We have a split in the road ahead.
To the left, a $370,000 fix-er-up. To the right, a $470,000 finished home. Which way to go?
Time to make a list.
We’ve done this before. My wife and I sold a townhouse and moved into Calgary and we had to decide between a two bedroom condo in Inglewood and a one condo bedroom in Mission. So we went for breakfast and we made a list from top to bottom, highlighting all the pros and the cons. See picture below for the finale.
So let’s take that template, and apply it to the situation ahead.
House A. $370,000. This let’s us put 20% down, or $74000. With a 25-year amortization, at 2.05%, this brings the monthly payments to $1414. That has semi-monthly payments of $630.02, and property tax at $154.17 (approximately half a percent of the property value, per annum).
House B. $470,000. Harder now to put 20% down, so we would just do 10%, or $44000. I know that doesn’t add up – 10% of 470,000 is $47000, but I’ll explain that in a moment. With a 25-year amortization, at 2.05%, this brings the monthly payments to $1921. That has semi-monthly mortgage payments of $868.99, and property tax at $183.33 (same as above). Now remember, with less 20% down, there is a built-in mortgage insurance of $12,276. Gross!
Now why not the full $470,000. The owner is looking for more than the appraised value, which, arguably, did come in a bit low. $30,000 more. So we would have to foot the difference, hence explaining why we can only pay 10% down. So on top of the $44000, we would have to add another $30000, which brings us to the same up-front cash drain of $74000 as the $340000.
Now House B we earn equity at $12,648 a year versus House A which is slightly slower at just under $10k. That $2500+ difference is significant, amounting to $200 a month, bridging the otherwise $500 gap between the monthly cost of $1921 for House B and $1414 for House A. Bringing us to the $300 dilemma.
Now let’s stop talking money for a quick moment. House B is a ‘finished home’, meaning very little – if any – work would need to be done. Maybe a bigger hot water tank. House A, on the other hand, has some serious renos that could be done. Some that really need to be done. Talking to my wife, to live here for 5+ years, they need to be done. So let’s get it done.
Bare bones would be new kitchen flooring, likely carpet in the rest of the house, a kitchen, some pod lighting, and making windows bigger in the basement (so they are egress and the growing family can escape). Some nice-to-haves would be a heated garage (for the incoming Austin Healey Bugeye Sprite reno), a deck in the back yard, some landscaping in the front yard, some work in the basement.
All-in-all, somewhere in the range of $20-30k.
How do we pay for it? Well, we can cash flow it and do it over time, but that means living in chaos with babies. We can add 10% to the mortgage upfront for renos, if we can complete them within 6 months. So going to $400k for House A (an extra $30,000) with the 20% down brings the monthly payments to $1516, so now narrowing the $300 dilemma to just $200.
Now before we regress back to numbers, let’s talk some other fundamentals.
House A, the cheaper one, has a nice garage setup. Oversized two-door, with a decent size working area beside it, allowing me to fit the growing fleet of vehicles -> my motorbike, the Austin project, the kid-hauler (Dodge Caravan), and then in the driveway my Tent Trailer and trusty commuter car (Ford Focus). House B, the expensive one, lacks in this area, somewhat. It has a single garage at the end of a long driveway, which would fit the Caravan and Motorbike (the garage would). The Healey project can go in the attached shop behind the Caravan, the Focus would have to go in the driveway (causing some awkward shuffling) or on the street. There’s a spot for the tent trailer in-behind the house.
As for the houses themselves, aside from the aesthetics. House A – the cheap one – has an open concept when you come in, is a bungalow with three bedrooms up), with a separate entrance for the basement (with two bedrooms, living area, and laundry room). House B – the expensive one – is a front-back 4-level split. Not as open when you walk-in, and there’s an entrance in the back yard that comes into the 3rd level. Nice storage space in the form of a crawl space underneath.
The value is there for the expensive one despite the low appraisal value, with the owner being into it for $515000. He went over-the-top on the reno’s, as a forever home, with hardy-board siding, rubber shingles, heated shop, heated floors in the bathrooms, etc. The one we are in – btw, we are renting House A – is almost the complete opposite, with our landlord delaying installing siding, etc.
So ultimately the $300 dileman is this -> should I just pay up for the finished place and save myself the money / time of renovating the current place, or should I just go enjoy the new place and pay the extra money per month? For perspective, I can work one day of overtime and make over $600, so one day of overtime a month would cover the difference.
Oh, the view. The cheaper house has a nice backyard, south-facing into a fantastic park. The more expensive house has a nice front-yard, west-facing, but with no neighbor to the south-west (the closest one is us), giving you a view (through some trees) into the same park.
Some other creative ideas – buy a rental property and use the income from that to pay the rent on one of the above properties. Keep renting. We could go buy somewhere else where we could find the happy-medium -> something priced in-between, closer to appraisal value, with just a couple projects here-and-there. But where we are is situated in the perfect spot -> between two good friends, both of whom have / are expecting babies, friends from church, some Pastors, and my brother and sister-in-law (also with my nephew and niece). We are on a cul-de-sac, backing into a park.
Oh, and we currently pay $1850 in rent (plus utilities). So we won’t be out much more month-to-month than we currently are.
Good news -> either way, we will be blessed. I have no doubt of that. So now we just have to pick the way.