Getting Started... Would you move or stay?

Question

We currently live in a small SFH and am looking to move into a larger home to accomidate our four children. I see having two options:

1) Purchase a larger home which will in turn take more of my income from my corporate job to pay the mortgage, but make my wife happy. This option is doable, but we will then be living more paycheck to paycheck instead of creating savings each month.

2) Stay put and invest in a multi-family property (haven't found yet). By staying put the mortgage would be lower on my current home versus a larger home thus allowing me to maybe get another property quicker.

Thoughts?

Jesse Hyder · Answer

@Lync Jones

1) Paycheck to paycheck... keep saying that over an over again until you are resolved to not be in that situation. Have your wife say it too again and again. I know you dont want that, noone does. Will your wife be 'happier' that way? Well we barely made ends meet again but our house is so huge!

Dont be this guy

https://www.youtube.com/watch?v=PV_YAeXOSiw

2) Have you considered also living IN the multifamily you purchase? I'm not kidding either. I know here in Boise there is a 4/1 1400 sq ft with 2 700sqft apartments in the basement. I dont know how 'small' your current house is but having some one else pay for your primary home is always a score. Additionally you can find things like lots with multiple homes on them or a property with an accessory dwelling unit over a garage for extra income.

Are you willing/able to move to SLC or Provo anywhere in between? I'm in Boise now but I lived in SLC for 5 years :-)

Jesse Hyder · Answer

Also consider multipurpose properties. What I mean by that is commercial/residential combos. Properties where say there is a business on the bottom floor and apartments on top. They are not crazy common but you'll see them every now and again. Especially in denser areas sometimes. Not super familiar with these as far as financing goes.

Something also to consider is a 'farm house' where you can lease the acreage out for ranching/farming/logging and so on.

I only mention all of this because I live in a multifamily myself it was my first home purchase. I feel that every property should pay for itself even if I live there. :-D

Jacob A. · Answer

The phrase "Happy wife, happy life" is suddenly rushing to my mind...

No but seriously, this something you guys will have to work out together.  If you can get her comfortable with investing the extra money go for it by all means.  But, if your biggest supporters stop becoming supporters then you really don't have much at all.  Run the numbers on both of the scenarios and show her the long term impacts and I'm confident you guys can make a logical decision.  Good luck.

Joe Fairless · Answer

@Lync Jones - one other option could be keeping your SFH by renting it out (if #s work out) or by selling it as a "lease to own" so you get a chunk of cash as down payment and monthly payments. Then you've got some income coming in from your other property while you look for a new place that could have perhaps a 2nd living quarters you could rent out (like a detached garage)

Lync Jones · Answer

Thanks @Gary Parker for the explination, I really appreciate it.

Gary Parker · Answer

@Lync Jones sub2 means subject to the existing mortgage.  Ill give you an example of a purchase I made last September.  The property was older but had new roof, new HVAC and an updated electrical system.  The house was worth $140 as is and $160 with 8K in updates.  There was a mortgage of $96K on the house and the seller HAD to walk with 10K.  It was too skinny to do a rehab for me; however, the payment including escrow is $726 and the rent is $1295.  So I bought the house for $106K plus some closing costs.  The seller let me keep the mortgage and $726 payment and I paid $10k in cash.  Keeping the mortgage is buying subject to the mortgage.

Having said all of that, in my opinion, one must be very careful with sub2 deals.  I will only buy with equity, houses in good shape, no adjustable rates and i intend to keep the property.    I want to have the equity so I have a higher chance of selling if necessary.

There are varied opinions on BP about sub2 and I would read them all if this type of investing interests you.  Jeff Brown wrote a great blog about a year ago or so about this subject.

Charles Morgan · Answer

I also must agree with @Jesse Hyder . I only figured that out 2 years ago but I had already invested in some smaller homes that I turned into rentals when I got this one. It is 5 bed 2 bath with two living areas. I live in the apartment above the garage. A little inconvenient but my renters pay almost my whole mortgage, they are redecorating, replacing doors, repairing counters and cabinets, painting, etc. for a $100/month discount on rent. Oh and they pay the cable TV bill!

Lync Jones · Answer

Thanks @Holly Baldwin I will pass this on to my wife. I appreciate the perspective from a woman's point of view.

Also, congratulations on the purchase of your first SFR!

Holly Baldwin · Answer

@Lync Jones

I really like the advice that has been given so far.  So thanks for asking your question! :)

Speaking from experience, being "house poor" is the worst!  I would echo all the other advice!

Being a woman, and a wife and mother, I can totally understand where your wife is coming from.  :)  But you can tell her that I have done both (larger house with more space and storage vs. smaller home with lower payment).  I wanted our "forever" home and thought the grass was greener there in the bigger house.

I have to say, the years we were in the larger home, we were house poor and unhappy. We ended up moving to a smaller home just after 2 years of dealing with the bigger house.  The smaller home has been great.  We are less stressed because finances are no longer tight.  It has been so good that we even purchased our first SFR in Phoenix last year!

So the grass was already green under our feet....we just needed to recognize it!  In fact, I am always dishing out advice to the "young bucks" to never jump into your "forever" home" because it will just keep you "forever in debt!"

So from this lady to yours......good luck!

Lync Jones · Answer

Thanks guys for all of your comments. Very useful information.

@Gary Parker what did you mean by Sub2? I am trying to get my education and get up to speed, but that one is new to me.

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