House Buying - ZOMG HALP!

[Abagadro]

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.

[Nebu]

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.

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.

[lamaros]

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.

[K9]

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.

there is a wealth of both intellect and wisdom here

Also cynicism 

[Lantyssa]

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.

[Yegolev]

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.

[Samwise]

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.

[Yegolev]

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.

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.

[KallDrexx]

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.

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).

[Torinak]

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.

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.

[K9]

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.

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.

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. 

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.

[Samwise]

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

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).

[Yegolev]

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?

[Strazos]

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?

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.

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.

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. 

[Strazos]

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.

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.

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.

[Yegolev]

Not that investments are necessarily my strong suit either. 

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.

[Merusk]

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?

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. :( 

Not that investments are necessarily my strong suit either. 

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.

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.

[Torinak]

Not that investments are necessarily my strong suit either. 

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.

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.

[KallDrexx]

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.

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.

[Merusk]

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.

[Lantyssa]

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.

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)

[Paelos]

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.

[Yegolev]

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

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?

[Yegolev]

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

[Torinak]

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.

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.

[Paelos]

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.

[Tannhauser]

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...

[Abagadro]

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.

[Teleku]

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.   

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.

[Paelos]

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.

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.

[Merusk]

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.

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 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.

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.

You're so painfully single it kills me sometimes.

[Yegolev]

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

[Lantyssa]

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

[Yegolev]

Private, hidden investments.

[Paelos]

You're so painfully single it kills me sometimes.

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