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More considerations on buying a house

January 20th, 2018
house  [html]
Eight years ago I wrote about deciding whether to buy a house, and someone recently asked me what my thoughts are now. Since writing that we've lived in a few different setups:
  • The studio apartment near Porter we were living in at the time I wrote that post. Just the two of us, 190sf/person, $1050 ($525/person).

  • A three bedroom near Sullivan, third floor of a triple decker, with an actually crazy landlord. Us, another couple, and their newborn, 290sf/person, $900 ($450/person).

  • My parents' house in West Medford, five bedrooms, three stories. Rotating people, I think ranging from six to twelve during the time we were there, so 360-180sf/person. We had one room, which was hard after Lily was born, and paid $500 (first $250/person, then $166).

  • Our current house, near Davis, which we bought in February 2015. Our unit was initially four bedrooms, but is now six after adding dormers. Five people when we moved in (308sf/person) now seven people (254sf/person). I estimated an amortized cost of $1870 for our family, which now means five people (me, Julia, two kids, au pair) so $375/person.

Rereading the 2010 post, some thoughts:

  • Control over the space continued to be important to us, and was a strong reason to prefer owning. We've added a bathroom, two bedrooms, basement shelving, an office for Julia, and generally modified the place a bunch to be closer to our preferences.

  • Julia is still excited about gardening, though for the first almost two years it didn't make sense to plant in the front because we were going to need to have work done on the porch. Having a house means its reasonable to plant things like trees that grow slowly.

  • I wrote:

    One thing it would definitely mean, though, is that we would be postponing giving (as much / any) money away until the house was paid off. This is because we want to minimize interest paid, so we should pay it off as quickly as possible. We would have to increase our giving after, but I can calculate a giving "obligation" for each year as a kind of debt and pay it off after the house. As long as owning is cheaper in the long term then this should mean we can give more money away not less.
    I now think this is wrong. The government wants to encourage home ownership, so mortgages, at least in the US, are pretty heavily subsidized. You can borrow at very low rates, and the interest you pay is tax deductible. So say you're deciding between (a) pay cash to buy a house or (b) pay as small a down payment as possible, invest the remainder of the cost, pay back a 30 year mortgage slowly. I would expect you to have more money at the end if you chose (b). The higher the ratio between your rate of return on money and the interest rate you'd get on a mortgage, the less it makes sense to take option (a).

    Now, I'm talking about donating the money instead of investing it, so how does this change things? I still don't know what is a reasonable discount rate to apply to giving, but I'm pretty sure it's more than what I'd get investing the money. So that pushes even more heavily toward option (b).

    While it wasn't something we needed to do, however, postponing giving in order to save up a down payment probably makes sense for most people.

  • The only reason we were able to buy a house while also donating this much is that I've been really lucky with what people are willing to pay me.

  • I also wrote:

    Is this a good time to buy a house? Prices are down from their peak in 2005, and there's a lot of talk about house prices being "low" right now.
    In retrospect, 2010 would have been a great time to buy a house! Zillow thinks Somerville houses are now selling at about 1.8x what they were then (which is terrible). Though Bitcoin is up 160,000x over the same period so if I'm going to regret things that might be a more efficient target. In general I'm pretty pessimistic about my ability to time markets, though, and don't try.

Here are some things I wasn't thinking about at the time:

  • It's an enormous project. There are so many things that have needed doing, and many more that still will. It has taken up a lot more of my time than I was expecting, though much less now that it's pretty much how we want it.

  • Whether you're handy (or interested in learning to be) seems like a strong consideration in deciding whether to buy. Many things are much cheaper to do yourself, and when hiring a contractor things go much better if you have a decent sense of whether what they're proposing is reasonable.

  • The cost savings have been pretty substantial. We're using four bedrooms, and I estimate four-bedroom apartment here would be costing us ~$3500/month. On the other hand, there have also been substantial costs we've needed to pay out of pocket and on short notice, which would have been hard if we were in a different financial situation.

  • Home equity lines of credit are very nice to have for flexibility. For example, when we needed to borrow $55k to meet our 2017 donation target I didn't need to worry about whether we'd be approved for a loan or anything, since we had already done the approval and could take the money out whenever we needed it.

  • We have much less flexibility to move if we need to. Buying a house has been part of putting down roots here, and we've made a lot of changes to the house that are long term investments in terms of us having a place that suits us better. This has upsides and downsides.

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