted to increase density.

What you need to be wary of are safety issues. If the city zoning permitted the use would the spaces meet the fire/safety code (exits, stairs, venting and the like).

[kcowan]

We were in a 5000 sqft place on 1 acre, overlooking a river valley with a 25 mile view to downtown skyline, with a pool, enclosed Jacuzzi room overlooking pool and forest off the MBR. 3-car garage, 180 trees, games room, den, large office, 3BR, laundry upstairs. And the kids were bussed to a rural school where there were great family values.

I loved that phase and after 14 years was pleased to downsize. There is a time and place for everything. Would we have been better off financially to have lived more modestly? Absolutely. Do we regret doing it? Not for a moment!

Fortunately, we made it to FIRE anyway. Actually, RE but not quite FI by my standards. Although after 4 years RE, we are closing the gap quickly. I am aiming for 3.5% and not counting the pensions. We rent now to maximize our liquidity and returns.

(The 17% windfall equity gains YTD have helped immensely)

[tiredofwork]

Quote:

Originally Posted by semtex Guess I have to pass the tudor, since no one likes the renting idea. We are all good citizens.

In the late 80's, early 90's, I had a 1500 sq ft 3/2 home (built in 1926) that had a 600 sq ft cottage in the back yard (converted from gargage). The city was very "code conscious" and renting the cottage was against code. Howver, people did it anyway and there were absolutely no problems and wouldn't be unless one of the neighbors complained. I had the cottage rented for about $600/month for almost (included electricity/water, since only had one meter) the entire five years I lived there.

I'd go for the tudor, if the wife likes it. Never underestimate the value of pleasing DW.

[semtex]

In fact, if add the renting cash flow, the tudor is very attractive.

Comparing to my current renting, the cash flow is negative $1230/month. But instead of a two bed room, I got 3 Bed room/2bath/very big kiten, 1.5 acre lot, ...

[Brat]

You and your wife need think through the rental issue (privacy, liability insurance) to make sure that you are both on the same page. Were I you I would make sure you could manage the home expenses even if you didn't rent the auxiliary space. Have the home inspector look at that space from a building code point of view and check out your local tenant protection laws.

In my old 'hood an architect of our acquaintance let a small garage apartment to recent graduates in his profession. The advantage is that they shared a similar value system, and the renters valued their reputation. Part of the bargain, doubtless, was that they kept their heads down. Everyone knew, of course, but everyone liked the young couples.

Pick the right tenants and you never need house-sitters.