I would appreciate any advise from experienced members. I am facing a dilemma buying our first home. This is our current situation:
Just finished fellowship, 1 year and 4 mo into practice. We moved to a high cost of living/high tax state to start my first job and professionally I feel it has worked out great. Married with two kids, one just started school last year and the second will be starting in one year. Wife not working, as we have decided it is best for the kids to have her around at least one more year (instead of a stranger) until they are both in school, rather than having a net extra income of maybe $50-60K. No family around to help unfortunately. So our present income is ~ 300K, can potentially increase to ~ 350K next year. We both desire to be closer to family, less or no state taxes and lower cost of living. At the same time, our lifestyle now is great, with plenty of time for the family and new hobbies, more than easy call schedule limited to my specialty, residents in-house to take care of urgent problems, excellent public school system, very low crime, progressive and multicultural environment for the kids to be surrounded of. Have actively tried to find a different job at another state, but have not found a better opportunity yet, and might not find a better deal than what we have. Financially, our net worth went from ~ $75K to $300K since started working here. Contributing the max to 401K with matching and additional core contribution by my employer; to a 457b; to personal and spouse Roth IRAs (backdoor); and ~ $10K/year to 529 College Saving Plan to get the max state tax deduction. We have ~ 60K in cash.
So, now that we have decided we are going to stick around for at least the next 5 years: a 4 BR 2 bath <1 acre average house built in the 90's, usually in need of some renovations (definitely not a "doctor's house") runs for around $600K, with property taxes ~ $13K/year. I wouldn't want more house than that anyways. We have been renting a condo built in 2008 for $2500/month plus utilities (another $200). These condos have sold for $320K to $350K in the last year, with historical prices $300K-$320K, yearly taxes of ~ $7K. The rent in this area is very difficult to find due to the great public school system. 2-3 BR houses rent for > $2900 and older condos are renting for $2600.
It would make financial sense for us to buy after the second year of renting here. I have run the numbers by a couple of online tools. I hate the idea of buying the aforementioned $600K houses in the mist of a sellers market. I think I would rather buy one of these condo units like the one we are currently renting, since we are perfectly happy in one of them, even as tenants. I believe I can get it for ~$300K (Zillow estimates them at ~ $310K), putting at least 20% down or $65K, would hope for a 3.5% or better 15 year fixed mortgage with P&I payments of $22,800 per year. HOA fees are $270.
Questions:
1. Should I buy the condo now and look at it as a potential RE investment if we buy a house in the future, perhaps in a better market? Right now if we had to rent it for $2600, it would give us a NOI of ~ $17K/year with a cap rate of 5.7%, not great. Moreover, I calculate a very negative levered cash on cash return. Perhaps this could be much better in 5 years?
2. Or, does it make more sense to wait and see if the market gets better (doubt it) or just buy the $600K houses in this district?
Fortunately for me, my wife is happy either and the kids just want to have a dog
Sorry for the long post, but I wanted to give as much insight into our situation as possible.
Just finished fellowship, 1 year and 4 mo into practice. We moved to a high cost of living/high tax state to start my first job and professionally I feel it has worked out great. Married with two kids, one just started school last year and the second will be starting in one year. Wife not working, as we have decided it is best for the kids to have her around at least one more year (instead of a stranger) until they are both in school, rather than having a net extra income of maybe $50-60K. No family around to help unfortunately. So our present income is ~ 300K, can potentially increase to ~ 350K next year. We both desire to be closer to family, less or no state taxes and lower cost of living. At the same time, our lifestyle now is great, with plenty of time for the family and new hobbies, more than easy call schedule limited to my specialty, residents in-house to take care of urgent problems, excellent public school system, very low crime, progressive and multicultural environment for the kids to be surrounded of. Have actively tried to find a different job at another state, but have not found a better opportunity yet, and might not find a better deal than what we have. Financially, our net worth went from ~ $75K to $300K since started working here. Contributing the max to 401K with matching and additional core contribution by my employer; to a 457b; to personal and spouse Roth IRAs (backdoor); and ~ $10K/year to 529 College Saving Plan to get the max state tax deduction. We have ~ 60K in cash.
So, now that we have decided we are going to stick around for at least the next 5 years: a 4 BR 2 bath <1 acre average house built in the 90's, usually in need of some renovations (definitely not a "doctor's house") runs for around $600K, with property taxes ~ $13K/year. I wouldn't want more house than that anyways. We have been renting a condo built in 2008 for $2500/month plus utilities (another $200). These condos have sold for $320K to $350K in the last year, with historical prices $300K-$320K, yearly taxes of ~ $7K. The rent in this area is very difficult to find due to the great public school system. 2-3 BR houses rent for > $2900 and older condos are renting for $2600.
It would make financial sense for us to buy after the second year of renting here. I have run the numbers by a couple of online tools. I hate the idea of buying the aforementioned $600K houses in the mist of a sellers market. I think I would rather buy one of these condo units like the one we are currently renting, since we are perfectly happy in one of them, even as tenants. I believe I can get it for ~$300K (Zillow estimates them at ~ $310K), putting at least 20% down or $65K, would hope for a 3.5% or better 15 year fixed mortgage with P&I payments of $22,800 per year. HOA fees are $270.
Questions:
1. Should I buy the condo now and look at it as a potential RE investment if we buy a house in the future, perhaps in a better market? Right now if we had to rent it for $2600, it would give us a NOI of ~ $17K/year with a cap rate of 5.7%, not great. Moreover, I calculate a very negative levered cash on cash return. Perhaps this could be much better in 5 years?
2. Or, does it make more sense to wait and see if the market gets better (doubt it) or just buy the $600K houses in this district?
Fortunately for me, my wife is happy either and the kids just want to have a dog

Sorry for the long post, but I wanted to give as much insight into our situation as possible.
Comment