Home Ownership, not all it's cracked up to be...

[88GT]

I've never bought a home that wasn't an investment. Even the 3 I've lived in personally over the past 10 years.

Every home is an investment. It just depends on how you want to define it. Not all investments are for the express purposes of generating money.

 

[Lucas156]

Not all investments are for the express purposes of generating money.

What else is an investment for then?

 

[Hotdoger]

What else is an investment for then?

By definition an investment can be for something that may be profitable or useful in the future.

 

[dom1104]

Hey guys,

I have been pondering this very issue.

If you were renting a house for $400 a month, and the opportunity came up to buy a house for $600 a month after the down payment, and you could afford to put 1200 a month towards paying down the mortgage....

thats a good financial move for someone with no debt etc etc etc.....right? from an off the cuff standpoint.

 

[ATOMonkey]

Hey guys,

I have been pondering this very issue.

If you were renting a house for $400 a month, and the opportunity came up to buy a house for $600 a month after the down payment, and you could afford to put 1200 a month towards paying down the mortgage....

thats a good financial move for someone with no debt etc etc etc.....right? from an off the cuff standpoint.

I would just make sure that $600/mo was fully inclusive and not just the mortgage payment.

Mortgage + taxes + insurance + utilities minus electric to make a good comparison.

Also, will this $600/mo house need any fixes, improvements, etc? Will you need to buy appliances? What about yard care?

Do you have the cash to pay closing? It'll run between $2500 and $5000.

Do you have the cash to pay for the move? Depending on your resources and how much stuff you have, it can be costly as well.

That $1200/mo gets whittled down real quick. Especially if you calculate any savings for future home maintenence/improvement.

 

[yotewacker]

Go ahead and rent.
As a matter of fact you can rent from me. I'm going to sell one house a year for income for my retirement income.

 

[eldirector]

If you are looking at it strictly from a financial perspective, then do the math.

Rental:
Rent
Utilities
Insurance
Appliances?

Own:
Mortgage
Utilities
Insurance
Appliances
Taxes
Maintenance/Repair
Down payment (one time expense)

I was in a similar situation, and chose to buy the house. Financially, I am a bit more out of pocket each month. Long term, the property will likely appreciate.

One things that is a bit harder to account for is the appreciation. With rent, you are just spending money - in the end you just have less. If you own the RIGHT property, then in the end it may well be worth more than you spent while owning it. Works out even better if you can live there longer than you have a mortgage.

It was more of a lifestyle decision for me. I can do pretty much what I want on my own property (improvements, landscaping, hobbies, etc...). Ask Longbow on here about leases and landlord/property manager issues! The little extra expense is worth it to me.

 

[ATOMonkey]

Exactly, ours was a lifestyle choice as well.

We're going to spend over $300k on our $150k house, on just the mortgage, not counting taxes.

So, it will need to appreciate a metric **** ton just to break even, I don't plan on actually making any money on the house I live in.

 

[woowoo2]

Works out even better if you can live there longer than you have a mortgage.

This is my goal, and I am not far from it......

 

[dom1104]

I would just make sure that $600/mo was fully inclusive and not just the mortgage payment.

Mortgage + taxes + insurance + utilities minus electric to make a good comparison.

Also, will this $600/mo house need any fixes, improvements, etc? Will you need to buy appliances? What about yard care?

Do you have the cash to pay closing? It'll run between $2500 and $5000.

Do you have the cash to pay for the move? Depending on your resources and how much stuff you have, it can be costly as well.

That $1200/mo gets whittled down real quick. Especially if you calculate any savings for future home maintenence/improvement.

good thoughts. yeah that 600 is taxes and insurance and everything. The closing is 2900, the cost of the move is zero, since its about 1/3rd mile down the street.

We have about 20 grand to put down on it, and the cost of the house is 102,000.

My plan is, we are paying 400 a month now for rent, + saving 800 for the house to a savings account.

If we bought the house, I could pay that 1200 straight into the mortgage with no change in the lifestyle we have been living for years.

My thinking.. is that might be a good idea. Still... talking large dollars here, and renting sure is.. convenient.

 

[hooky]

When we rented, we made sure our rent payment was around half of what we thought we could afford for a mortgage. Every time we paid rent, we matched that in the savings account towards a down payment. Once it started to add up, it became more of a game to see where else we could cut our budget and put that towards the down payment. Then we took out a mortgage that was only about $180 more that what our rent was, thanks to the larger down payment. It worked for us.

I think too many people try to rent at around the same amount as what they think they can afford for a mortgage payment, then they're never able to save enough money for a decent down payment.



We've subscribed to the Dave Ramsey notion that you need to put at least 20% down on a 15 year note.

 

[eldirector]

When we rented, we made sure our rent payment was around half of what we thought we could afford for a mortgage. Every time we paid rent, we matched that in the savings account towards a down payment. Once it started to add up, it became more of a game to see where else we could cut our budget and put that towards the down payment. Then we took out a mortgage that was only about $180 more that what our rent was, thanks to the larger down payment. It worked for us.

I think too many people try to rent at around the same amount as what they think they can afford for a mortgage payment, then they're never able to save enough money for a decent down payment.



We've subscribed to the Dave Ramsey notion that you need to put at least 20% down on a 15 year note.

That's EXACTLY how you do it! Reps inbound.

We did similar: rent was well under what we could afford. Saved up for 12 years to get the down payment (25% down, so no PMI). Our new mortgage is well under what we could afford (You should have SEEN what the bank was willing to give us! No, thanks.). We double-pay our mortgage almost every month, so our 30-year will be closer to 15 (made sure there were no penalties for this). We pay our own property taxes, with the full year sitting in an interest-bearing account until they are due (*I* am earning interest, not my bank, and not the .gov).

Not claiming I am doing everything right. But we are sure trying

 

[ATOMonkey]

good thoughts. yeah that 600 is taxes and insurance and everything. The closing is 2900, the cost of the move is zero, since its about 1/3rd mile down the street.

We have about 20 grand to put down on it, and the cost of the house is 102,000.

My plan is, we are paying 400 a month now for rent, + saving 800 for the house to a savings account.

If we bought the house, I could pay that 1200 straight into the mortgage with no change in the lifestyle we have been living for years.

My thinking.. is that might be a good idea. Still... talking large dollars here, and renting sure is.. convenient.

What is your job situation like? Do you have any plans to move because of work? Are you thinking of changing careers that will require a move?

What kind of area is the house located? Is it the kind of house that appeals to a majority of people? I ask because you don't want to have trouble selling should the need arise.

I'm guessing this isn't your retirement home, so keeping an eye on how to sell it and when to sell it needs to play into your plan.

Doesn't sound like a terrible thing to do.

Also, any plans for kids?

 

[jss1956]

An interesting thread indeed. Many here have it right. I'm probably a bit older than most of the folks here so I'll share my experiences with home ownership.

I've owned 7 different homes in various areas of the country. During this time market conditions vairied from red hot to stone cold and everything in between. I've also owned rental property. I'm pretty conservative, have never had anything longer than a 15 year fixed rate mortgage and my current home is almost paid off. My son is in college and here is the advice I've given him as he starts out:

1. Homes are only an investment if you pay cash and hold. And location is paramount.
2. Buy assets, sell liabilities.
3. Dave Ramsey has it right.

If I do the math my current property after 11 years of ownership will be a break even at best. My next property will be rented. Rent and invest your money in assets that pay you or go up in value.

Given that I live in a state that's a total dump I would never recommend anyone buy property in Indiana or anywhere else in the Midwest.

 

[88GT]

We've subscribed to the Dave Ramsey notion that you need to put at least 20% down on a 15 year note.

for Ramsey, but IMO, what you need to do depends on what your end goals are and what the opportunity cost of doing it differently will be. Ramsey pigeon-holes everything into a financial matter and discounts the non-monetary aspects of decision-making a good portion of the time. His only standard is the anti-debt one. Sometimes there is more value in a Ramsey-poor choice than there is in getting out of debt 3 years earlier.

There's nothing wrong with any financial decision made with full information and rational and responsible decision-making.

 

[Hotdoger]

for Ramsey, but IMO, what you need to do depends on what your end goals are and what the opportunity cost of doing it differently will be. Ramsey pigeon-holes everything into a financial matter and discounts the non-monetary aspects of decision-making a good portion of the time. His only standard is the anti-debt one. Sometimes there is more value in a Ramsey-poor choice than there is in getting out of debt 3 years earlier.

There's nothing wrong with any financial decision made with full information and rational and responsible decision-making.

Seems to me you could not be more wrong about DR.

The debt snowball is clearly based on the mental aspects of an debt laden person .
He is the psychologist to the indebted.

 

[88GT]

Seems to me you could not be more wrong about DR.

The debt snowball is clearly based on the mental aspects of an debt laden person .
He is the psychologist to the indebted.

Nope, not wrong. Ramsey considers one thing and one thing only. I'd argue that such an approach can lead to a debt-free but just-as-unhappy individual as one who holds too much debt.

There is more to life than not owing anybody. And if accumulating debt is done smartly, even if it is subordinated to other factors initially, it doesn't have to becoming the crippling weight on a person's shoulders.

Debt isn't bad. Bad debt is bad. Debt is a means to an end and a tool for some people to achieve other things in their life. Ramsey's approach ranks debt as the primary (sometimes the only) factor to consider in making a decision. I disagree with this.

Ramsey's advice is ONLY sound if the primary goal is to be debt-free in the shortest amount of time. From that standpoint, he's a genius. From living a life and being happy, he doesn't necessarily make the grade.

 

[henktermaat]

Renting for a time can be SMART. It can be a cheap way to live while you sock away a good-sized down-payment. Buying a home is only good for you in certain circumstances.

 

[henktermaat]

Nope, not wrong. Ramsey considers one thing and one thing only. I'd argue that such an approach can lead to a debt-free but just-as-unhappy individual as one who holds too much debt.

There is more to life than not owing anybody. And if accumulating debt is done smartly, even if it is subordinated to other factors initially, it doesn't have to becoming the crippling weight on a person's shoulders.

Debt isn't bad. Bad debt is bad. Debt is a means to an end and a tool for some people to achieve other things in their life. Ramsey's approach ranks debt as the primary (sometimes the only) factor to consider in making a decision. I disagree with this.

Ramsey's advice is ONLY sound if the primary goal is to be debt-free in the shortest amount of time. From that standpoint, he's a genius. From living a life and being happy, he doesn't necessarily make the grade.

There is no good debt.

 

[Hotdoger]

Nope, not wrong. Ramsey considers one thing and one thing only. I'd argue that such an approach can lead to a debt-free but just-as-unhappy individual as one who holds too much debt.

There is more to life than not owing anybody. And if accumulating debt is done smartly, even if it is subordinated to other factors initially, it doesn't have to becoming the crippling weight on a person's shoulders.

Debt isn't bad. Bad debt is bad. Debt is a means to an end and a tool for some people to achieve other things in their life. Ramsey's approach ranks debt as the primary (sometimes the only) factor to consider in making a decision. I disagree with this.

Ramsey's advice is ONLY sound if the primary goal is to be debt-free in the shortest amount of time. From that standpoint, he's a genius. From living a life and being happy, he doesn't necessarily make the grade.

All those that are living debt stress free lives say different.