The Buy-In for Home Buying

For the last month or so, Peter and I have been discussing milestones as our relationship continues to mature. There’s been a particular emphasis on our long-term future as of late. Our future-orientated mindsets come as no surprise, though the concretization of our ideals become increasingly apparent. Peter has always made it well known that he does not subscribe to any defined timeline so it didn’t come as a complete shock when he floated the idea of buying a home.

Interestingly, last year, we were decidedly against a home purchase—so much so that it was a topic of our blog. Though the principles detailed then remain mostly true now, there have been a few changes to both the market and our circumstances that have led us to re-considering. The biggest change now versus then is the mapping of our current financial situation. This has allowed us to project financial estimates and timelines for years down the line, which in turn provided us knowledge on the wiggle room for this type of endeavor. There’s also been the slightest dip in interest rates which makes purchasing more appealing. This is especially so if its an indication of continued decrement and potential refinancing to a more favorable number in the near future.

For me, the reasons for home ownership have always been intimately tied to the concept of family. Of course, there were the variables of cost and affordability as well, but that could be solved with simple, straightforward math. For Peter, the reasons were more financially complex. There is the obvious issue of timing as it is not always a buyers’ market. There were also the less obvious utilizations of a home purchase aside from inhabitance, namely house-hacking to subsidize costs, long-term real estate investment, and tax savings for our W2 incomes if the home can be run concurrently as a business. Market inflation and house appreciation in California outpaces us all, so there is some sense in buying now, and offsetting the cost with tenants.

Raising a family and home ownership are very tightly coupled concepts to me. The concept of a home is fluid and different for everyone. I certainly would have no hesitation with child rearing in an apartment or arrangement other than a single family home. However, ideally, I’ve always envisioned stability, a sense of dutiful permanence, and belonging as part of my future. These things, in my opinion, are more easily captured by eventual home ownership, especially when children are in the mix. Fortunately, Peter shares the same vision, albeit a little more flexible. For him, home ownership has value primarily in legal and financial terms, less so with emotional attachment. In all his equanimity, he’s dedicated to finding a path to achieving my vision.

The idea of living with others initially was less than savory to me. Even with the temporary nature of a starter home, privacy and comfort stands above any short-term financial gain. Turns out that Peter also would not sacrifice those values despite having lived much of his 20s and 30s with roommates. His idea of cohabitation would involve living on the same property but separated, at the very least, by walls and entry ways, ensuring that we would never cross paths or share living space. Now that was something I could get on board with. And thus this became an integral part of our house screenings—would they have potential for renting to others?

Having renters on our property comes with so many benefits as aforementioned. We wanted our monthly out of pocket mortgage payment to be close to what we are renting for, and having tenants would help with this tremendously. Naturally, the type of starter home we’d be looking at would be limited as there’s only so much we could reasonably rent out. The real genius in Peter’s idea, however, was the potential of running the home as a business. This would this allow for potential tax deductions via short-term rentals (STR). Even without running a STR business, having long-term tenants could allow Peter to achieve real-estate professional status (REPS) that could further shelter some of my W2 income. All the while, we gain equity in the home over time while waiting for the opportunity for a more permanent home. Financially, home buying could make sense with the right operations.

Housing prices in Southern California are undoubtedly absurd and the first roadblock for our endeavors. Even after crunching all the numbers to achieve the scenario illustrated above, houses are prohibitively expensive. Peter and I are very fortunate to even be in this position of considering home-buying. However, our ambition to FIRE works as a boundary to enacting this plan—neither of us want to be “house poor” and sacrifice the future flexibility we so value. Our combined incomes could sustain the mortgage comfortably. As a new attending with pittance for savings, we’d be relying on Peter to support the bulk of the down payment.

What would this ultimately mean? The ideal scenario is that we end up paying what we are currently paying for rent in mortgage with tenants covering the rest. The tax savings and deductions would be an overall boon to our finances. And while we intend on having the first purchase be a starter home, it may serendipitously be a long-term home if things work out well. With the space built out to be renter-friendly, this would make the perfect setting to have friends, family, and guests over. It could even become a place of multigenerational living should either of our parents need more support or to downsize from their own homes. If not, the home could eventually become self-sustaining when fully rented out once we’ve moved on to a different place.

This project would be more of me diving headfirst into real-estate, while Peter would just be refining his skillset. This is an area where our strengths seem, again, quite complementary. Whereas he excels with logistics, organization, and operations, I have slightly more skill and much more tolerance in managing (curmudgeonly) people, much of it owed to my day job. In fact, he has oft relegated communication over to me due to this. Together, we combed through numbers needed to make this a reality, weighed our options, and surveyed the market. We’ve also attended a few open houses for funsies (parents included)! There are many moving pieces, and though we wish we could say we’re 100% dedicated to a home purchase, the stars have not yet aligned.

Throughout this exercise of planning for a home purchase, we realize that it is not without its drawbacks. Though a home purchase could be made into a financially sound decision, it is still a long way from being the most financially profitable decision. Other avenues of wealth generation that we’ve discussed may include business endeavors on top of our busy day jobs. This would pave the trajectory for possibly even earlier or fatter FIRE. On the flip side, there are other more emotionally satisfying endeavors that are wholly unprofitable and rather costly: children. We joke that with our current situation, we can only achieve 2 of 3 (children, home ownership, or fat FIRE). Though we’re slightly unaligned on preferences here, we have found room for compromise. We’ll leave it to you guess who wants what!