Upsize home sooner or later calculation

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Topic Author
Nosh
Posts: 22
Joined: Sun Sep 17, 2017 7:27 pm

Upsize home sooner or later calculation

Post by Nosh »

Hello Bogleheads,

Our family of four currently lives in a relatively affordable condo in Miami. The situation works fine for us for now. The kids are small and can share a room happily. However, since I have a son and a daughter, we will "need" to upsize to a house with an additional bedroom sometime in the next 4-5 years. We think we would move out of that new home in around 18 years when the kids are off to college and we are ready to downsize and retire. We are debating whether we should upgrade to the larger house now and live in it for 18 years, or continue living in the condo for the next 5 years and then live in the new home for 13 years. Either way, we’re still going to have to pay two sets of closing costs (to sell the current condo and the future home).

At today’s prices, our condo is worth around $300k and the house we’d purchase would probably be worth around $750k. We could afford the new home (at current interest rates) and still max out our 401k’s and backdoor Roths. We have enough funds for the down payment and an emergency fund. So the increased housing costs would come out of funds that would otherwise go towards early retirement in a taxable brokerage account.

A couple of clarifications:
1. I know the price difference between the condo and the house will be alarming to some, it is alarming to me. But with the recent price increases in the real estate market, unfortunately that's what a decent single-family home in a good public school district within a reasonable commuting distance of our work would cost. Our building has a bunch of issues that has turned us off to condo living, so we really don't want to upsize to a bigger condo.

2. When I say we would buy “now”, I really mean “sooner rather than later”. We’d plan to wait until this pandemic-driven crazy real estate market (hopefully) settles down a bit. We understand that home prices may not come down in 5 months or 5 years, but we would wait until the craziness of sight-unseen offers and waived inspections is over.


Of course, there are other factors to consider that are not financial, but I think understanding the numbers would help us make a better decision. I can see that financially, the answer would depend on what happens with house prices, interest rates and stock market returns for the opportunity cost. The NYT Rent vs. Buy calculator was very helpful in helping us decide to buy the condo. I couldn’t find a similar “upsize now vs. later” calculator online. I’d appreciate any ideas on how to run the numbers or to ‘hack’ the Buy vs. Rent calculator to do that.

For example, I’d love to be able to estimate things like:
- Home prices in my city would need to rise 8% a year in the next 5 years for the gains of buying now to outweigh the additional carrying costs on a more expensive home (higher taxes, insurance, mortgage interest). In other words, it’s probably a bad financial decision as that kind of growth is unsustainable.
Or
- If home prices rise 2% per year for the next 5 years, you would have paid $50k extra for the luxury of living in a larger/nicer house earlier than you needed to for 5 years.

And of course, if the Bogleheads have any wisdom to share about the decision, that would be appreciated as well. Thank you!
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