This weekend Eric and I almost put in a bid on a multi-family home in the suburbs. Everything about the house was perfect. It was a two-unit home with a two-bedroom apartment on the bottom level and a three-bedroom unit on the top. The outside of the house was in great shape (newer siding and windows, paved driveway, 2-car garage), and the inside was in very good shape too (newer appliances, newer heating systems, walls in good shape).
The house had most of what we were looking for in a home. It was an older Victorian with plenty of charming features including built-in bookcases, crown molding and hardwood floors. It was close to the commuter trains and buses and there was even a little yard for the dog with some nice landscaping and flowers.
Everything I’ve told Eric I wanted, minus the white-picket fence right?
The only problem?
The asking price was more than I felt comfortable paying (and would likely go up, thanks to bidding wars).
Eric said we’d be fine making the payments, especially with the rental income we’d be making from the second unit (which is why we’ve been wanting to buy a multi-family home). So we signed the contract and I promptly freaked out and changed my mind before we e-mailed the pdf to our realtor.
Here’s the Background:
For the last 6 months or so, we’ve debated whether we should keep our current condo and rent it out, or sell it and use the money towards a bigger down payment on a multi-family home.
Ultimately, with the soaring prices in our neighborhood we have decided to keep the condo and rent it. Our realtor took at look at our place and said we’d be able to cover our mortgage and condo fees with the rent we’d be collecting. So basically our renters would be paying our mortgage on the condo. Which isn’t a bad deal considering property values in our neighborhood and the likelihood that they will continue to increase.
The irony in this whole story, is that I’d, “convinced” Eric that we should buy a multi-family home so we could pay down the mortgage faster and/or have a lower mortgage payment in the event that I cut back my hours when we have kids (in the future, no wedding bells yet). Now that I’ve got him, “on board” and he’s excited about the idea, I’m putting on the brakes. Go figure!
Why this isn’t the house for us:
While the numbers “work” on the multi-family we liked, this home felt too expensive to me. Once we paid the downpayment and closing costs, we wouldn’t have a very big emergency fund left. Our emergency fund took some pretty big hits this year (first the broken furnace and then the very ill kitties).
Had we not had an emergency fund to cover those emergencies, I probably would have had a panic attack. After working so hard to get myself out of student loan debt, the thought of being in debt again terrifies me. Yes, I know there are far more scary things to be afraid of, but I know how bad I felt when I had that huge debt hanging over my head and I don’t want to go back to that place if our renters bail on us or one of us (god forbid) loses our job. What it all boils down to, is I don’t want to set myself up in a situation where I feel scared about my finances.
What does that mean for a future purchase?
Long story, short, I think I’ll be much more comfortable buying a more modest, smaller and/or less updated home with a smaller mortgage payment. Ideally, I’d like to know that we could cover both mortgages for both properties out of our salaries. If that’s not possible, I’d want a big emergency fund that would cover 3-6 months of both mortgages in the event that one or both of our tenants don’t pay. Hopefully that wouldn’t ever happen, but it’s what will make me comfortable and you can’t put a price on financial security.
Am I nuts for backing out of the “perfect” home for us? Does debt scare you?
Image: Pat Williams