f13.net

So, I have nowbecome a homeowner. I just bought my first house. Its in southern California. It is 2k square ft with 3 bedrooms, 2.5 bath, 2 story house. It has a decent sized backyard (for socal) it has an above grownd hottub.

Since housing down here is so expensive, I went half on the house with my father (he buys older houses, remodels them, and resells for his job). We are going to split all the costs of upgrading the house, and then we are going to split the profits.

We are planning on redoing the kitchen, the downstairs living room (it has two, with the downstairs one being the media room) the master bathroom, and probably putting a pool in the backyard.

So, ding grats to me. Ill post some pics soon.

If any of you guys have any advice for a new homeowner, I would be glad to hear them.

a) Congrats!

b) Advice? Never EVER EVER try to go cheap/shady when hiring a contractor to do work on your house. Make sure they are liscensed and call the Better Business Bureau to see if they have any reported horror stories involving the company you are looking at hiring.

Cool.  Since you are going to flip it my advice would be to plan it out ahead of time, including down to the dime budgeting, and try real hard to stick to it. Remodeling can get out of hand. In my previous house, me replacing a washer on a leaky faucet rapidly turned into a $4,000 remodel of the whole bathroom.

I dont have this problem my father is going to provide all this type of stuff. Like I said he runs a custome remodel (or spec house) construction company. So he will have his guys do the majority of the work, and that we all the labor and such is going to be at cost.

Congrats.

I'm in the market. I wouldn't mind hearing details leading up to buying it, I'm building credit (I had none, I never borrowed before) and saving for downpayment/points down/closing.

Congrats!

 I have begun the preliminary work on becoming a homeowner myself soon. Hate to give up my 6 minute commute, but we need more room and some actual equity.

Well, I know that over most of America prices are dropping. But when the rest of america drops, that just means Southern California (Orange county in perticular) doesnt go up for a little bit. Homes are VERY expensive here, and I am scared to even post how much I paid. Some of you reading it might go in to shock.

Since my father buys a lot of property, he has a very good broker/realtor he works with, and he just had me work with him, so I wasnt as involved in the proccess as a lot of people are. He took care of almost every thing for me. Great guy. Crazy as fuck. But great work.

sweet, gratz

I got my first mortgage in Dec.

equity FTW

Gratz to you!  I suppose I should send you some sort of plant.

I don't think those are legal to ship.

Ok... a basket of brownies muffins, then.

Congrats. Buying a house was one of the best decisions my wife and I ever made.

Yeah when I was a kid my dad tried to skimp on having a pool installed. The "contractors" dug right into our septic tank with the backhoe. Then they wanted more money to fix the mess they created, which my dad refused to pay so they packed up and left. It took him about a week to find a certified, liscenced contractor to come out to the ranch, fix everything and finish the pool. So during that week we had a large shit filled pond in the back yard.

I learned my lesson early.

So it would feel even better to buy one for me, right? I could really use the extra space (and extra cash!)  :-D

As long as you don't mind living in YouGotAPurtyMouth, MS.

As tempting as that sounds, I think there are some lovely bridges under which I can live locally...

There isn't much advice I can give, I think, due to your particular situation.  You have the construction thing taken care of and you won't be staying there.  I guess I'd say to get one of those built-in vacuum systems, those kick lots of ass.

My advice is to rent the house out to a nice, elderly couple.  Make sure the lady loves to cook and the man always wanted a son.  Live in the basement.

Congrats.

I, on the other hand, have absolutely no desire to ever deal with the headaches of homeownership. Ever.

Owning a home isn't too bad.  Selling one kind of sucks though...

Good luck selling that line to any woman who should deign to marry you.

2000 sq ft in OC, huh?  Yeah, a pretty penny I'll bet.  Congrats!  Nothing says "I'm somebody!" quite like homeownership.   8-)  And props to your pops for helping make this happen.  Good luck and have fun with it. 

Marriage....heh...Heh...rofl.

I don't even plan to Consider such a thing until I'm...I don't know...30 is a nice round number. I've got bills to pay, and toys to buy with which to play. Also, more overseas travel would be nice.

Some tax advice:

The Homeowner exclusion on capital gains from selling a residence kicks in if you've lived in a house as a primary residence for any 2 of the last 5 years.  You can save yourself a bunch of tax liability by holding off on the sale if you're cutting it close to the 2 year limit.

Essentially,  you meet the exclusion and you won't have to pay any tax on capital gains from the sale of your home.  There is a limit to how much you can exclude in your lifetime.

No idea on how long you intend to hold it before you flip it, though.  Keep track of invoices/materials used to renovate if you're going to flip it in less than 2 years:  those expenses could go to the basis of the home. (Not 100% on this,  as it may not go to basis if you spent the money during the course of renovating a personal residence.  I do Corps, non-profits, and canadian/US/interstate corp stuff mostly,  so my individual taxation knowledge is kind of bare.)

Don't turn this into yet another 'Strazos is just a kid'-thread.
Let the adults talk about homeownership, please.

Bought mine in october in one of the countrys most expensive areas.
Good news is that the value increased 33% in less than a year. Bad news is that both bathrooms more or less fell apart and contractors around the capitol are ridiculously expensive and so overbooked, that a small job like mine entails at least a three month wait. I'll have to do it myself...

Big grats, Morph.  I'd offer some suggestions, but I need pics first.  I also expect that since your dad does this for a living, he's got plenty of ideas already.

All I can say off the cuff is you get the most bang for your buck with landscaping.  Too many folks in my neighborhood have invested tons into upgrading their interiors while ignoring the exterior.  All the houses were built 3 years ago, but the exterior of several of them languish with bad patches of grass, a few badly-kept plants and no trees at all. (Ahh, low-budget Production Housing, how I love thee.)   It's funny watching the owners try to sell them at the same price as the well-landscaped homes, and always come in under.

To the rest of you homeowners; plan your upgrades.  If you're going to move in a few years, you don't need to build that $25k deck. Chances are you are /not/ going to get your money back when you sell.  One of my other neighbors did exactly this, including an additional $3k for hardwood flooring after the purchase.   Now they're moving to SC and sold the house for $178k, but they bought it for ~$152k.  The wife was genuinely irritated she couldn't sell it for $190 and make big bucks.

On a more serious note, I simply don't plan on needing a house because I don't plan on needing that much space. Happy?

Landscaping, Kitchen, and Bathroom(s)....

Spend most of your money there. Everything else can be freshened up enough with minor changes like new flooring or even just a new coat of paint. Don't skimp on nice appliances and countertops all around.

You can get houses that are not much bigger than an apartment.  They also have the double plus of tax-benifits and not throwing your money to someone else who builds equity in addition to the rent profit for the property you're living at.

A house is a much wiser investment once you know the city you'll be in for a while.  As a college student, no, it doesn't make much sense.  Once you've got your first job, though, you'd be better served by purchasing one than paying rent into your 30s.

Then you might as well take an asston of money, light it on fire and roll around in the hot coals.

Seriously, all the headaches of home ownership are nothing when compared to pissing your money away on apartments that are run with all the humanity of a fucking roach motel. Not to mention the tax breaks, credit breaks and investment advantages.

Or, I could keep a low rent, and use the money I would be throwing at a 30-year mortgage to invest in....something else. Heck, even a simple IRA would give me more actual money in 30 years than paying for a house would. Sure, I would have "equity" in the house, but what am I going to do with it, take out a home equity loan? That puts you right back to where you started. Or you could sell the house, but you don't really profit from it unless you move downmarket. And who moves downmarket anyway? I'm guessing the vast majority of people who move from one house to another move into a more expensive house, so that just puts them right back into debt.

So what's the point? The only way I see to make actual money from a hosue is to buy property that you don't actually need, just to flip it, and I have no desire to ever play that game.

EDIT: Plus, they all come with those fucking "lawns" that you have to constantly fuck with, or pay someone to deal with it. It's a bunch of grass, BFD.

Hmmm... let's see...

Bought my house 3 years ago. It's a duplex and we paid $158,000 for it. We rent out the bottom and live in the top. We charge $675/month for rent. We did an upside down mortgage w/ no down payment to buy the house. This puts our mortgage payment + insurance + property tax at $450/month. We then have a second mortgage that runs us about $750  per month. So, total monthly payment on the house is $1200/month.

Because we're running a rental we can depreciate the assets and write off a bunch of stuff and basically pre-home-owner I would get about $400 - $500 back from the fed. Now I get back almost $3000/year.

So, without looking at equity at all I earn ($675 * 12) + $2500 (difference in tax return) around $10,500 or $880/month from the house. $1200 - $880 = $320 per month that comes out of my pocket.

I'm guessing you'd have a hard time finding an apartment for $320 per month.

Now looking at equity. The house now appraises (roughly from zillow.com) for $180,000. That's an immediate profit of $22,000 assuming we got full value if we sold. Add in the fact that we now only owe around $140,000 on the house and we've earned another $18,000 in equity.

Over 3 years we've paid $11,520 in "rent" but now have around $40,000 in assests. So, taking those variables into account you'd actually have to find an apartment that paid you around $700 per month to live there for us to be even.

Of course I left out repair and maintenance costs in materials and time but I guarantee they don't add up to more than $700/month.


So, now what's better?

So let me get this straight:

By your figures, you're paying about $14,400 a year for mortgage, etc.

You get back $3k, so drop the previous amount to $11,400.

But then you rent out another part of the house (which works for you, but it's not something I would do), so you only end up paying $320, which is cool. (just to get something straight, you only paid $158k for what is essentially 2 residences? You must live in a pretty cheap area or something, because prices would be....a lot higher where I live I reckon (you don't see duplexes in my immediate area). But I guess the math would still be roughly the same, as you would just charge more for rent, though the taxes/insurance would probably be higher, and I don't imagine your tax return would go up much, if at all).

Now, you say you have 40k in "assests," but how would you actually realize that money? With the rise in real estate prices, you would probably have to move into a somewhat lesser home in order to get something of equal value to what you paid for your current home and actually turn a profit. But like I said, most people would probably move Up into something more expensive. You could take out a loan against the equity I suppose, but to what end? That just puts you back into debt.

You're missing the final step of home ownership, the empty nester.  Yes you keep buying-up in value,  but you let equity take care of the difference in price so your payment stays about the same.  When all your kids have moved out you don't need as large of a house, so you do, in fact, move down.  There's several people like this in my neighborhood living in Ranches and smaller footprint houses.  They made their profit and took the tax-break for selling it and voila.. they have someplace ot live that's paid off as well as a chunk of money in the bank. *

* Greatly simplified for brevity.

I think what I'm really trying to get at is what gets you more money in the end: Doing what Merusk described, or simply investing the money? I don't mean investing in stocks neccessarily (which can crash, ZOMG), but even something as simple as an IRA or something - compound interest is a wonderful thing.

I live in Lakewood, Ohio just outside of Cleveland if you want to run a zillow search on the area. The housing market here is definately more reasonable than certain areas and probably more in line with the majority of the country outside of DC, Vegas, So. Cal, etc... We're probably on the lower end of average due to Cleveland (Ohio in general) being in a decline the past few years. Of course an overall decline just means the housing market doesn't grow as fast since I think (someone correct me if I'm wrong) the housing market in general has NEVER seen a decline.

Lakewood itself is an inner ring suburb but still remains nicer. I live on the west side of lakewood which is mostly 22 - 30 post-grads and new families. I credit the gay population on the east side of the city for keeping the urban sprawl at bay. I believe Lakewood may be second or third in gay population per capita and I have to give em credit for maintaining and even increasing property values in what otherwise would be declining areas.

I don't rightly understand your second question. Are you saying that you see no benefit in assets that aren't liquid? Equity in a house is the equivalent of a 401k. Would you say a 401k is also worthless? How about a Roth IRA, also useless?

Yes, we do plan on eventually buying a larger more expensive house. But given the equity in the current house we will be paying the same if not less for it. I'm still undecided on whether we will keep the current house and then rent out the top half or if we'll just sell it off. Financially renting out the top half is the better plan since the house would actually generate a  liquid profit in that case but I don't know if I want to put in the effort.

Somewhat old data but:

1926-1996 Average annual rates of return

             Small Stocks 12.5%
             Real Estate  11.1%
             DJI          10.0%
             Bonds         5.2%
             T-Bills       3.7%
             Inflation     3.1%

Source: http://www.investorhome.com/history.htm

You get compound interest in real estate as well.

I don't see house equity as being the same as a 401k or an IRA. With a 401k or IRA, you simply take the money out (with penalties at certain times, I know). But how do you get money out of equity? Again, unless you're flipping an extra home for profit, you can't do anything with home equity unless you sell the house to move into something else, or you take out a loan - both of which put you back into debt (unless you move downmarket).

Also, for what it's worth, at least in my area, that Zillow thing is woefully wrong. It's showing prices of at least half of what they actually are. For instance, for my previous residence, Zillow gave a price of something like 94k. The house was bought for at least 121k, 14 years ago. The same house appraises for around 200k now. Same for my current residence.

We recently bought a town home for about 250k in Abingdon, MD. Rather than piss rent away like my parents did for a few years.  In a nutshell, we pay more than the (two of us) $1000 in rent we were paying for a 2 bedroom place (we pay about $1800 a month), but the cool thing is money is is money out, we spend 1800 and we get that in equity.  You dont' piss away 1000 dollars.

Now, back to a more needed subject, we don't have a fence (need to get one for the dog), and we don't have a deck.  I've been hearing various things about home improvement regarding getting all your money back on investments in the house.  I've taken that with a grain of salt.  We need to finish the basement (going to add a bedroom and bathroom, so $++).  Do you guys think we'll get our deck money back?  Just curious.

Oh, and since we bought it April 1st, shit nearby (not as nice as ours) has been selling for 270-280k (but they have decks!).

It's kind of hard to say, since appraisers don't attach +$x  for having a deck (at least that I have seen). Though I imagine you could appraise the house before you put the deck on, get a nice deck built, and then appraise again.

Just don't spend a stupidly-expensive amount for a damn deck. Diminishing returns would definately come into effect.

My dear departed grandpappy always said that homes are never really an investment because when you sell one you almost invariably end up buying one just as or more expensive to replace it.  This seems to be true for most people I know except for 70 year old retirees that liquidate equity and move into assisted living or something.  It all depends on the market. If you have an appreciating real estate market that gain can outpace the amount you are sinking into it with interest payments, property taxes, insurance, etc.  If it is a static or declinine market it won't and renting may in fact be a better use of your money.  We've been spoiled by a good real estate market for 15 years so it has been a good idea.

I never think of my house as an "investment."  I think of it as a roof over my head with which I can do whatever the hell I want.

See? I knew I wasn't talking completely out of my ass, maybe only partially.

If you don't want a house, there are always condos.

That just doesn't make sense to me. Let's just look at the first part of your saying and that you always buy a house "just as" expensive as the last one.

You buy your first house for $200,000. That $200,000 comes out of your pocket basically. You live there for 5 years and build up $50,000 in equity.

You buy your second $200,000 home. $50,000 comes out of your last house and $150,000 comes out of your pocket. You live there for 10 years and build $100,000 in equity.

You buy your third home for $200,000. Now only $50,000 out of pocket and $150,000 is rolled over from equity. You live here for 5 years and pay it off.

That money you were paying in mortgage is now yours to do with as you please and you have a $200,000 piece of equity that belongs to you and your family.


For simplicity sake I took appreciation out of the picture just assume that the appreciation of your current house would roll into buying a similar next house which accounts for the rise in real estate prices.

How again is that not an investment?

So um...where's the return on your investment over 20 years? Sure, you have $200k in equity, but that was your money to begin with.



They still have mortgages, you just don't have to deal with the yard as much, and you share walls. /shrug

Umm.... how about the house itself. A free place to live. What does that add up to in the coming years?

Sure, you could have tucked your money in a mattress (or paying someone else's mortgage ie. rent) and have nothing to show for it. Or you could have a free place to live for the rest of your life. Your call...

Ask yourself this...

Why is renting an option? Why does the concept exist?

Inability to own property where you want to live?

You don't plan on living in the area long enough to warrant actually buying a house?

The price of homeownership too high for what an individual feels they need as far as lodgings?

And there's your problem in a nutshell...

You're looking at it from the wrong side. All of those answers are from the perspective of the rentee. You need to look at the question from the perspective of the renter.

Why is renting an option?

The answer is... Because it's profitable.

Landlords aren't renting places to do you a favor or because you can't afford it. They are doing it because they understand the financial advantage to building equity and are more than happy to let you pay their mortgage for them while they reap the future gains.

Owning a home is nowhere near a 100% financial homerun compared to renting. Renting is viable because there are no cash flow surprises. No one who has owned a home for more than five years has escaped a major emergency expenditure of some kind. Here are some of the costs of homeownership that have not been mentioned:

1) taxes
2) taxes
3) insurance
4) maintenance

Yes, all of those expenses get factored into rent in one way or another but they are smoothed. If you live in a area with net population declines, renting would actually make good sense since rents should decline or stay flat.

Renting for life is a perfectly viable option as long as the renter actively saves money. Renters whose income grows faster than their rent will also do fine. Home ownership is popular for psychic reasons and because it forces people onto a budget they might otherwise not be able to honor.

For the record, I am a homeowner of five years and no more mortgage. We just spent $75,000 on a new kitchen last fall (the existing one was a mid-1980s nightmare) and financed it with a home equity line, since paid down as well.

You fuckers never listen.

I was hoping for some info on the homebuying process, and I get a tired rent vs own debate. Here's the skinny: it's a different case for everyone. It makes sense for some to rent, some to own. Discussion over.

Now. Any info the homeowners can pass on the buying process that might be helpful to those in the market to buy?

Um, make sure all the pertinent tests are done on the water, etc? Just found out we have Radon-ized water, and this place is at least 15 years old.

So now I have to deal with lots of Poland Spring water. I think it tastes funny.

Work up your wrist muscles. You'll be signing things. A lot.

Also, read up on foundation problems, and find out what to look for. Foundation troubles are a major bitch in some areas, and a major expense. Check the insulation in the attic. If it only comes up to the supporting studs, it's not enough, and you'll pay for it in energy costs. Also, see if you can't talk the seller into at least a 1-year home warranty. If you can't, get one yourself. Unlike electronics, you do not want to own a home without a warranty, just to cover the shit insurance won't, like an air conditioner that blows up or dies.

Also, go with a Realtor who does the real estate thing full-time - they'll generally work a lot harder than someone who only does it on the weekends for a few extra bucks.

Actually I mentioned each and every one of those in my initial post in the thread but thanks for playing.


Things I would do again:
City Inspection + Private Inspection
Always make any offers pending both inspections
What we did was make an offer close to the ask price but then put a clause in place that the seller was responsible for making any repairs or compensating us for anything resulting from the city inspection. I then made sure I was present for the city inspection and told the inspector to be completely thourough since I was the home buyer and wanted to make sure the city wasn't going to bitch about anything in a few years. This basically got us comped for a driveway, painting of the entire house, a couple new windows, new back stairs, and a few other things here and there.

Make sure to visit the prospective house when it's raining or after a snow melt if at all possible.

If you are buying an older house (ours is nearly a century home) make sure to specifically tell your inspector whether or not he should look for asbestos and/or lead paint. The trick here is that once you know about it and it's documented you are now responsible for it. Check the laws of your city but ours is basically a don't ask, don't tell sort of policy.

Look closely at the neighbors/neighbors property and meet them if at all possible. Our neighboors are night and day and unfortunately we had only met the good neighbor before buying the house. It probably wouldnt have deterred us anyway but would have been a nice-to-know kind of thing.

Know your real estate agent if you have one. We picked ours because he lived and worked in our city and was also the owner of two rental properties in our city. He was invaluable as far as offering advice and experiences from his own rentals.

Look at A LOT of houses. The market is starting to change and houses will probably last on the market longer now. When we were looking a few years back houses were going fairly quickly. We only looked at a dozen or so houses before picking the one we bought. It was only listed for about 2-3 days and we were the first of 3 offers that came in on it. Now you should have more time to spend looking at a lot of different houses without the fear that one is going to be snatched out from under you.

If you plan on doing home improvements, make sure you READ your homeowner's association rules and county codes/rules carefuly, make sure you file all the paperwork with them, and make sure you get bonded and insured people to do the work.

Remember, the homeowners associations WILL FUCK YOU. They will fuck you for not conforming to specific colors, using specific types of paints, fence too high, fence too low, door the wrong color, deck too big, deck to small, not using the right type of wood, even something like having a deck too close to a backyard pool.

They will fuck you. Hard. MAKE SURE FINAL PLANS ARE OK'D. Don't get fucked, they will make you tear it down if it's outside. They have lawyers and they don't fuck around.

They will find out. Don't think you can get away with it. There are people in your neighborhood with nothing better to do than obsess over other people's houses and what they are doing with them. They will run to the association in a heartbeat.

Congratulations on your new house! :)    (they will fuck you over the smallest shit, I am not joking!)

UD gives a lot of good adivice.

Definatly, above all do the home inspection with a certified home inspector. (Yes, they have certifications for this, but Billy & Joe-bob can go out and sell HI services without that cert.. at least around here.)  If for some reason the homeowner objects, (which I'm not even sure they can) just walk away.  They know something's wrong or about to go wrong, and they don't want it to come out.

I'd also add to keep an eye on the price you're looking at.  Our relator kept pushing us to look at more and more expensive homes.  It finally reached the point that I said, "Look, if I'm going to pay that much for a house I may as well build new and not have to deal with any of the problems all the houses you're showing us in this range have."   And so we did.

That's my next bit. Look at the price of new homes in your area.  You can often get a new home for about the same range as an older home. You then save a bit more because you don't have to worry about the heater, furnace, pipes and  have a significantly better insulation value than your typical older home.  The downside is you don't have a yard or landscaping beyond whatever the builder provides (which isn't much these days until you hit the middle-upper price range) , an established community, often have to deal with construction noise and mess and the paranoida of strange folks hanging around at all hours. Newer homes also lack a certain 'charm' that older homes have, which is why I wanted an older home first.

You also have to deal with homeowner's associations in most communities. (see Bhodi's post)  It's another layer of red tape you have to go through if you want to make any kind of improvements.  Some people (like me) see these as a boon, they keep the neighborhood up-to-par and provide benefits like pools and homeowner-parks.  Some people like to buy houses knowing they have HOAs, getting a list of the rules of the HOA, and signing-off that they've read and will abide by the HOA and then bitch when the HOA actually enforces those rules. This boggles my mind.  ( I'm talking people who want to keep their RV on their front lawn year-round when the HOA rules say "24-hours on the street".  The busybodying stuff where people call at 24-hours and 5 mins gets my goat, too.) 
 
If you talk it over and decide to put in an offer, decide right then what your exact limit is.  The whole process is like buying a car, with the hemming and hawing and lowballing, but also runs the risks of an auction if there's more than one bid on the house. Like any auction, some folks get bid-blind and pay wayy too much in the heat of the moment.  Once you hit your limit, just stop, say "well, you win" and look around some more.  I lost a house in a bid-war and I don't regret it.  I know the other people paid way too much for a 1,500 Sq ft house w/ knob-and-tube wiring, a musty basement, ceiling plaster dryrot and gutter problems. 

Stay paitent.  It gets very easy to get frustrated while looking and just say, "Fuckit, I'm done"

Also: there is NO "perfect" house. All homes, even new ones, will have issues.  It's a matter of how many and what kind of issues you're willing to deal with.

I'm in the same boat. Paying $700 a month for a one bedroom apartment 4 minutes from work, but buying something I can afford is going to force me to the burbs and a 30 min+ drive. Probably about 6 months from having the savings and downpayment.

Man, prices here are so far above the prices you guys are talking about, it is insane. My friend bought a house down the street from me 18 months ago for 570k, today he could probably get 725k.

You bought in Cali, I'm talking freaking Ohio.  Yes, worlds of difference.

On inspections, water damage is something the new homebuyer will often not notice. Check ALL windows (don't forget skylights) and wood floors for signs of water damage. Unfortunately, a recent paintjob can conceal water damaged areas. If the house is on the side of a hill and has a basement, ask if the house has some kind of drainage system (french drain is most common) in the basement and if that system has a warranty.

Another item: light switches and outlets - the placement of these can be completely asinine in some houses. In my house, the master light switch activates a single outlet in each bedroom. This outlet is usually closest to the door, thus requiring ugly extension cords if you actually want to use the switch for lighting. We subsequently had most of the switch-outlet pairings changed at $150 a pop.

If the house has central air, ask when the compressors were last replaced. They tend to last 7-10 years only and run $1,000 to replace.

Same.

Also, I wish our HOA would do something about the fuckers that put up a basketball net in the street behind their property, which incidentally faces our property. From time to time me and my mother just sit in the kitchen and wait for the kids to come close to hitting our parked cars with their damn basketball.

Put the net by your own damn cars, fuckers.

/rant

I'm curious what you get for 570k. My house at 158k was a duplex, each unit was 2br/1bath around 1100 sq.foot. Total house is around 2400 sq. feet. Only about .1 acres of land though on a street of mainly duplexes.

We're starting to look at single family homes now since we're about 2 years out from our target move date. We're looking in the 180-200k range in the same city which should get us a single family home with 4 BR, 2 bath in about 2000 - 2400  sq. feet and .2 acres on a nicer street w/ mostly single family homes.

That 11.1% looks good on its face but does it take into account property taxes, insurance, home repairs and other associated home ownership costs over the terms of the 70 years?
I would imagine that would put a big dent in the 11.1%.

Single biggest tip is to make pals with a realtor.  I was selling and only for part of the time looking to buy.  If there's a secret beyond the old reliable "it's who you know", I missed it.

As to the other bullshit in this thread, personally I will only leave this house if blasted out with dynamite.  The constantly-increasing property values of everything within a two-hour commute of Atlanta make me sad at tax time.  I don't plan to sell, so it's not an investment so much as a financial drain.  If you want to invest in land, do it around Atlanta.

Sorry, just got back into the thread.  Your numbers are a bit off there. There is no way you are building up 50k in equity into a house and you are not building up 10k per year as you have formulated.  With a standard 30 year mortgage, in the first 5 or even 10 years you are hardly paying anything to principal (maybe a couple a hundred a month at most). In those time periods you will rack up between 10-20k in equity.  You would lose that much just in realtor sale fees in the three sales at 3% of the sales prices (18k in your example).  You have also paid around 15-20k in property taxes during those years.  At the end of your hypothetical you have a free and clear house worth 200k. Great. If you want to cash it out you then have to sell the house (and find another place to live) or borrow it again. If you'd taken the 500 bucks a month less you would pay in rent than into a mortgage (plus insurance and taxes) and put it into a stock fund or CDS, after twenty years you would 200k in cash that would continue to earn income and would likely produce enough to pay your rent.  Like I said, depends on the market in both housing and rentals. If there is a rental glut you can come out significantly ahead monetarily renting as opposed to buying.  There are other big advantages to home ownership but I don't think the "make money on your house" one holds much water.

And very few people move from one house to another at the same price level. It usually goes like this (in the best of circumstances):

Young couple buy a condo for 75k. Sell it for 95k after putting in 5k of remodel and 5k of condo fees.  They take their 5k of equity left after realtor fees and combine 5k out of pocket and buy a starter home for 150k.  Pay on that for five years, spending 5k in taxes, 2k in insurance, 5k in remodeling/maintenance and then have a kid so sell it for 180k and move into the 4 bedroom in the burbs for 250k having had 20k in equity after all the fees/closing costs, etc.  They then live in that for 20 years until the kids leave and then sell that to buy a house in Arizona for 500k.  You never realize any cash flow from any of that.  Investments are about generating cash flow. A house is therefore not really an investment. The only time it is really cashed out is if you hold for a really long time, get lucky with an appreciated market and then move into something significantly cheaper.  Real estate can be an investment, but owner/occupied stuff doesn't really qualify in my opinion.

This was my grandfather's viewpoint and he died with a big shitpile of money made in commercial real estate and hotels so I give his word some weight.

Thank you for that. That was the exact thing I was curious about, and asked about above.

Abagadro, you aren't really wrong with any of that...but there are other things to consider.  I think a lot of the numbers people are throwing out there aren't really helping to clear up the picture, so I'll try to simplify.  First, a couple of generalizations (which is to say, not ALWAYS true, but often enough):

-Property values tend to be constantly on the rise.  In some places, the rate is so fast as to be ridiculous.   RIDICULOUS.  An interesting truth with this is that the rates of increase in value are probably higher near large cities, and lower as you get further out into the suburbs (I am sure there are exceptions).
-Interest rates fluctuate.   More than likely, there will come a point where rates are lower than what you are currently paying on a loan.

Now, depending on the specifics of the above, you may be able to live in a place for only a few years time and then choose to sell.  It is entirely possible to build up an equity that virtually allows you to "upgrade" your living conditions without a significant increase in your monthly mortgage.  Depending on how lucky (or intelligent) you were in the process, you may even have a nice chunk of cash leftover.

Alternatively, you may choose to stay where you are and consider re-financing.  If you find a sweet spot where your property value has increased significantly and interest rates are low enough....it's almost as good as having a bunch of leprechauns line up to throw gold at you.  Sure, sure, your monthly payment might increase a tad.  Your loan gets pushed back to 30 years again.  These things suck, but the giant sacks of cash tend to ease the pain a bit.  The big risk here is if something happens in your life that forces you to have to sell the property soon after you borrowed against the equity (getting fired, divorced, bombed by Iran).

Mileage will vary, of course, depend on all the variables...but having been through all of the above (3 purchases, 1 re-finance) in the last 8 years, I can say without reservation that owning is highly preferable to renting.

I kind of agree with most of what you are saying, but Abbagadro has a point too, most commonly, the equity of a house is never realeased, as house price rises are on the whole used to purchase a bigger , better house.
As an investment, houses are good, not for the owner, but for their survivors. Viewing a house as an investment for your childrens future lessens the pain.(although inheritence tax in the UK takes a vast chunk if you have any sort of value to your estate)

To the part I quoted, I will also agree, unless you have to borrow 95%+ to purchase. because if the housing market sees a 10% correction, as is seeming very likely at some point, housing accross uk/us and most of europe is vastly overvalued, you are indeed in severe trouble.

Sorry if I made it sound like I thought Abagadro was wrong, that wasn't my intent.  I was only trying to illustrate the other dimension of it, the whole "sacks of cash" part that can be had.  I live in a market where values have hyper-inflated over the last 10 years, so the examples I draw my experience from are more obvious (also, hindsight is easy to apply).  There are potential downsides, not least the one you mentioned....but in a way, that supports the idea of owning > renting even more....because the longer you rent, building ZERO equity, the harder it will be for you to get into a house (or whatever).

There's no reason, other than RL Peen Waving, to own a 500k+ house after the kids are gone.  Of course, these idiots are the ones I make a living off of as they are who my company is selling houses to, so you all go right ahead and do that.  I'll be living in a 1500sq ft ranch, townhome or patio home enjoying my equity.  :-D

Then again, there's no good reason to live in one place for 20 years in the midwest, either.  Unless you're living in a really desirable area in a densely populated city, chances are you've lost a lot of your cash anyway when new subdivisions were put in over that 20 years.  This happened to my parents, who could have gotten $125k for their house in the late 80s and their subdivision was where all the affluent folks in the city lived. Now, 15 years and at least 5 new subdivisions later with all the newer homes that offer features owners these days want, they will be lucky to sell it for $165k.

Currently selling one house and buying another.  UK property leveled out for a couple of years but is on the increase again.  The house we are selling cost £56,000 in November 2001, we accepted an offer for £132,000 a few weeks ago after working on it a lot last year (new kitchen, bathroom, totally redesigned the living room and discovered a covered up inglenook fireplace) .  That seems a pretty good profit but going up the property ladder means we have go from an affordable mortgage to stretching to pay for the new house at £217,000.  It's also going to cost about £5000 just in fees for the move.

I remember walking past a real estate office in London. They had prices for things in their window. I boggled.

I'm all about contingency clauses. Not too many, but enough to cover my ass. I intend to cozy up to a couple buyer brokers in the area (my ex-step-sister is an agent and married to a broker in another region, she may know a few here with integrity) and a real estate lawyer. Inspection I've got covered, our maintenance guy is tight with most local contractor types, I'll be able to find someone qualified.

Almost jumped on a decent house near my mothers, with a pool and large outbuilding built by a friend of the family. And a poolhouse with full kitchen :) But a huge yard (mowing endlessly) andlack of privacy eventually halted me. I want a nice private country pad on a forested mountain!

Not a problem! I have just the house (http://www.ultimatesecurehome.com/index.htm) for you!

I think this is awesome and would love to live there.

For that price he got about 1500 square ft home, with 3 bedrooms, 2.5 bath, and a small backyard. Prices are completely out of hand here in Orange county. But then in my area, we have one of the lowest crime rates in all of america, some of the cleanist air, and are about a 5 minute drive to the beach.

I never planned on selling either.  Life sucks, things change.  Trust me, it is an investment.

Hehe I live less than a mile from a beach as well but I wouldn't go swimming in Lake Erie in anything short of a biohazard suit.


As to the rest of the thread. In general it sounds like people are pointing out that stupid people never get ahead in real estate. Everyone is pointing out all the common mistakes people make when buying a house and buying their next house.

The point is a stupid person would probably lose less money in real estate than a stupid person would trying to throw money at random stocks. An intelligent person with a plan on the other hand will do perfectectly fine with both investment vehicles.

Personally I have made A LOT more over the past 3 years in real estate than I have in my stock account, 401k, or savings account and that's in a market without outrageous growth. I am also not worried about realizing the profit as I am perfectly content to count equity as part of my overall value.

It all boils down to what goals you set. Personally, I have a goal of living in a house I cannot currently afford sometime in the future. The best vehicle to do that is to purchase a starter home and build equity rather than rent. If you are content with where you are now then renting could be a perfectly viable option.

The same strategy could be applied to moving up tiers when buying a car. If you constantly lease a vehicle you can move up tiers but it's going to mean more money out of pocket. If you purchase and pay off your car before rolling into a new one you now have that vehicle to use as an asset to move into a more expensive car at the same price as what you were paying before. The biggest difference in the two strategies is cars a a depriciating asset vs. real asset is almost a guaranteed appreciating asset.

Yeah I originally from Lorain County, North Ridgeville and we'd joke about Lake Erie, too.  Thenl I moved to Cincinnati. Let me tell you, even though the Cuyahoga caught fire that one time, it's got nothing on the Ohio these days. (And damn do I miss the Metroparks)

My beach.

(http://www.lagunabeach.com/images/home2.jpg)

I would *kill* to pay 575k for that kind of house.

Here in the Silicon Valley (just south of San Francisco), I recently looked at a 800sq ft 2 bedroom house for $625k, and it was over 50 years old.  Complete shitholes in San Jose are going for $700k to $800k in the ghetto, and in nicer parts of Palo Alto or Mountain View 1 million gets you a 3 bedroom 25y+ fixer upper.  There's a nice four bedroom just two houses down from my rental apartment that just went on the market at 1.3 million.

I'm quickly realizing that at these prices, you have to be making $250k a year just to sustain the mortgage payment, property taxes, and insurance which I don't think I'll be doing anytime soon.

Those who can afford to buy should feel blessed! ;)

Advice #1:  Pay to have a camera run down your sewer line.  We've bought two houses, both turned out to need repair to the line.  Fortunately, we learned from the first one and caught the second one before the purchase.

Advice #2:  Move *everything* when you're having the inspection done.  Anything that's left behind by the owners probably isn't sitting there because they're lazy, it's there to hide that crack/hole/gaping portal to hell.

Advice #3:  Expect to have plenty of "WTF?" moments when you discover previous remodellers have done something mind-bogglingly stupid.  Again.

It's true.  A relative of mine bought a house a couple of years ago.  He began having terrible migraine headaches but the doctor's couldn't figure it out.  It turns out that whoever had installed the hot water heater and system didn't bother to put in vents to the outside or something.  He was being poisoned.  He actually landed in the hospital several times.  Recently he had a whole new heating/ac systems installed.  This is good because that's whose house we're going to live in while he's away in Japan.  You really do have to make sure the inspector inspects EVERYTHING.

That is just plain crazy.

Here's what you get in my city at the same price:
http://www.realtor.com/FindHome/HomeListing.asp?snum=33&locallnk=yes&frm=bymap&mnbed=0&mnbath=0&mnprice=300000&mxprice=99999999&js=off&pgnum=4&fid=so&stype=&mnsqft=&mls=xmls&areaid=76004&poe=realtor&ct=Lakewood&st=OH&sbint=&vtsort=&sorttype=&typ=1&x=33&y=0&sid=06DC64E161CDC&snumxlid=1057288195&lnksrc=00002


This is more like what we'll be looking at in a year or two:
http://www.realtor.com/FindHome/HomeListing.asp?snum=59&locallnk=yes&frm=bymap&mnbed=0&mnbath=0&mnprice=150000&mxprice=200000&js=off&pgnum=6&fid=so&stype=&mnsqft=&mls=xmls&areaid=76004&poe=realtor&ct=Lakewood&st=OH&sbint=&vtsort=&sorttype=&typ=1&x=37&y=6&sid=06DC6619DE91C&snumxlid=1057762715&lnksrc=00002

That second house is cool.  It looks like a cuckoo clock!

I bought my house in October 2005 with 100% borrowed money. $250.000 at 4% interest and $85.000 at 7%.
Prices here (the capitol) are crazy and we made a good deal on the house. We spent around $10000 fixing up essentials and putting in better heating. In march we got an appraisal and refinanced the house to get rid of the 7% loan. It was now valued (conservatively since we weren't trying to sell) at $385.000.

Sure I won't realize that profit as long as I try to get bigger/better housing within this area and I'll even have to borrow even more, if I try to move closer to my work. But once we get old and move to a condo or to the countryside, we can cash in (my parents house in the country which is roughly 5 times as big with a huge garden - ours is the size of a postage stamp - is valued at $133000). Of course this scenario only works if prices don't drop, but I bet that it would take a nuclear strike or severely rising sea levels to provoke a price drop in this area. Prices are levelling up - my equity is only increasing  about 15% since march... but that's still more than taxes and interest on the loans.

And with rising interest rates my 4% loans increase in value and by converting them, I can pay greater interest (6%-7%) but chop off more than $15.000 of the money owed. The trick is of course to do this just before interest starts falling again and then reconverting once the cheaper 4-5% loans are offered again. But predicting interest rates is the same as gambling.

Don't you have to pay some sort of fee to refinance?

Sure, about $1500 a pop, so you shouldn't do it all the time, but with the current market near Copenhagen I know people that refinance yearly and still makes a profit.
If I refinance right now, I'll owe the bank $13.500 less but pay $1000 more each year in interest - but I think the interest will rise more before dropping, so I'm biding my time.

But if you get on the market here now, you'll make money. Not as much as I did, but still more than the average stock investment and with much less guesswork involved. If you bought a house in or near Copenhagen 10-30 years ago you'll be selling with $250.000+ profit if you move away.

Just to show how crazy the market is: Our secretary bought one half of a then expensive villa midtown for $365.000 five years ago. She sold it last winter for $950.000 and bought a smaller house closer to work, that she dind't have to share and still had a cool million DKR in cash ($166.000) left. Tell me again how that is not an investment?
And the markets are similar close to most bigger European cities - Copenhagen might be the craziest, because we have no room to build and society don't want highrises in our historical city, but buy a house in/near London, Berlin, whatever and you have to be stupis not to make a profit.

My advice to any young person  in such an environment. Buy! Buy whatever you can afford as soon as you can afford it. Borrow all the money if necessary, but buy now. Upgrade later. And pay waht it costs to have a professional check out the house before you can (if you got the time - the market is slowing down, but when we bought our house, whenever we wanted to see a house a second time, perhaps with a builder friend in tow  it was allready sold).

I do agree, but it's small comfort come tax time.  On the flip side, were I to sell my house and any land my wife inherited, I could get that condo in Tokyo I always wanted.


Why do people live in that state?

MrsClydeJr and I are finally getting out of an apartment (lived there for 3 years) and are getting a house. We looked at a bunch of existing homes but just couldn't find anything we liked. We decided to go the "build" route instead. Its not a custom house, but we were able to pick out the options we wanted like counter tops, tile, etc. It has a huge kitchen and pantry which the wife is really excited about. The entire house will be prewired as well. Here's our house so far:

(http://i28.photobucket.com/albums/c217/ClydeJr/slab.jpg)

Its cool to watch how they slowly turn that piece of ground into a house. The really nice thing is there's several houses around that are in various stages of being built. We can walk into those and see how they are planning on doing our home. There's not much of a yard which I'm torn about. On one hand, I'm glad to not have a lot to lawn to maintain. On the other hand, it would be nice to have a bigger yard to enjoy, maybe put a small vegetable garden in. If we do become blessed with some rugrats in the future, I definitely want a bigger yard for them to play in.

Lawns are overrated.  If my wife would let me, I'd get a bunch of chickens and sweep it instead of mow it.

Chickens are annoying; just pave your yard.  Or if you have kids, put down some nice sharp gravel for them to play on :)

I couldn't ever buy one of the newer homes around here simply because they've got postage-stamp size yards.  Fortunately, I have a father-in-law (a farmer) who's willing to sell us 10 acres for a price that's low enough to almost make me feel bad for paying it.

Now I just need some kind of eeee-vil plan to keep my mother from trying to move in with us after it's built; she's mean enough to keep living long enough to do that no matter how long I take to build it...any suggestions?

I don't fix the flaws in the chicken-wire barrier near the base of my fence (it's wrought iron and blocks, big hole which animals can get through) and just let the desert rabbits eat my lawn. They keep it pretty trim and they're cute.. even when they dig holes under my lemon tree to rest in. 

Don't giver her your address.

You live in Texas, Clyde? That looks like any of the hundreds of subdivisions I used to see going up around Dallas. 

 The really fun part about those subdivisions was knowing that the couple who was building their $500k plus house with the jacuzzi tub and large clear-glass picture window above it was going to be 15' from the neighbor's living room window.  That never seemed to sink-in to people's heads until they actually moved-in.

Our current tactic is to talk up homes in other areas as a pre-emptive strike.  Truly, there are nicer places to live than next to me if you are nearing retirement.

[quote author=ClydeJ. There's not much of a yard which I'm torn about. On one hand, I'm glad to not have a lot to lawn to maintain. On the other hand, it would be nice to have a bigger yard to enjoy, maybe put a small vegetable garden in. If we do become blessed with some rugrats in the future, I definitely want a bigger yard for them to play in.
[/quote]

We movbed from a 2nd floor apartment to our current house with a postage stamp size lawn - it's the perfect size with 2 small children and me working/commuting 10 hours a day. There's a sandbox, some grass, BBQ and chairs, and room for a inflatable pool in the summer and not much maintenance. When the oldest is 10, I might start looking for somewhere with room for a treehouse, but until then it's really perfect.

Out front I have parking for three cars and until recently only owned bikes - I'll turn some of that into a plot for herbs and all will be perfect (on my second floor balcony I have a tiny greenhouse with a my chillies). I don't need any bigger garden.

Heck, I'd do that now if my father weren't still alive; he's cool enough to mostly balance out my mom.  Unfortunately, barring any freak meteor strikes she'll outlive him.

(http://www.ffshrine.org/ff7/fmvshots-d2/23-meteor-restores-itself/00011.jpg)

Can you arrange that for me? :)