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Contemplating our house

February 2nd, 2007 at 09:02 am

Real estate here in California has had an amazing run over the last 10 years. I bought my first house, a 1170 sq ft townhouse, in 1998 for $189k, and sold it 4 years later for $369k -- a profit of about $160k after paying the real estate commission. At the time, we considered keeping it as a rental property, but were nervous about carrying two mortgages. Too bad we didn't -- those townhouses were selling for $600k just a couple of years later!

Our current house is 1900 sq ft, 4 bedroom, 2.5 bath. It has a large yard (for California) and is in a very special location -- our back yard borders a large canyon, probably a quater mile across, that is protected by the city as a nature corridor. We fell in love with the view and went $70k above our intended budget to buy the place for $520k in 2002. We thought we were at the top of the real estate bubble then, but closing prices on this model have gone up over $200k since then. (They've fallen $20k since the peak a year ago. Not sure how much more they'll fall, but I don't think they will go back down to the price we bought at.) With the downpayment and the principal we've payed off, we're sitting on about $300k of equity.

Interest rates have been in our favor as well. We started off with a 30 year fixed at 7.0%, and refinanced twice in the first year as they kept falling and falling. In the end we decided to go for a 10/1 ARM that is fixed at 5.125% for the first 10 years. I figured that the longest my parents had ever lived in one house was 9 years, so it was worth the risk of taking the ARM to get the low rate. This decision has been a major factor in allowing me to be a SAHM.

After reading a few posts on EnoughWealth's blog, I'm wondering if we should consider doing some "gearing" -- taking a home equity loan and using the money to invest in either mutual funds or rental properties. The biggest problem I can see is that servicing the debt could really put a squeeze on our cash flow.

The other issue with our house is that the local schools are only average. I recently looked at the published test scores for our local elementary. The 2nd graders did great, but then the test scores for that same group of kids was lower for each succeeding year. Not encouraging. Of course we knew the district wasn't the best in the region when we bought the place, but we figured we'd have years to make a decision about either moving or paying for private school. At this point, it might be cheaper to pay for private school than to pay for a higher mortgage and property taxes if we moved to a similar house in a better district. I'll have to go back to work for us to afford either option. We do have a choice lottery within the district, so I'll also be looking to see if any of the other elementary schools are better. The houses on the other side of the canyon are in a much better district, the California rating index is a full 100 points higher, but the house prices are easily $500k more than ours.

As for the house itself, when we were looking we really wanted about 2200 sq ft but compromised for the view. Ideally I'd like one more bedroom, a kitchen table separate from the dining room, and a slightly larger living room. I guess it's human nature to always want just a little bit more than you've got. When we have a 2nd child, the current guest bedroom will become his or her room, and we just have to figure out what to do with the queen guest bed (the room is 10x10, so a queen doesn't leave much room for a kid to play.) I really love the bedframe, so I don't want to sell it. I'd like the office bedroom to be a combination exercise/playroom, although today it's too cluttered up with outgrown baby equipment, computers & printers, and bookcases to be useful. (Houses don't have basements in this area, so you end up storing stuff in either a bedroom or the garage. I really miss having a basement!) We might add a murphy bed so it can double as the guest room, although I'm worried about losing a couple of feet for the murphy. The room itself has 3 windows along the hallway so we'd need blinds to use it as a bedroom.

2 Responses to “Contemplating our house”

  1. monkeymama Says:

    I know your conundrum.

    We have been looking at houses. We have 5-bedroom 2600sf but we are already bored. I am kind of scared to move, though, when do you stop wanting more? LOL. I think our tatstes have evolved though - we live in a very upscale community and we want to move to an older neighborhood with a big yard. Everyone thinks we are crazy, but I want mature trees and a house that doesn't look like everyone elses. Plus with our equity we can buy some nice land - which is cheap in this downturn but will appreciate the most in an upswing. Anyway, we looked and looked and have been too particular - I do not know if we will ever find anything. But I have this rule in my head that we can not buy up again after our early 30s. I want to settle and save for the future.

    For now I am in a conundrum though because we live in a higher risk flood area but they are working on it and the schools are just the best. They are newer and have more money and are just great.

    The place we were looking at did not have th ehighest test scores, but from word of mouth sounded like some very excellent schools. But the downside is they are so old - they don't have as much funding and nice equipment. I think maybe those schools are still good today, but what about in 10-15 years when the kids hit high school. I don't know.

    In the meantime we looked and we are way too picky so unless we win the lottery and custom build I doubt we will ever move again in California. Outside Cali, maybe, waiting and seeing as our parents retire and where we can all agree to cash out and move to!

  2. monkeymama Says:

    I was going to clarify - yeah - test scores are not everything - really look into what you can find about the schools.

    & yeah it gets so expensive to move with realtor fees and increasing the property taxes and such. We have been looking to make more of a lateral move, but in the end our net worth would take a big hit - not sure if it is worth it.

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