As many of you know, we've been looking for a new house for three years now (this is the third summer we've been "shopping".) From the beginning, we said we'd consider moving if we could find a great place at a big discount. Now after looking for quite some time, I'm not sure it's "worth it" for us to move after all. Let me tell you why.
What we're really looking to upgrade on is the location (city of residence) as well as the outside (acreage) of our current home. We'd like to live in a nicer township (with better schools, closer to church and friends, etc.) as well as have a bit of land to do some gardening, have a place for the kids to run around, have a dog (yes, an expense, I know), etc. We like our current house and have said several times that we'd be satisfied if we could simply move our current home onto seven acres in the township we want to live in.
But it's not that simple, of course. In real estate, every property is different from every other one. And we can't move our home (I guess we could, but we're not going there.) So we're looking for the combination of a nice house, a decent amount of land, and a location that's in our targeted area. Oh yeah, and we want it at a discount (as noted above.) Finding such a place is turning out to be a lot harder than we expected.
Granted, we're being picky. But why not be picky? We have a house we like, that's 100% paid for, and that’s in a neighborhood that's "fine." So we can afford to be choosey. And we have been. In all our searches, we found only one place that we liked enough to place a bid on, but the sale didn't go through (FYI, it sold this spring for $20,000 below what we were going to pay for it.) But we did learn a lot from the process.
To give you a feel for our situation, here's a quick summary of what we're facing:
-
Homes that are comparable to ours in the city we like on the acreage we want are about $250,000 more than the value of our current home at current market rates. Is the extra amount worth paying? More on this later.
-
NO ONE that has a home that meets our criteria is in the desperate/"let's unload it at any price"/foreclosure sell-off phase. No one. And rest assured that after three years we know the area well, what's being offered, and what's being sold. There's nothing that's met our discount criteria out there (even the home we bid on was much more than we wanted to pay and certainly was nowhere near a firesale price.) Now these homes are dramatically discounted from their one-time values, of course, but we're not really looking for that. We're looking for an almost unbeatable deal that's below current market value. Again, we're being picky and only buying if the right opportunity comes along.
-
That said, we did see two homes recently where the seller's agent simply said the price was "write up an offer." One of the homes had been on the market for $750k (an outrageous price) and was down to $499k. The other was similar. But even a lowball offer is going to put these homes $150k above the value of our current place unless we go with the we're-too-embarrassed-to-even-bid-this price. Besides, we're not so sure that we like either of these homes anyway.
So now that you know what we're up against, let's look at the costs of a move and how they could impact our finances. Here's a quick review:
-
As I noted, any house that meets our criteria, barring a miracle purchase, will cost between $150k and $250k more than our current home.
-
If we move, I estimate we'll have $20,000 in one-time costs associated with the move. This includes everything from work on the new house we'd likely want done, paying movers, buying new items needed for the new home (for instance, our 15-year-old push mower isn't going to do the job on three acres of lawn), etc. This estimate is obtained from a detailed budget I laid out when we thought we were going to move to the last hose. So while it could be off one or two thousand dollars, it's not off by much.
-
A new house like the one we're thinking of would add about $5,000 extra in expenses to our budget. Taxes will be more, heating will be more (most places are heated with propane), yard care will be more (someone will need to plow the usually long driveway in the winter), and so on.
Now we can afford this, but the question is do we want to pay this much? After all, the cost is pretty high. For instance:
-
Assuming the cost of the house is $150k more than the value of our current home, we'd have almost $400k less (assuming an 8% return) in net worth after ten years by buying the home (I'm assuming we'd invest the difference.) Over 20 years, we'd have almost $935k less.
-
If the cost of the house is $250k more than the value of our current home, we'd have almost $600k less (assuming an 8% return) in net worth after ten years by buying the home (I'm assuming we'd invest the difference.) Over 20 years, we'd have almost $1.4 million less.
-
Now, of course, the new home would increase in value (theoretically), so some of these losses would be offset. Let's say the home would appreciate at 4% per year versus the 8% if the money was invested. At $150k cost of new house over old, we'd still be out $86k after 10 years and over $330k after 20 years. At $250k incremental cost, the numbers are down $144k after 10 years and $552k after 20 years.
-
That said, the gains in the house are very illiquid while the amount, if invested, would be very liquid. Big difference.
The biggest financial impact of this decision is how it affects the year in which I could retire. Even at $150k extra cost, I'd need to work several more years than I would if I kept and invested the money. At $250k, I'd have to work much, much longer.
So, where does that leave us? First of all, we need to think about the costs associated with the move. If we can get the low price we initially planned for, the cost isn't that big of a deal given we'd pick up the benefits that made us start looking in the first place. But if we have to pay a premium versus our plans, it's likely not worth the cost. I'd rather have the money, the financial flexibility, and a much earlier retirement.
I don't understand where you live. I find it hard to believe that you can get three or seven acres in any "city." Maybe you use that term loosely.
I also don't understand why anyone needs three acres for a garden and a dog.
Why don't you just move to the country if you really want all that land?
Posted by: dogatemyfinances | July 14, 2009 at 11:38 AM
Wow, I didn't realize the amount of time you've spent with this possible move. I think you're being very wise to wait. You're weighing the pros and cons very well.
Based on what you wrote, I would offer a low bid on a house, if they don't accept, then it's no real loss to you.
Posted by: Laura | July 14, 2009 at 12:21 PM
You are thinking too much.
Too much "theroy" and possibility and potential gains and interest rates and opportunity costs and leverage way too many assumptions.
Make it real simple.
Do you want to move or not?
Can you afford it?
You don't need a spreadsheet to answer yes or know. You already know the answer. So answer it. Then do it. or don't.
You only have one life.
Posted by: bob | July 14, 2009 at 12:31 PM
Aren't you missing the other costs of moving associated with the transactions (selling yours, buying another) themselves? Lawyer fees, inspections, mortgage fees, realtor fees, etc.
In line with one of the earlier comments-
I'm also looking to move, but I'm not moving with the consideration of what the house will be worth when I am ready to retire. I'm investing in my life, where I want to live and my kids to go to school and grow up. It's more about 'sense' to me than dollars.
Posted by: John Z | July 14, 2009 at 12:46 PM
I think I agree with what Bob is hinting at. If you want the "better" place, you may have to pay for it. So what if you are $400K better off 10 years from now? What are you going to do with that $400K - Wait until you retire and buy yourself a better wheelchair? OK - that comment is a bit sarcastic, but the question is serious - What will you do with the $400K that will give you more pleasure/security/satisfaction in life than the new home will give you? If you can answer that, then skip the move, and save the $400K.
Do you hate your job so much that you are counting the years to retirement? Maybe you should get a new job AND a new home!
Posted by: Mark | July 14, 2009 at 12:49 PM
John Z --
I took those out of the net amount I thought I could get from my house.
Posted by: FMF | July 14, 2009 at 01:01 PM
Is it a need or want? The question is when you want to retire (the earliest the better is not a good answer) and whether you can still reach that goal with the purchase of a more expensive home.
Posted by: aa | July 14, 2009 at 01:02 PM
Mark --
One of the things I've also learned in this process is that my current home is a lot nicer than I had originally given it credit for being. So I'm not sure I've seen a "better" place. I may write a post on this later in the year.
Everything we buy is a trade off of cost versus "happiness" (or "benefit" if you like.) I haven't yet found something that's worth the trade-off yet.
Posted by: FMF | July 14, 2009 at 01:04 PM
Dog --
Using the term loosely. These are "country" places.
Posted by: FMF | July 14, 2009 at 01:05 PM
Bob --
So your point is that if I want to move and can afford it then I should, right?
Isn't this post about the first criteria -- whether or not I want to move given the financial trade-offs? That's what I thought I was writing about...
Posted by: FMF | July 14, 2009 at 01:08 PM
It seems that you are happy with your current situation and that additional land (in a nicer area with better schools) will not yield more happiness for you. Well, I should say that a nicer place with more land will not yield happiness for you *in the long term.*
It's common for folks to play the sort of game that starts something like: "if only I made a little bit more money per year or drove a slighly nicer, more modern, vehicle, then my quality of life would increase." Happiness and/or satisfaction isn't a function of # of bedrooms, amount of land, yearly salary, etc.
There's some great empirical research on happiness at: http://www.sciencedaily.com/releases/2008/04/080428104537.htm
Best,
Vince
Posted by: vince | July 14, 2009 at 01:52 PM
I agree--you're thinking too much.
You seem in my opinion to be under-valuing the non-tangibles here.
You have spent $ that you didn't need to by even getting married and having a family in the first place, right? You have spent $ on experiences, right? These things you rightly see as part of your vision of your life, as you want to live it. And there's nothing wrong with that!
Your life on a large estate with lots of outdoor room to live and play, your life in a much larger house with more room for your family member's individual activities and also more guests---it is going to be way different than your current life, I imagine.
Do you want that life?
Or do you want a life of not being really satisfied with what you have, and of spending even more than 3 yrs (3 yrs!?!) of your time in a possibly endless search for some kind of perfect "deal" which probably doesn't even exist?
Life is short. It sounds to me like you want that other life. So I'd say you can't "afford" to wait any longer--you're wasting your precious time. Besides, mortgages and real estate are not going to stay cheap forever! And while you never know what the future will bring, you do know for sure you can't take it with you.
Just my $0.02.
Posted by: MC | July 14, 2009 at 01:55 PM
I'm with Mark. Money is to be used, life is to be enjoyed. As long as you're not setting yourself up for an impoverished retirement, then go ahead and do it.
Your relationship with your wife is probably different, but my wife would definitely have a strong opinion about moving , one way or the other (and she'd let me know!). In the end what would make me the happiest would be to make her happy.
Posted by: Michael | July 14, 2009 at 02:10 PM
MC --
When I say we've been looking for "three years", you understand that that's three years of mostly summer looking (winter here is a bear) and maybe once a month in those months, right? It's not like we've spent every weekend for three years looking at 10 homes a day...
Posted by: FMF | July 14, 2009 at 02:14 PM
Even looking "only" in the summer would be too much for me! Also, it sounds like you have spent lots of time debating and calculating and debating again about the issue. Like I said, life is short...!
Posted by: MC | July 14, 2009 at 02:22 PM
At some point in time (not sure how long that will be), housing prices are eventually going to rebound. The new home would then have greater potential for an overall increase in equity. That could offset some of the incremental expenses that occur over the time you spend in your home.
Separate from that, I do agree with others in that if you have worked and saved diligently over the years, at some point, it is time to at least enjoy some fruits for that. Don't feel guilty for buying the home.
At the same time, you are taking the right approach. This is a buyers market. You have the ability to wait for not only the right property, but for the right deal. It has taken time for some owners to get real on valuations, but people are coming around. At some point, you are likely to find the right fit at the right price.
Posted by: JimL | July 14, 2009 at 03:15 PM
I thought the rule-of-thumb was to buy the cheapest house possible in the best neighborhood you can afford. There are financial and quality-of-life issues involved in making that decision. Keep your cash, retire early, do more with your family, travel, and life your life. Don't work to support a house that you think will provide a better quality of life in the future.
Posted by: nooney | July 14, 2009 at 03:48 PM
Those extra acres will be a lot more work. I moved from a 1/4 acre lot to 6 acres. I got the house that I wanted because I designed it and supervised the construction. I used to go fishing and play golf. Now I do landscape and garden work. It's been OK for me but you need to consider it. What will you give up to accomplish the extra chores?
Posted by: Mike B CPA | July 14, 2009 at 05:00 PM
FMF
My point from above is don't try to nail it perfectly, because there is never a perfect.
Keep it real simple. Forget the financial trade offs for a moment. It is not that they are not important, but I think you are making them too important.
What is most important is what you want. Not what makes sense, or what others want, or what you should do, could do, have done, or might do. What you WANT to do.
It sounds to me like you want to move to a house with some room. So move. Make it happen. Ten years from now is not guaranteed. Investment returns are not guaranteed. Life is short, and it never goes according to plan. If you think yours is, just wait.
So my advice is go for it. Don't spreadsheet justify the opposite of your heart. Follw it.
You are successful, debt free, etc. Your ducks are in a row. So go. If you have to spend a bit to get what you want, then spend it.
And my most important advice is what does your wife "want". If it would make her happy (disregard the money) then your question has been answered my friend.
I have a nice home on land 5 minutes from work. Nice cars, ducks in a row, spreadsheets, etc. When I was 21 I bought a Convertible sports car. I financed it. It was not the best thing financially, not by a long shot, but I would do it over in a heartbeat. I lived. I had fun. I have memories of me and my now wife driving to the lake, kissing under the stars and watching fireworks sitting on the back.
So that is my point. Take advantage now. You might not have "someday"
Posted by: bob | July 14, 2009 at 05:51 PM
This post by FMF and some of the comments make me wonder if the concept of "saving" or frugality in general can become a negative addiction just like anything else. Not saying this applies to FMF at all but it did make me start to realize if some people save for so long that they become physically and emotionally incapable of spending money and enjoying life.
Posted by: MonkeyMonk | July 14, 2009 at 06:28 PM
This was a great analysis from a financial perspective, but I agree with some of the other commenters that you need to explicitly weigh the costs against the "intangible" benefits. If you're looking at it from the spreadsheet perspective alone, maybe you should sell, downsize, and invest the difference. ;)
Posted by: nickel | July 14, 2009 at 09:22 PM
FMF
I am in a boat somewhat simlar to yours. My wife and I live in a good house on great street in an awsome location. The problem is the school system is terrible. We just had our first and possibly only child (daughter). There is no way we will send her to public school in this area. If we were to move into a neighborhood like we have now ,in the areas we are looking with good public schools it would cost about 150k more than our house. The cost of 12 years of catholic school will be close to 100k when my daughter is done. We have no debt except a small mortage so we could probably afford either. The new place we are looking at are closer 2 her family( I am OK with that cause I get along with them as tough as that might be to belive.) One of the cons about moving is bolth of our commutes would increase by about 20-25 mins.
Any thoughts would be great
Posted by: Paul | July 14, 2009 at 09:24 PM
I'm not sure where this post went wrong. It was meant to be a look at the total cost of buying a home (including the long-term, generally unseen costs and their total value). Somehow it turned into me not valuing the "intangibles" and being unwilling/unable to spend money despite my desperation in my current home and the pure happiness I'd get in a new one.
Not 100% sure how that happened, but I can only blame it on poor writing. I should have been clearer up front. Yes, I think there were some assumptions made by readers as well, but it's hard to tell sometimes what someone is saying in writing.
So, let me clarify a few points:
1. Of course I'm looking at the intangibles. It would be silly not to. If I was only looking at costs, I'd sell my current home and buy a shack, investing the difference (as Nickel suggested.)
2. As I look at the intangibles, I'm finding them lacking. Time after time, my wife and I have asked "would we move here if there was zero extra cost?" In every case the answer is "no". So if we wouldn't move if the cost was zero, we certainly wouldn't move if the cost was $200k more.
3. Part of the issue is that what we thought we might like and what we're coming to believe we now like are two different things. In particular, one concern is exactly what Mike pointed out above. Do we want to spend every weekend working our land or do we want to be free to pursue our other interests? I think we're leaning to the latter.
4. Even if we found a place we liked, I don't buy the "if you can afford it simply move, regardless of the price" argument a few people have hinted at. Every purchase, from homes to electronics to services to cars and on and on, weighs cost versus value. Home shopping is no different. There are too many issues associated with cost/price/value to go into in a comment, but I think you are all savvy enough to know what I mean.
5. For the record, did anyone notice how I said we liked our home, that our neighborhood was fine, and that we went into this effort knowing we were going to be picky? Again, that somehow that morphed into being unable to spend on a new home because either we weren't looking at the intangibles or simply were unable to spend money. This seems like a stretch to me.
6. I actually like looking at homes, so the "three years" of looking has been fun for me. I understand that some people (most perhaps) would hate this, but I like it. We've seen a tons of places and gotten to know a certain part of our larger metro area very well.
I could probably ramble on for a bit longer, but I'll let it rest for now. Just wanted to try and clear up a few things -- not sure I have, maybe I've just made them muddier. If so, oh well, there's always a new, hopefully better, post around the bend. :-)
Posted by: FMF | July 15, 2009 at 07:59 AM
Paul --
I'm not sure you want advice from me! :-)
How about this -- I'll post your question as a "Help a Reader" question and let others give their thoughts? It will be up sometime the week of July 27. Good luck!
Posted by: FMF | July 15, 2009 at 08:02 AM
FMF,
Great post. Lots to think about that most people don't think about when they move. I think point #2 above hits the nail on the head. If you wouldn't move at no cost to you, then why bother?
Like you, I actually enjoy going to look at houses. I lost count at how many houses I looked at when we bought our current home.
I wouldn't hesitate to be a ridiculously low bid on a house if you really like it. You never know in this market!!!
Posted by: SAHM | July 15, 2009 at 09:04 AM
FMF
Posting my question on help a reader
would be great. If you need more detailed
info please feel free to email me.
Thanks Paul
Posted by: Paul | July 15, 2009 at 10:51 AM
Hey just want to echo Paul's comment. I'm in a similar situation and would really like some advice from the FMF readers (and you too).
Posted by: Ben C. | July 15, 2009 at 11:13 AM
One thing I have noticed is that people often think that the new house/car/TV/dress/shoes/whatever will make them happy. In my case, I always convince myself that the new computer will make me better-organized. Somehow it never has!
I think FMF has come to the conclusion that the new house WON'T make him happier (and may even force him to spend more time mowing!), so he is having second thoughts.
I am currently looking for a place, and got some great advice: Before you make an offer, ask yourself: Would I be heartbroken if this one sold to someone else? If not, move on.
Posted by: Mark | July 21, 2009 at 12:58 PM
Honestly, FMF, it doesn't seem like you really want to move. All of your reasons stated here seem to circulate around how you would move it is a huge financial win. I realize you are simplifying things in your posts, but the comment that you wouldn't move even if there is zero cost difference sticks out like a sore thumb.
Maybe you haven't found things that met the other criteria too or have identified the true criteria. And you seem to allude to that. But then that's the real task: determining the criterion for this decision.
Obviously one shouldn't ignore the financial questions, but it seems premature to go on about them. I mean, if that really is the criterion ("the house must be an awesome Buffet-like financial investment"), then it makes perfect sense to me why you might be still looking for the right opportunity after 3 years. But if it is for the quality of life items you mentioned initially, it honestly seems unreasonable that it would take 3 years.
It sounds like the real issue is that you haven't figured out the criterion and in part that's because you are reasonably happy with your current place. My guess is that just looking at homes for another 3 years isn't going to get you any closer to the criterion, though. It's hard for me to believe that in 3 years you haven't already covered most of what is out there. Maybe a new method is in order.
My unsolicited 2 cents. (Part of the price you pay for looking at such things publicly on a blog. ;) )
Posted by: JACK | July 26, 2009 at 05:19 PM
Jack --
The comment about not moving even if the cost is zero is based on what we've seen so far. We do have criteria, and so far they haven't been met. That's why we wouldn't move even if there was no cost. Why move to a place that you like less than where you currently live?
Will we ever find a place that meets our wishes? That's TBD.
Posted by: FMF | July 26, 2009 at 05:34 PM
At some point of view housing prices are eventually going to increase.New home has more demand and priority than the old.Thanks for sharing such a excellent stuff.Keep in touch.
____________________
personal finance
Posted by: perso | November 13, 2009 at 08:54 AM