Sunday, March 11, 2007

so many houses

We've spent the last few days looking at houses in Chicago.
After the first five they all tend to blend together.
With my wife's help, we have a top four list.
Prices tend to run from $740k to $1.2M.

At the moment, interest is picking up with the spring thaw, yet there are stil lvery many houses on the market for 6 months plus.

We're expecting comps for the top 4 later tonight. We'll probably make an offer this week.

I'm kicking myself for not being pre-approved for a mortgage before beginning the search, however, we have a regular repeat relationship with our mortgage broker so it should move fairly quickly.

We are wondering what our finances will look like after a move to Chicago. The key issues are:

1. new expenses - not sure what all of them will be
2. net cash earnings from salary - we've been making accelerated 401k contributions and don't know our normal post tax payments
3. actual cost of housing - prices vary by $400k - what will it really cost
4. my wife will take time off before starting new job - how will that impact us in terms of cash flow
5. moving costs (Big Company and my wife's new employer will pick up most of the costs)

The big issue now is this question:

Do you buy a $750k house that is in good shape, but would benefit from $150k in improvements OR

Do you buy a $950k house that's in great shape, but you'd like to spend $50k changing the kitchen?

Your thoughts and recommendations?

Oh, btw, I have learned that the houses I would truely prefer frun between $2M - $4M. I have a loooong way to go.

Regards,
makingourway

4 comments:

traineeinvestor said...

All other things being equal I would go with the cheaper option ($750 + $150) and take a smaller mortgage. The lower payments will allow you to put more money into your other investments.

However, all things are seldom equal. The time needed to do the remedial work, the neighbourhood, transportation links, scholl zoning, potential to expand the house in the future, garden space, views etc are all factors that sould be taken into account. Appraisal value (before and after you do the work) should also be looked at.

Which ever place you chose, it should be a place you are confident you will be happy living in for a long time. The cost of selling and buying another home is significant.

Steve Leung said...

Hi, I think it depends on your point of view. If you're looking for the highest immediate quality of life with the least investment, then the house in great shape is the right call. In general, your highest ROIs on remodels are in the kitchens and bathrooms. Here in CA, those are relatively sure bets.

If you're willing to sacrifice a little comfort and the renovations on the $750K house will actually increase the value of the house, this is the better choice. I was recently at a house here in CA which had more upgrades than the neighborhood could support (i.e. even if you lined the walls with gold, there's only a certain value the house in that neighborhood will bring). Just be sure you're not in that situation before sacrificing your comfort and time (billable to your family and work, y'know!)

What do you think?

Cheers,
Steve

D said...

I think, instead of focusing on the house and the upgrades, pull in other factors. Neighborhood, schools, location to other things, crime level, etc.

I'm sure your wife is already evaluating these items.

Good Luck.

Anonymous said...

With everything that you guys are going through, all the stress on your family (two of you changing jobs, everyone moving, new schools for the kids, new climate), and not knowing contractors in the new area, I'd say better to get the $950K house.

It is funny how the house you *really* like is always up two notches from the house you can afford. Apparently this never ends.

Anne