f13.net

*Mods - I could have sworn we had a past thread on this topic, but I couldn't find it. Feel free to merge as appropriate.*

So there's a nearly-100% chance I am going to be moving back to the States in the next two years; a pretty good chance it will be in about a year. It will be for 2-5 years I reckon, and since the only debt I have at this point is my car, it will probably be about time I took the plunge and bought...real estate. The idea of having a mortgage and such kind of makes my skin crawl, and I would be buying into the completely obnoxious WASHDC housing market, but I figure that's better than just handing my money over to some other guy with zero long-term benefit.

So since ya'll are pretty bright on such things, I figure this would be a more productive start than random Google searches. So with that - what do I need to start considering at this point, at minimum a year out?

Here's a simple question - what percentage of my take-home pay should I reasonably be expecting to have to dump into mortgage payments, HOA fees, and whatever else comes with home ownership (outside of maintenance/repairs/replacing stuff)?

Buying a house isn't an investment, it's an expense.

If you haven't already, verify that the raw mortgage vs renting numbers are in favor of buying. Then, realize that those calculators pretty much always overstate the "tax benefits" of spending more money (i.e. paying mortgage interest and potentially deducting some of it), and usually neglect the 1-3% annual cost of housing upkeep and maintenance.  Buy a 500K house, and you should budget 10-15K/yr in expenses, and they'll be very lumpy--many years, you'll have minimal expenses, and then blammo, the roof goes out, the windows fail, foundation cracks, water leak wrecks a room or an entire floor, and there's 50K in mandatory repairs. Property taxes add another percent or two of mandatory expenses every year, and can fluctuate wildly. Local appraisal values can jump up suspiciously high whenever the county or city hits an economic rough patch, as it can be quite hard/expensive to fight an incorrect property tax assessment.

Add in the transaction costs to buying a house (5%ish buying, and that again to sell) and that long-term real estate prices just barely keep up with inflation, and renting can be a lot more economical than one thinks. I wouldn't buy a house unless I was sure I'd be living in the area for at least 7 years due to the transaction costs alone. If you feel you can predict the future and buy into a "great" area where a house will appreciate much faster than inflation, I'd suggest first using that predictive power to buy lottery tickets so housing costs won't be an issue. :)

But if you really do want to buy a house, save up enough of a downpayment to ensure you don't have to pay PMI (that's just flushing money down the toilet), usually at least 20%. Make sure the house is close enough to your current and all future jobs so the commute is acceptable. Buy as little house as you need; buying too much house not only dings you on barely affordable mortgage payments, but also gets you in higher utilities, insurance, maintenance, furnishings (quantity and quality) and can easily trigger lifestyle creep. Get a fixed-rate mortgage of as short a duration as possible (15 yrs if you can handle the payments, 30 otherwise). I have no idea what banks are requiring these days in terms of payment-to-income ratios, but if your total housing costs are much than 1/3 of your pre-tax salary, you may have a pretty bad time being able to save for retirement let alone handling any emergency expenses or income issues.

When actually buying a house, know what you want before you start looking (if necessary, just "browse" some houses to get a sense for what's realistic in your price range). We found it very useful to make an actual on-paper list of must-haves, would-be-nices, and must-not-haves for a house, and make sure our real estate agent had a copy--we winnowed out over a hundred houses that way, and only ended up looking at about 60 before buying one. Zillow estimates are usually useless, but can at least give you a sense for what kinds of properties are in an area in terms of size and features. Don't ever get emotionally attached to a potential house. Don't let a realtor push you above your price range--they have a strong financial incentive to get you to buy as much house as you possibly can. For the love of God, have a full inspection done before buying...I'd have a few dollars more if I had a nickel for every colleague who bought a house in the Bay Area without inspection (due to the "hot market") and later asked "We have black mold growing in the walls, is that bad?" If the seller balks at any contingencies such as inspections, repairs prior to purchase, etc., or is annoying during the selling process, walk away--don't buy yourself pain. Yes, you may miss out on some houses, but a lot of the time, you'll end up glad you did.

Disclaimer: Despite all of the negatives, I own a house. We plan to die in it. We hope that won't be for 40+ years, but it may be much sooner if the Big One hits the Pacific Northwest anytime soon...

Have money for a down payment (the more the better), and credit history.  If you're a weirdo like me who doesn't like credit cards and prefers to use a debit card, get a credit card anyway, right now.


That's kind of a nonsense question.  The amount of money you spend on that stuff depends mostly on how much you have to borrow.  And the percentage that is of your income depends on your income.  We don't know any of those numbers, and some of them (like how expensive of a house you want to buy and how much you're willing to borrow) are entirely dependent on what you personally find to be reasonable in terms of how much you're willing to spend and where you want to live.

Looking at my bank statements, I spend about 40% of my take-home pay each month on my house (it's about to go up a bit because I'm refinancing into a 15-year).  That's mortage, insurance, and property tax, but not maintenance/repairs because that's not a monthly thing; most of the money I dump into my house isn't stuff I really NEED to do and it tends to happen in big chunks.  As far as minor vital repairs (the occasional plumbing mishap or leak or broken appliance or what have you) I spend less on my house than I do on keeping my car running, something like a couple hundred bucks a year if that.

I agree with Torinak in that it doesn't make any sense to buy a house if your time horizon to live there is 2-5 years unless you want to rent it out when you move on (which is a giant pain if you aren't committed to it plus you will have to run the numbers like cap rate and cash over cash to see if it even makes sense to do that).   You will gain little to no equity in that time frame and the costs of buying and selling will eat that up completely if not put you in the hole.  The only exception would be if you want to buy a craphole and spend the time you are in it fixing it up to get higher resale value.   Again, major pain in the ass and still a financial risk.

Oh man, I completely missed the part about you just living there for a few years.  What are you, nuts?  No.  Don't do that.

Given that the London housing market is completely atypical of most housing markets I'm not sure how much useful advice I can give you. That said...

What the others say is all very prudent, and I wouldn't dismiss any of it. One thing I would add to the side of the balance in favour of owning a house is the enjoyment you can derive from ownership. It's difficult to quantify since it's intangible, but after years of renting, having a place I could stay in long-term, that I could have the way I wanted it to be, and that was mine, was a real treat. Renting is an arse; it is often a necessary arse, and there's plenty of situations where it makes more practical sense than owning. But on an emotional level, there's something to be said for having a place you can call home.

House buying is sensible at a 5-10 year horizon, not 2-5. Even that varies depending on where you're buying and if it's DC it's probably 10-15 years before it makes real sense. Lease an apartment or a house. Yes you'll be throwing money down a hole but the hit you'll take on the house will be the same thing.

Unless of course you have folks who'll do the Real Estate thing for gratis, enough money to buy at a sheriff's auction, or are able to buy direct from the owner. Those can all be major game changers.

Also, treat realtors like sales people. That's what they are, only less scrupulous.  


See, I disagree that it's a nonsense question. Rule of thumb I've seen from financial advice pieces has always been "don't spend more than 25% of your income on housing." This leaves you a lot to throw at retirement, living, travel, etc.  Seems like solid advice, especially with how volatile employment can be.

That second one is why my personal rule is, "don't buy a house where your mortgage will be more than $1k"  I've watched friends struggle mightily because they bought 1,500 or 2,000 a month mortgages then got hit with a layoff or a company closure. Panic mode ensues as what was 40-50% of their monthly income is now all of their unemployment.  I've also got a hell of a volatile employment sector, so these folks continuing to make foolish mistakes like that always astound me.

ed2:  I want to second the ownership/ feels aspect and Sam's statement about maintenance being cheap. Yes there's the initial outlay for some of the tools, but maintaining my lawn costs me 2 gallons of gas a year and a $5 thing of oil for the mower. I don't water, I don't feed, hell I even started letting clover take over because it's nicer looking and BEES.  This is a 30-year-old "crappy built" developer home and the money I've been putting into it (outside of the Foundation - because sheriff's  sale - has been for things I want to do, not have to do. The one I built 13 years ago was even cheaper to maintain because it was newer. Its certainly been cheaper than any of my cars with the brakes and suspension and transmission problems they've had. (Ignoring the wife's tendency to get into accidents.)

I'm just going to echo the "don't buy if you don't plan on staying put more than 5 years." Between closing costs, overhead like taxes, insurance, and HOA fees, and the potential for *big* maintenance costs, buying a house because you're counting on the local real estate market continuing to climb is a losing proposition. For the first 10 years of a mortgage, instead of all your money going to the landlord of a rental, all your money goes to pay interest to the bank. You don't own shit except the equity, and if the market goes down instead of up that means you own a big pile of debt you'll have to buy your way out of. God help you if your inspector misses something big like a structural fault or mold in the walls.

The only way a medium-term purchase makes any sense at all is if you have the skills and the time to invest 'sweat equity' in bringing a cosmetically blighted or outdated property up to snuff, and in most areas there are underworked contractors filling those niches already.

--Dave

I should have been more specific perhaps.

So, after the 2-5 years bit, I would likely be headed back out on overseas assignment - during that time, I would be renting the place out. There are tons of people that come through DC, and especially if you have a decent property in a decent location, most folks don't have many issues finding tenants (especially with a management company). A lot of people being in town long-term on per diem can be a plus as well. I agree that buying, with the intention to sell 5 years down the line would be dumb.

As far as payments - some of what you all said makes sense - 25-50% of take-home pay seems depressingly realistic. A lot of this will depend on whether I get my preferred onward assignment, and would therefore have only 30-50k to throw at house/apt/condo, or somewhere north of 100k. Grain of salt, but the couple of random properties that seemed nice on Zillow I glanced at were in the 500-650k range, which...ugh.  :uhrr:

Some of those payments were working out to be about 2k/mo for a 30yr fixed mortgage...which is about the same as some of the rents I've seen, and isn't much more than I was paying for a pretty basic apartment outside of DC when I was borderline broke 5 years ago.

Don't buy a house.  It doesn't suit your lifestyle.  Houses are for people that want to lay down roots, raise a family, and live a stable and sedentary life.  They are far too big an expense otherwise. I say this as someone that owns a house.  The upkeep and taxes far outweigh any real benefit now that my daughter is grown and off at college.

Also, do you really want to rent your house out while you're on assignment halfway around the world?  You have far more faith in humanity than I do.  

Being a landlord is a job. Even if you have a top-notch property manager (who will usually take at least 6-10% in fees, which turns a decent rental property into a losing one), you are still legally and financially liable for everything. Having to fork out serious money for repairs can still happen, as can all manner of incidental unpleasantness like finding out your property manager isn't actually as much on top of things as you thought...or the tenants just up and left without bothering to tell anyone and the property gets trashed. Do you really want to have to coordinate with contractors, plumbers, etc., while on an overseas assignment, or find out that the property manager only uses family/friends/places that give them kickbacks for every little thing that needs to be done? Do you want to coordinate eviction proceedings from halfway around the world?

Some people can do well as landlords. They're usually very tolerant, live on or very near the property, have excellent plumbing/carpentry/drywall skills, value their time at nearly zero, and are intrinsically lucky. Many people try to be landlords (some involuntarily, such as being unable to sell their house after moving away), and end up losing a lot of money or not even coming close to making enough to cover all of the stress. There's also a lot of funny mental accounting that small-scale landlords seem to use, like not counting repairs, double-counting depreciation, ignoring losing out on potential tax breaks due to renting out their former primary residence for too long before selling it, assuming 100% occupancy, and treating their own labor and time as free.

Don't do it, unless you really really really want to be a landlord.

At best, what happens if you have happy long-term tenants who've just renewed a year-long lease and you find out you're heading back to the US? You can't even live in your own house.

Rule of thumb is that the monthly rent needs to be 1% of purchase price for owning a rental to make financial sense. Rent doesn't scale the same way purchase price does in tight markets so good luck finding such a property.

I was seriously considering getting into owning rental properties as its one of the few things I don't have going as far as investments. The more I looked into it, the less I was interested in doing it. It's actually pretty rough.  Single family homes are the toughest thing to do BTW. You need to have a multi-family units (duplex, tri, quad) for it to make even a lick of sense.

Nothing about your situation says you should be buying a house. Your motivation seems to because its what you 'should' do, rather than because it makes sense.

Don't buy a house.

If you do don't spend more than 30% of your wage servicing the mortgage.

But seriously, don't buy a house.

I bought a house to flip, and when I got a new job, moved in instead.  Did that for eight years and realized I hated living in the country.  So, through property management, I have rented my house out and moved 2.5 miles away from my work.  Or where I used to work. Now that I've been downsized, thanks to renting, I can quickly move anywhere for my next job.  Couldn't have done that still living at my home.

So I'm in favor of renting since I'm single and I like the idea of moving around when I get bored/fed up with a place or need to move for work.  Plus I have rental income coming in, which is nice.  It pays my rent exactly.

If you must look in DC, there are new houses going up in Haymarket in the 250k range.  They look really nice for that price.  Of course you'd live in the far west of the DC metro area.

Just want to reiterate this.

Your lifestyle is too mobile to consider buying a house and you won't be saving any money in the long run, and one bad choice or bit of bad luck and you get saddled with a long-term payment for a house you aren't living in and aren't near enough to handle upkeep.  You might could get away with a condo if you plan on returning to it one day, but really the hassle just isn't worth it.

I think the only other time you really need to think about buying is when you're planning to live somewhere where there's almost no rental stock anyway, usually somewhere rural.

One civil servant income will not be able to afford a house inside the beltway in a neighborhood many people would want to live in (and thus, be able to rent when you get sent to Djibouti or wherever in 2-5 years).

Rent an apartment/condo somewhere close to the Metro. If possible, find a place that will go month to month after the first year lease.

I ran across this last week from the New York Times, a handy tool to help decide, buy or rent.  (http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html)It's all slider based and gives you all sorts of things to factor for and against.

This only confirms to me that without a lot of contextual information it's a nonsense question, because both of those pieces of advice are entirely inapplicable to where I am.  It's pretty standard around here to spend half your income on rent (like I said I spend about 40% and I'm doing way better on that front than most people I know), and market rate for a one bedroom apartment even out in the boonies where I am is $3k.

So being as the question was "what's reasonable"... well, what's reasonable to me will probably not seem at all reasonable to you.   :awesome_for_real:

See, it's not though because if you lose your job for more than a few months you are fucked. I feel like budget is almost an entirely separate discussion, though. I always wind up on the "then you shouldn't be living there and let the rich folks pay to house help" side when talking about prices in overcrowded population centers.

When we moved from Ohio to Seattle, we couldn't sell our house. It sat empty for six months while we tried to sell, eventually we got a renter.

She was overall a pretty good tenant, but because we were 2500 miles away, anytime she said something was wrong we had to pay to send someone out. Unless you're purchasing a rental as an investment AND you will live in the same area, then it's okay. Otherwise, I can't recommend distance landlording.

It's a large and tightly connected discussion -- I believe pretty firmly that you should have emergency savings proportional to your living expenses so you can weather stuff like sudden job loss etc, and that if you're living paycheck to paycheck without being able to sock away any savings, you need to either start making more or spending less money, whichever is easier.  But I'm aware that I'm out of step with the majority of the country on stuff like that.

If you're looking to buy a house and plan to rent it out before you recoup your initial costs, I would suggest checking out rents in the area.

Where I live, for instance, I could charge about 20% more in rent than what my full note is (mortgage + insurance + taxes) due to a rather high demand to live here (good schools) but, especially since the Recession, a harder time for purchasing. There's not a lot of new development in the core of the area, and while home costs aren't terribly expensive compared to other areas of Houston, it's enough that putting together a 15% or 20% downpayment is problematic.

It'd be a gamble, admittedly, if you wanted to rent (assuming you could purchase at a price to give you that 20% cushion). You'd be gambling that rents would remain higher, that you'd at least break even after you got someone to manage and handle routine maintenance while you were out of country. (Breaking even would be the goal. You'd be storing equity, not trying to make a profit).

But distance management only works here because rents are higher than mortgages, and that relied alot on me having a large down payment and excellent credit. I probably wouldn't have bought if I was only going to be here 2 to 5 years.

You should also look into the tax situation -- part of my savings involve tax deductions for the fact that it's my primary residence. Pretty sure I can't claim that if I live elsewhere. :)

It's pretty situation specific -- but honestly, I'd take the money you were gonna put down and put it into a fairly conservative investment. Rent something cheap, since you're only going to be there a few years, and maybe shove some more money into that fund. Then when you get back, use the larger down payment on a home purchase. You can either buy a more expensive home OR put more money down, reducing your monthly costs (or allowing you to pay it off more cheaply).

Thanks for the info all - admittedly, my situation is a bit of an edge case - very specific and unusual. For instance, I'd be able to still claim the place as a primary residence rather than an investment property, since I'd be overseas on government orders.

The basic idea would be that I'd be building equity in a place that'd be mine, and I'd have somewhere to go back to whenever I have a domestic tour. When overseas, I'd have tenants essentially paying all the costs/taxes and such for me (repairs aside) - I would just want it to be as close to cost-neutral as possible when I'm not actually living in it.

That NYT link is pretty good - playing with the sliders a bit, even if I put down $160k on a $540k property, it's saying it still makes sense to rent if I can get something comparable at around $2k/mo, which seems eminently possible.

But as for this:


I know you meant well, but loooool - Haymarket is not DC. When I said WASHDC, I meant it - not VA, not MD. I'd be working in the SW portion of NW, pretty much all my friends are in the relative area, and so is pretty much everywhere we would normally go for dinner and such. The only thing I'd be going out to VA for regularly would be to play hockey probably. Also, looking at the potential commute from there - you'd have to pay me, a lot, to deal with that terrible possibility - either driving in for about an hour on 66, or two hours hopping a bus to the Tysons metro stop and taking that in. I don't suffer from road rage now, but I think I would if I had to deal with that every day.

You all that move frequently and have to either deal with buying/selling property, or finding good rentals - I don't know how you deal with that nonsense. What a pain. And I grouse about having a car payment now... :oh_i_see:

No offence, but there seems to be a bit of ego and status symbol logic behind your reasons, and next to zero financial ones.

You need to look at the numbers a lot more seriously. Or be more up front with the intangible motivations and start to try and give them a value so you can factor them appropriately.

Which parts are you inferring "ego or status symbol logic" from? A good part of it is financial - for instance, how bad would it be to end up being "retired" before age 50 and not having a place to go back to (a distinct possibility with time-in-class and the age I started at)? Some of it is convenience as well - I don't like to drive a whole lot when I'm living/working in that area, so Metro accessibility is important. But beyond that, for whatever reason Metro generally shuts down fairly early in the evening, leaving you with Taxis and Uber...and it can be hell at times to find a taxi that will even go from DC over into Arlington, VA. So not only am I not terribly inclined to live out in the suburbs again, but it can also be a logistical nightmare. I also probably underestimated how long it would take to drive in - it's probably more like 1:30 on average (and then you have to park...somewhere).

I'm not really sure how owning a place would be a status symbol when I'm not even living in it for years at a stretch.  :oh_i_see:

How bad would it be if you were retired and didn't have a place? Not that bad. It would depend on the value of what you could otherwise have done with your money.

A lot of your displayed reasoning seems to be for the sake of, not because of sound financial sense.

As for the status symbol thing, home owning is a fundamental step of the Western cliche of job, wife, house, kids, holiday house, etc.

Most of the people I know in the Foreign Service own houses.  None of them live in them, or have for many years (they just have a management company run things).  This is very common and I can understand why he's asking about it, since a large majority of people in our profession do it.  Everybody here looks at me like I'm a weirdo for not owning any equity back in the states, and basically say I'm being and idiot financially.  It's not insane to buy a house and have it managed, even for decades, as an investment.  Most of the people I know in the FS that do it say they make money off it, the value of their property has gone up since they bought it, and they have something to fall back to when they leave the job.

I can't give you any help since I myself have never purchased a house either.  I'm considering doing a 1 year tour in some dangerous hell hole next tour so I can make a shit ton of money and drop it on a house somewhere as an investment though, if I can find something.  Never really plan on living in it though, I hate houses.   :awesome_for_real:   Might be good for helping family out though.

Sure, but strazos's reasoning seems to be less financially motivated: if its an investment you aren't going to live in much you buy something affordable in whatever area, being fixated on a nice area etc seems only matters if you yourself are going to live in it and or you are buying it to tell others you 'own a house in x' and keep up with the Joneses.

Otherwise just buy a sound investment based off financial reasoning and sell the fucker in ten years and buy into the area you want to live, etc.

Buying a house now you want to have because you may want to live in it in 20 years time, and or because everyone else in the FS is doing it are really stupid reasons. Unless you start getting to the financial details that have been discussed above by nearly everyone and they make sense you are just kidding yourself.

Edit: it may be that there are strong financial advantages to being in the FS that make buying a house make sense. But without knowing specifically what they are its difficult to judge.

A lot of those career FS folks that are making money on their houses and see them as good investments probably bought in 15+ years ago, before the bubble. Now, you're competing with Wall Street backed companies that get their loans at 1% and can internalize most of the overhead, along with economies of scale because they own lots of properties, and there's just no margin for the small property owner in any major metropolitan market. Add in that the market is likely to be roughly flat overall until the real value catches up to the bubble values (which are being propped up by among other things throwing that cheap money at Wall Street to buy Elm Street).

--Dave

If you can treat it as a primary residence (thereby getting the tax benefit) even if you aren't living in it and are basically using the rent to break-even with the costs just to build equity, it might pencil out if you think you will have a decent occupancy percentage.  if you can keep the payment (including mortgage, tax, ins) to around 1/3 of take home you should be fine, 1/4 would be better.

Short answer, DC- hell no.  If you do stick with under 25% net income.

Better off with the government 401k.  I would not bank on making cash of a home purchase;  after 7 years paying my mortgage I lost 10k on my house (adjusting based on house assessment, actual cash was 25k due to buying before house market crash).

And HOA?  No.  Nonononono.  No.

Edit.  Fuck no.  Nonononono.  After reading the thread no.  Keep in mind most your payment will go to interest for 20 years.  After paying my mortgage for 8 years I would have maybe made 10k.  At original price.  Lesson learned, I will by in 3 years and aggressively pay against principlet with large down payment.  And sure as hell not in the beltway.

Do you really really really want to live in DC proper when you're retired? Unless you have vast retirement savings, you may well want to move to somewhere cheaper or better suited to your retirement needs (e.g., better climate, quieter, better access to retirement activities, different political or social environment) especially as your body starts to fall apart as you get older. Being free to live wherever you want when you retire is a big deal. Worst case, why couldn't you just buy a place in DC then, especially since you will have saved more money by not having to maintain a steadily-decaying box before then?

As I said in my first post, a house is NOT an investment. It's a lifestyle choice and an expense. If you really want real estate exposure for investing purposes, look at publicly-traded non-close-ended REITs.

It sounds like you've already settled on buying a house for emotional reasons ("having a place to go back to", not wanting your peers to look at you like you're "a weirdo for not owning any [real estate] back in the states", not wanting to spend money on rent "with zero long-term benefits"). It's OK to make major decisions like buying a house on emotional grounds, but it's a bad idea from a financial standpoint. Unless a lot of things line up really well, you may end up buying yourself more years of work in addition to a house.

You'd be buying into a sellers market. So no. Don't do it.

There's other reasons but they've been covered.

Are you purposely misconstruing what I say? "Keeping up with the Joneses" - really?

More like - trying to be in a location I would actually want to live in at any time. Whether it's because of public transport access, walkability, having things to do nearby, having a reasonable commute, not being stuck out in the suburbs...all reasons to buy closer in, which unfortunately necessitates higher expense. I don't know if you've ever lived in the area, but once you start crossing state lines things start to change pretty quickly. For instance, commuting down from MD often necessitates taking the Red line, which many people avoid like the plague. VA, meanwhile, has an extremely unfriendly tax authority - they'll tax you from beyond the grave (slight exaggeration). I also think you're focusing a lot on the time I probably wouldn't be there - but at least to me, a 5-6 year stretch in the place would be pretty significant. I am not, however, locked into the idea of ownership - I was more trying to get information and see about what questions I should be asking, as it's not something I've ever dealt with before, and certainly not something to be done casually.


Actual retirement is quite a ways off I recoken (I dunno...35-40 years), but either way, I could probably liquidate and fairly easy move into a cheaper market if I wanted to. The possibility of buying later is a decent point, though. Point is, though, that for the foreseeable future I'll want to live in DC whenever I'm there long-term. However, saving and saving and postponing the purchase until later could end up making sense - it's complicated.

As for the reasoning - having a place is not an emotional issue, in the sense that I would have a place to go back to when I have a domestic tour or long training, versus the logistical hassle of having to find another rental each time. You're also assigning me a quote that's actually Teleku's, which is a bit of an exaggeration in my experience.

Only on f13 could you ask a straight up financial question about real estate ownership and get both arm-chair psychoanalyzed and an Occupy Wall Street rant.

Run the numbers. With the tax loop-hole (which I wasn't aware of), it could work.  Do you have to pay for housing when you are on post out of the country?


EDIT: As for what you should be asking, above the hard-core numbers crunching, I would suggest asking around people who are in your same situation for recommendation for realtors. Realtors tend to get pretty specialized and there may be a couple who are really good at honing in on property that works for your situation. Also, get a good home inspector (again ask around or if you build a good rapport with your realtor, they may know a good one). A good inspector will save you thousands of dollars or even keep you from making a big mistake.

I like the fact that people here are trying to help in earnest.  As an older forum, there is a wealth of both intellect and wisdom here.  I know that I've learned a lot on these forums over the years... some of it actually useful.

If you're renting it out I'm not sure how easy its going to be for you to live there whenever you get back? You can't just kick renters out at will.

Also I think the psycho analysis was fair, given the financial side of things wasn't really given much to run with, and buying a house did seem pretty stupid given what we were told.

Also cynicism  :awesome_for_real:

One other cost you really need to consider when purchasing as a first-time home owner is how much taxes AND insurance will be.  It can easily take what you think is a reasonable price and jack it way up and no one ever seems to plan for those costs.  Also they'll be more than you estimate.

You're better off sticking $50 extra dollars in your IRA each month than buying a house to build equity.  If you can afford to put in more, you'll be in even better shape.

If you're interested in another opinion at this point, and an irregular one as well:

I skimmed, but I think listing some priorities is informative:
1. Location
2. Ownership at retirement
3. Ease of management ??

Let me know if this is wrong somehow.

Homeownership is going to be a far FAR bigger hassle than finding a new rental, even if you don't rent it out.  I'd say that category goes straight to rental.

Owning a home at retirement, as a goal, means that you want to make sure you either have the home or its liquid worth at that time so that you can buy one you want.  I would submit that there are better places to invest your money than in homeownership.  Like pretty much anything that could be considered an investment.

Location mostly dictates how much money you will need.  This is a fine place to suggest you add 20% to all amounts.

Personally, I'd try to figure out how to obtain the cash and buy the house outright.  Most people get the benefit of living in a place much sooner by obtaining a mortgage, but if you aren't doing that then you're not getting anything for your interest payments.

That one depends on where you buy and how quickly it appreciates.  My house is worth about double what it was five years ago when the market was in the shitter, and I'm now paying less on my mortgage than the average renter in my area does for an apartment that's less than half the size.  I honestly feel uncomfortable when I hear people talking about their rent or trying to find a place, because of my incredible good fortune in that regard.  If I'd waited to try to save up the full purchase price I'd never have caught up to the market.

Mind you, I waited years for the timing to be right before I even thought about taking that shot -- it required a combination of having accrued enough savings for a good down payment (I think I ended up being able to put 30% down) and a dip in the market.  I wouldn't recommend anyone dive into this shit without running the numbers and having a long-term plan.  But it can absolutely be a sounder financial decision than renting.

In Related News: If I could see the future, I'd be rich.

I agree completely with your point.  On a long enough timeline, my method would work for everyone.  Strazos will have to weigh this out based on his income and lifespan.

It doesn't even matter when you bought in some circumstances either.  Here in Orlando rents are routinely much higher than mortgages even if you buy a house now.  Both of the houses I own are significantly cheaper than what my friends are paying for 1 bedroom apartments (in a good location too, maybe not prime but not out in the boonies either).  Meanwhile all my money is going to equity, I have good sized pieces of land, good size livable area, and I'm making $600 a month profit on renting my 2nd house out (and judging by how quickly people responded from craigslist at the $1500 a month price, I think I can raise it a bit more once the renter is out). 

I'm aware this isn't all over but in some areas it doesn't make financial sense to rent unless you really plan on being in one city for a short amount of time, and don't want to deal with renting the place out (I've been lucky so far, though I know enough people who have had bad experiences but still have come out ahead).

Winning the housing lottery is nice, but it's not really safe to bank on it. I purchased our house in a fairly good area while the bubble was inflating, and the area has continued to do well since the pop. If the house were an investment, it would have an annualized nominal return of -2.9% over the last decade. What we're seeing in house prices in the area is that, like in most areas, they're incredibly unevenly distributed. The average is getting pulled up by a small number of brand new McMansion developments being bought by people leveraged to the hilt, who will probably lose everything during the next downturn. From what I've seen (and I know a few of the buyers), they're the kind of family that spends like there's no tomorrow and has issues living paycheck to paycheck while pulling in 200K+/yr. Meanwhile, just about everything else in the area is pretty much flat or slowly dropping. But the average real estate value keeps increasing.

If we'd been looking at this area to buy a house for investment purposes 10 yrs ago and knew what the averages would be for this area over the next decade, this specific house would have looked like a good investment. But averages can be very misleading...so even in a "hot" neighborhood, there may be big winners and big losers that aren't apparent from the outside.

Thankfully, the only major consequence of our house not appreciating in value is that our property taxes rise more slowly than they might otherwise.

You see, I disagree on this, although it probably depends a lot on what the rental market is in your area. Buying a house is a far greater hassle than finding a new rental, sure; but once you've bought it the day-to-day hassle is far less in my experience. If things go wrong with the property, sure it's your expense, but it's usually much easier for you to just fix them - or do work to pre-empt problems - than go through some foot-dragging management agency or absentee landlord. You also don't have to deal with the prospects of being evicted, or having your rent increased on you. Again, it's heavily market dependent but in London at the moment rents are rising by something like 7% above inflation year-on-year; even if you have a variable mortgage you're not seeing anything close to that degree of increase. In most other regards I think the hassle side of living is pretty much a wash for owning or renting, both still require you to pay bills and such, I can't think of other inconveniences that are particularly owner-specific.

I realise that the US has its own quirks, but in my experience home-ownership is a lot less stressful than renting.


This seems to me what you should expect, since if you're renting a place you're just paying someone else's mortgage plus their overheads. The transaction costs are a pain with buying, but I know here in London we recouped those in around 11 months solely off the difference we were paying in mortgage versus rent; not factoring the gains in property value.

Yeah, my first few years as a homeowner I felt stressed out constantly about stuff like the possibility that my roof might have a leak in it, but if I were renting right now with the market the way it is here, holy fuck, I would not be able to sleep at night for fear my landlord was cooking up a way to evict me (or just burn me out, as is becoming commonplace in the Mission).

I suppose since I built my house and it is currently 13 years old, I'm seeing a lot of things that I have to take care of myself instead of it being at least partly someone else's problem.  I've also very recently changed my mindset into paying pros to do things since they don't seem to get done otherwise, so there's certainly some personal bias here.  Back when I was renting, I jammed up the disposal and called the landlord; PROBLEM SOLVED.  Now, I'm MacGuyvering my disposal so it doesn't spew shit all around the inside of my cabinet (pretty sure I fixed it for real this time).  I really could go on and on and on about what's falling apart in my house.  If I were renting, worst case I could just take a shit behind the doors and find a new place.  Since I intend to live in this house the rest of my life, I sort of have a different outlook.

Ultimately there's no perfect answer, but Straz will figure it out.  Where's that shrugging dude when I need him?

For sure, but it's a bit expected at this point. As to your question - nope, I pay zero American dollars for my housing or utilities when overseas. And before and rants about use of tax dollars - my positions are generally fee-funded by visa applicants.


That's fair, and probably pretty indicative of a lack of knowledge in that area. I'm not even all that good at renting, as I haven't had to do that much, either.
As for going back into the house - I generally know my onward posts 6 months to a year in advance, so it could theoretically be as easy as not re-upping a lease. I've also heard of folks writing in clauses to gently ease folks out with lots of notice.

This shit is hard. Renting would definitely be simpler, with a landlord to take care of things when they blow up, and just dumping cash into an investment vehicle for later buying use is an interesting idea.

Not that investments are necessarily my strong suit either.  :oh_i_see:

Pretty much why I asked here first rather than random Googling, or even another FB group I have access to. It has a lot of FS people in it, but such a huge contingent there is what some of us call "The Mommy Mafia" - they're a bit rage-inducing sometimes.

There is a thread for that, plus I recommend having someone else manage your money.  The trick, of course, is that you need enough of it for someone to do that for you.

Tangent: Yeg.. take some of those Home Depot classes. Disposals are some of the simplest things to do, like, ever. Hell I was confident enough to do that before long I even thought about tacking "real" electrical. (Yeah, 13 years as a homeowner and I only *just* did my first real one.)

Though if stuff is 'falling apart' this badly after only 13 years, I'm afraid you got screwed on the build. :( 


Robo-investors are a thing now and some places (Vanguard/ Fidelity) will give you a personal advisor if you've got an account with them.
http://twocents.lifehacker.com/know-the-annual-cost-of-investing-using-a-robo-advisor-1710742930

Keeping in mind, Strazos, that you should max whatever match you get (if any) in your government fund first. That's free money, take all of it.

Don't let someone else manage your money, unless you're incompetent in the legal sense. You can do it yourself quite easily (in time and effort) and vastly more cheaply than paying someone else to do so, and you'll be better off than virtually everyone who pays someone to handle it for them. You can learn pretty much everything you need to know to do it yourself in a few hours, and it'll probably take less than an hour a year to manage going forward.

Buying a house isn't just an investment in the sense of "I will sell it in 10 years and make a profit".  That actually had zero factor in me buying a house (buying my first house at least).  In fact, my house hasn't really appreciated in value at all and I am 100% OK with that.

The whole purpose of me buying a house is that in 30 years  (actually less since i pay extra every month) I will no longer have a monthly payment.  When I retire I will only be paying a one time monthly property tax fee and nothing else, while everyone who rented and never bought will still be paying more money a month due to inflation.  For me that was the investment, and that means when I retire my costs will heavily decline and I will be able to enjoy myself that much more.

There's also the factor of house payments remaining the same over that 10,15 or 30-year timeframe while rents increase. Even with property tax increases you can come out ahead sooner than the end of your mortgage. But that gets back to the financial calculations we've been harping on the whole thread. You need to do the analysis for the area you're buying.

I imagine DC doesn't wash-out nearly as fast as other areas due to the higher price of homes. Looking at realtor.com the homes in the 130-250k range in DC buys you an older well-used 2 or 3 bedroom home in the 800-1,300 Sq Ft size on 8/100ths of an acre. In the Cincinnati area that buys you a decent but not lavish 1,500-2,200sq. ft. house with 3-4 bedrooms on 1/8- 1/4 acre.

Really though, Straz, I think if you're looking for a retirement home, buy it where you plan to retire. You say you'll use it 'when you're posted stateside' but how often is that and how much of a guarantee it's always going to be back in DC vs. other places? Plus the "you can't just kick renters out" thing that was previously mentioned.

This?  This is why you should not buy right now.

Let's say it averages out to one year in-home and one year out-of home over your career.  For simplicity we'll say mortgage+taxes+insurance+costs are $1000 a month and that's the same you pay renting.  We'll assume no major home expenses like new roof, new carpets, natural disasters, cost of the management company, emergencies, etc., nor are you making a large down-payment.

Renting:

12 x -1000 = -12,000 (amount given to some landlord while you live State-side)
12 x 1000 = 12,000 (amount you can stuff in an IRA or other investments)

Your in-hand money = -12,000
Your invested income = 12,000

Owning:
12 x -1000 = -12,000 (amount put into your home)
12 x 1000 = 12,000 (renter's money put into your home)

Your in-hand money = -12,000
Your home invested income = 24,000

After ten years you'll look like:

Out-of-pocket = 120,000 (either way)
Your home invested income = 240,000 versus
Your invested income = 120,000

Looks like a pretty good deal, doesn't it?

Except you're only a third of the way through your mortgage of $150,000.  Your real home investement is much less than $50,000 because the interest is front-loaded.
Your IRA on the other hand is actually (we'll assume a measly 5% growth) is $150,000.  At 15% it's $275,000.

(Simple compound interest calculator (http://investor.gov/tools/calculators/compound-interest-calculator))

Buying right now would be dumb. Buy in 2018. We're going to overbuilt to hell and back. The money has come off the sidelines and they are throwing up residential everywhere.

I know that is true.  This might not be the correct thread, but there were known problems which we must deal with.  We are going to have to put a beam in the basement to prevent further dropping of the center of the house, for example.  The structural engineer was confident that the slab movement had stopped, but I guess time will tell.  I can't very well just start over.

The disposal is really just vibrating itself loose in various places.  Once I just had to tighten it to the bottom of the sink properly, but mostly the pipes shake loose.  I fought crap plumbing with crap plumbing by strapping some epoxy-filled strips around the pipe fittings and if that somehow breaks loose then I guess I'll rip out everything and start over.  Not to derail too much, but at this point and this one location, I have:
1. Replaced the instant hot water dispenser
2. Reinstalled the disposal onto the sink bottom
3. Installed a water filter leading to cold faucet + instant dispenser
4. Replaced the entire faucet

Of course, if Straz only plans to live another ten years after he retires, then who cares about home repair?

Also read this:
http://forums.f13.net/index.php?topic=8258.msg1374997#msg1374997

:oh_i_see:

That case is very dependent on the short- and long-term numbers in your area. In one area I've rented, I could rent for 30 years and then just buy a house with cash due to rents being so low (relatively speaking). In another, buying a house would have made a lot more sense, because rents were so high.

But yeah, having no monthly housing payments sure does cut one's expenses. It's the only way a lot of Americans can afford to retire, since most have no savings apart from what little home equity they've built up, if they stayed in one house for a very long time or were just lucky.

I mean you're almost better off renting something smaller, putting an equal rent payment in an investment account in the market, and just buying a house for cash in 15 years than getting a mortgage.

That's...actually an intriguing idea.  I've got three years left on the note to my house which I rent out.  I'm not that interested in buying a new home anytime soon.  If I saved $10k a year I could have $150k in 15 years, a decent condo/townhouse around here in the city.  Then I could sell my first home or keep renting it out for retirement income along with my 401k.

Of couse $150k in 15 years may not be what it is today...

You should have more than 150k in 15 years investing 10k a year.   Investing 833 monthly (i.e. 10k a year) and getting 7% annualized return from the market, you would have over 250k.

Hmm, I should really start saving more.  I'm dropping about $750 a month into the federal retirement program/401k thingy (basically the max I'm legally allowed to).  Still have plenty of money because as straz says, we don't pay any rent or utility bills.  I just keep blowing mine on food, booze, endless trips around the world.   :awesome_for_real:

Though I'm also buying things to have for the first time in my life, since I lived pretty frugal to this point.  Big screen tv, set of polish pottery for dishes, crystal glass set, $3k ultra comfortable cal king bed, ect.  I almost feel like an adult now!  Still no car though (hoping to avoid that as long as possible).  I'll probably start investing cash into something other than the 401k soon, though somewhat worried market is already well into a bubble.

That's really my point when I say it.

If you run a calcultor on a 30 year mortage for a $350,000 house where you put down 20%, you pay about $194k in interest over the life of the loan. If you paid $1000 in rent and put $1000 in an account at 7% you're over $300k in 15 years, and you have paid $180,000 in rent. You're to the good by $14,000 on the rent v interest component. Plus when you add up the taxes and insurance component, you basically wash out the gain in housing values.

The big difference is you don't have a payment for 15 years in this scenario. Which means you opened the opportunity for new money to make more money. So now you have $2000 going into an account for another 15 years. At the end of that 15 years you have over $600k in your retirement account, instead of just having a house.

Dollar Cost Averaging. Even if it's in a bubble you don't care right now. You're buying in and not retiring for 20-30 years so stop thinking short-term. Even if the market crashed in a 1929/ 2008 spectacular, look where it was 7 years later.

For a bubble to "matter" at all as you're thinking of it we would have to go Mad-Max. At which point the money you didn't spend is worthless anyway unless you invested in guns, ammo, welding skills, bitching cars and survival training.


You're so painfully single it kills me sometimes.

Well, so is Straz, unless I'm misinformed, so it's fair.

When you're single is also the absolute best time to stash as much as you can in investments.

Private, hidden investments. :awesome_for_real:

I'm just waiting for the right woman to take all my income and make it truly painful.

 :awesome_for_real:

If you want to set down roots and raise a family, buy a house. Otherwise keep your options open and your money working for you in other places. Home ownership is a fucking pain in the ass. Especially when you buy at the very top of the market, like say, October 2006. Who me, bitter? Perish the thought. I love knowing that if I had waiting 18 months to buy I could have been 10 miles closer to work, 20 years or more newer on house age, and tons more property. Or I could have had an extra grand or so a month to invest (in poker pots).

With a BIG prenup, "to protect THEIR investments from YOU."  :drill:

What I want to know is where is Paelos' 7% account :)

Pick one of the index funds.

https://personal.vanguard.com/us/FundsSnapshot?FundId=0040&FundIntExt=INT#tab=1

There's a Vanguard 500 fund. 10 year growth on that is 7.77%, including the dip for the recession.

Wow...I so don't miss living in the DC area (Burke).  The multi-hour drives everywhere were a drag.

For ice hockey, I used to play at Mount Vernon Rec Center in Alexandria; played there when I was on the George Mason club team, and then in a rec league and I bet it's (still) pretty close to downtown DC.

7% is still optimistic. I'd use 3% -- 5% at most. Admittedly that's conservative, you're likely to make more over the long term than that. But better, in my mind, to lowball it.

Although my 401k has now hit the stage where I've "lost" or "gained" thousands of dollars overnight. (Not that I do shit about it but say "Damn, company stock took a beating". 10% of my fund right now. I thin it back every time it hits 12% or 13%. Pretty volatile and a huge chunk of my 401k.)

In terms of savings though, you also got to be realistic. Home ownership is "forced" savings. You pay your mortgage like you pay your rent. You don't cheat on it. Lots of people won't save cash that way though. I'm awful at saving like that myself, which is one reason I cranked my 401k contributions so high.

Yup, driving in the DC area is redic- I avoid it at almost any cost.

As for hockey - the Caps' rink in Arlington (Ballston, Kettler Iceplex) seems to have a men's D league that I'll have to look into, though Alexandria isn't necessarily too much further depending on when games and such are.

Why is that optimistic? I just showed you an index fund where the 10 year was 7%. The lifetime since 1976 was almost 11%. That's the market. It dips and curves and jumps, but in general the standard models would tell you risk-free returns run about 3.50% while there's a premium on other stocks investments depending on risk factors. Investing with a more diverse portfolio in various index funds averages out those risks.

I believe he means it is "Morat Optimistic".  I'm agreeing with Paelos here about the numbers, with the asterisk that there is risk in everything.

Maybe just buy some stocks that pay good dividends and don't think too hard about it.  There are several out there.  The most important thing to remember is that putting money into a mortgage is not a good financial investment, even if it is a great way to get a house now.

For "fire and forget" investing, a mix of low expense broad-based bond and index funds (e.g., total stock market, total international stock, total bond) can work quite well. Adjust relative percentages based on one's risk tolerance, and it takes only a few minutes a year to keep one's investing on track. Or for a one-stop shop, a low-expense target retirement fund can work too. No worries about picking the wrong handful of stocks, or watching high-flying "solid" dividend companies (e.g., Chesapeake Energy) suddenly cancel their dividends and plunge in value.

It's possible that we'll return to the long-term historical average returns of 10-11% (nominal) for the broad stock market, but there's nothing now and nothing on the horizon that could spur that kind of growth (we need infinite petroleum). 7% nominal is probably going to be as good as it gets, and I expect even that to creep downward as international economic policies continue to break the world while energy becomes increasingly expensive or scarce.