Winnetka in $750K house, bad idea? (Chicago, Wilmette: apartments, credit, income)

[cubssoxfan]

Originally Posted by 3Series

Buying a house outright in the current environemnt is not financially smart. With conforming loans less than 4% (30yr product) and mortgage interest deduction, the least amount down would be the smartest thing.

To OP, I'd reccomend putting down 20% and getting a 30yr loan. Pay it off as if it were a 15yr loan, also the 30yr product is the most cost efficient product to originate. Yes, you'll pay more in interest, but you'll have greater flexibility. In addition, cash is king, so instead of tying up capital in your house, you're better off conservatively investing it and using part of it to pay your loan each month.

$150k @ 7% will earn you $10,500 each year and say you take home 80% of that after taxes, that's almost $700/month of income.

I am not the most informed person regarding investments; can you tell me where I can find an investment like this?! PM me if your more comfortable that way instead of via the forum.

[3Series]

Originally Posted by cubssoxfan

I am not the most informed person regarding investments; can you tell me where I can find an investment like this?! PM me if your more comfortable that way instead of via the forum.

I'm not sure if this is a joke or not, but it's called a diversified portfolio. Risk is involved and a 7% return is a realistic annualized return "example".

[cubssoxfan]

Originally Posted by 3Series

I'm not sure if this is a joke or not, but it's called a diversified portfolio. Risk is involved and a 7% return is a realistic annualized return "example".

I must have picked a lot of crappy funds

[SOON2BNSURPRISE]

Originally Posted by JenniferFn

We're coming from Chicago where the std. lots are 25 x 125.

Is that for real? I guess I didn't realize how small the lots were in Chicago. We are on a 60 X 100 lot and that is normal for our part of the world for the so called "starter home". We have no plans of leaving our "starter home". LOL. I know that the home my mom grew up in is small. My uncle still lives in that home, he raised his now grown family, in that same home. Still, I just thought is was small because my uncle is the 3rd generation of the same family to own that home.

I will concur with some of the thoughts exspressed within this thread. It seems that most places I have visited that a 3 bedroom 2 bath home with a 2 car garage is somewhat considered the norm. Anything smaller just would not fit the bill other than if the land under the home has the space to expand the size of the home. Anything larger is gravy depending upon price point. For example we live in a 4 bedroom 3 bath home with a 2 car garage. On our street of 20 homes only two homes are larger than ours. One is a 4 bedroom 3 bath with a living room and a family room that has the same layout as the day it was built in 1962. The other is the only 2 story home on the street. The former owners added the 2nd story and increased the home to a 6 bedroom 4 bath home, with a bonus room on the first floor and a second living room on the second story. In addition many of the newer homes have 3 car garages. In our area many builders offer a home with a 2 car garage facing the street and a single car garage with the door of that garage facing the driveway to the 2 car garage.

As far as living in a desired location I can understand that. We can offer advice on other places that have more bang for the buck but their is just something about living in an area that you desire over other areas that may infact offer more space or options for the money. Kind of like buying a car. Lets say that you have the money to buy a 3 series BMW but not the cash to get all the bells and whistles or you could spend the same money and get a tricked out Nissan Maxima. Both are at a similar price point. The BMW without all the bells and whistles will get more heads to turn than the Maxima even though the Maxima is a few bucks more. Choosing a place to live even if your home is not the big one or has all the bells and whistles but is in the "right" neighborhood still offers prestige and availability to influence that other locations although just as nice may not offer.

[shamrock847]

I think these quotes from people who have been there really sum things up nicely for the OP:

Originally Posted by Anthera

You'll fit in fine in Winnetka. Not everyone that buys a "starter house" is ever able to move up. Sometimes they stay in the starter house even if they can. Age wise there are plenty of parents your age (either starting late or large families). Status wise, a smaller house that is a "jewel box" is considered nicer than a larger house that's gone to the dogs (more of those around than you would think).

Originally Posted by Sarah H.

I think you'll be fine. 750K can buy a nicer house in Winnetka these days. There's a lot less keeping up with te Jone's than you think. Most people who move here with kids do so for the "Mayberry" lifestyle not to buy stuff in excess. In Winnetka you see kids riding their bikes to the drug store to buy candy on their parents' house account or riding to the park to meet up with friends. There's a strong sense of community and safety here. My kids know they must behave when they go out because chances are they'll be seen by someone I know. Good luck with the move

Good luck!

[3Series]

Originally Posted by cubssoxfan

I must have picked a lot of crappy funds

You sure did. Which Shame Fund, oh I mean Mutual Fund/s did you choose....?
Ahhh, the mutual fund, wall street's largest "stick it to you" product for siphoning wealth from the masses...
"Prof money management" and my favorite "buy and hold"....

[madpaddy]

Originally Posted by 3Series

I'm not sure if this is a joke or not, but it's called a diversified portfolio. Risk is involved and a 7% return is a realistic annualized return "example".

Highlighted the important part. 7% return in the current market environment requires more than a little risk. Does the OP sound like a big risk taker? One willing to leverage their home for a potential ~5% bump in net income? Not to me.

[cubssoxfan]

Originally Posted by 3Series

You sure did. Which Shame Fund, oh I mean Mutual Fund/s did you choose....?
Ahhh, the mutual fund, wall street's largest "stick it to you" product for siphoning wealth from the masses...
"Prof money management" and my favorite "buy and hold"....

So where are these 7% returns?

[chet everett]

Basically the "risk multiplier" has to be pretty high. With "safe" investment in 30 year bonds and shorter maturities at all time lows you have to look junk bond yields which are pretty impressive and some of the better junk funds are really not all that risky. That fact is you don't have to stick to the "you have to nuts" type investment schemes to get even 9%, as believe it or not that is what the BOOMING Dow Jones Industrial Avg has returned -- Junk bonds outperforming higher quality bonds and equities | Deseret News

People that sink all their cash into real estate are really responding to the emotions triggered by stories of folks becoming upside down, a fear that I personally would not have in a mature high end suburb.

[Larry Siegel]

Originally Posted by cubssoxfan

I must have picked a lot of crappy funds

No, actually the stock market has been flat for 12 years. The S&P 500 hit a high of 1527 in March 2000 and it is now at 1400. Meanwhile, you've collected some dividends so there is unlikely to be an actual loss in a U.S. equity index fund, but we've had about 2% a year inflation so you have a loss in real (inflation-adjusted) terms if you're in equities. Bonds have done better.

The 7% return referred to earlier is a projection based on historical averages, but that doesn't mean you'll earn 7% in any given period - or ever. Given today's price levels, I'd be projecting a 7 or 8 percent return for stocks, 2 to 3 percent for bonds, so an average (if you assume a 60/40 mix of stocks and bonds) of about 5%. This assumes you invest in low-cost index funds, not actively managed funds that try to (but mostly fail to) beat the averages.

For more information, see:
bogleheads.com (social networking for sophisticated investors who mostly invest in index funds)
efficientfrontier.com (advice from the great investment manager Bill Bernstein)
cfapubs.org (for professionals, and you'll find my writing there. I'm the Research Director of the Chartered Financial Analysts Institute)