An unexpected series of events has offered us an opportunity, and we’ve decided to make the most of it, take the adventurous path, and figure out the rest as we go along. The upshot: we’ll probably be pulling the plug on work this fall; a couple years earlier than we were planning.
To back up: we considered moving a few months ago and had a real estate firm evaluate our house. Employment changes made it a moot point, and we put off that consideration. However, a nice couple had seen our house listed, decided it might be exactly what they were looking for, and then got disappointed when the listing was removed. They contacted the real estate firm to find out what happened, and then inquired what price they should offer to make us consider selling anyways. We politely declined but they weren’t deterred and we were subsequently met with a very attractive offer, sweetened with the option of a long rent-back period so that we wouldn’t have to uproot ourselves immediately.
We took the offer. The financial upside was good, we’re ready for a change, and the forced move gives us incentive to try something new, and pushes us off the edge by forcing us to avoid one more year syndrome.
We have until the fall to move, this allows us to work through our existing commitments with our employers (and bonuses!). Our tentative plan is to spend the following months visiting with friends and family back in Canada, and then to make our way south again while looking for a new place to hang our hat, or just a new adventure.
If you are wondering more about our experience and our decision, ultimately it was mainly personal, not financial reasons that made us both decide to buy and sell.
TL;DR: Bogleheads Wiki has it right: “There can be a financial answer as to whether it is cheaper to buy or rent. However, other considerations such as emotional, environmental, and flexibility can sometimes outweigh decisions that may not be financially justified.”
For your voyeuristic pleasure, the finances of our brief two year period of home ownership: We sold for $130,000 more than we bought for, but real estate costs suck.
We got a cash rebate when we bought which wiped out our closing costs at the time, but we paid close to $20,000 to sell the house even using a discount agent (3% vs. 6%). For the pleasure of owning a house, we paid roughly $10,000 in property taxes over that period, and $25,000 in mortgage interest (we do get about 25% of that back at tax-time, thanks to the US taxpayers habit of subsidizing rich homeowners). The S&P 500 was up 10% over that time period, so lets say we were out another $10,000 in opportunity cost due to tied up capital. We were lucky to have no maintenance costs. The gain is cut in half and looks smaller when you include all the implicit and explicit costs (but it is tax free), and we’re reminded that real estate has huge transaction and carrying costs.
For comparison purposes, if we had been renting over that time period, we would probably have paid close to $50,000 in rent. So overall, we did come out better by about $100,000 in two years by owning.
We didn’t have the best of reasons: we were renting and wanted a second dog. Our lease wouldn’t have allowed that and we couldn’t find a new rental that we liked. We saw a house that we loved, so we bought it. For all the trouble he causes us, the second dog may have made us $100,000, and let us live in a house we loved for two years. It’s better to be lucky than good.
At the time, I did do a rough rent vs. buy analysis with conservative estimates, the break even point was three years, and we thought at the time we’d be here longer then that. We weren’t quite right, but housing appreciated by a lot. With the hot local market, it was tempting to keep the house and wonder about ongoing appreciation, but that doesn’t give us the one thing we can’t buy: time, freedom, and a low maintenance lifestyle.
We live in a HCOL area. We like it here, but we have nothing tying us to the area. If we kept up our current savings rate, we’d be financially independent here in two years. There are worst things in the world than being able to retire at thirty five in Coastal California, but we can’t buy back our time. This gives us the option to take time off now, spend time with friends and family, and explore new areas. If we decide to move back to somewhere expensive, we’ll just have to get jobs again (assuming that’s not a problem) or find new sources of income.
Neither one of us was happy having a leveraged liability that was such a large fraction of our assets. Leverage works both ways, and we didn’t want to worry about what a downturn might mean, especially when we have no reason to stay here.
Mainly, we wanted the kick in the pants to do something new. By taking this opportunity, we think the next little while is going to be more interesting then if we didn’t.