I'm a financial planner, and I can tell you buying a home in your 20s or 30s may not be the great investment you think (Chatham: cheap apartment, property tax)
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Interest is low and deductible. Almost free money to me.
Low down payment means you can buy more houses to invest. And more profit. Or you can invest somewhere.
Quote:
Originally Posted by ansky
I don't follow.
Person A buys a house for 100K, all cash, and sells it for 150K. That's 50K of profit.
Person B buys a house for 100K, but has to pay 20K in interest over time, and then sells the house for 150K. That's only 30K of profit. You can't just ignore the 20K in interest that you had to pay. That adds to your overall cost of buying the home.
If your logic was correct, then interest rates would not matter. Everyone could just take out a high interest loan because interest doesn't factor into the cost of buying the home.
Interest is low and deductible. Almost free money to me.
Low down payment means you can buy more houses to invest. And more profit. Or you can invest somewhere.
That makes sense. But if you're just analyzing 1 house, the person taking out a loan and paying interest is not making as much profit as the person paying all cash (assuming they buy and sell the house at the same price points).
That makes sense. But if you're just analyzing 1 house, the person taking out a loan and paying interest is not making as much profit as the person paying all cash (assuming they buy and sell the house at the same price points).
If you buy a house with a 30-year mortgage and it takes you 30 years to pay off that mortgage, then buying a house is not such a great deal when you add up all the interest you have paid over that time. On the other hand, if you can buy a house in cash, or pay off the mortgage quickly, then you might make a profit when you sell the house for a higher price.
You’re not accounting for opportunity cost. Buying the house in cash is usually not the wisest choice financially. Let’s say you have 500k cash. You buy a house for 500k, put 100k down and take out a 400k 30 yr mortgage at 4%. You can take that 400k still in your bank account and invest it in an S&P 500 fund for 30 years and you’ll likely earn somewhere between 7-9% average annual return. Or if you’re less risk averse, invest in rental properties that cash flow and make some income while building equity.
That makes sense. But if you're just analyzing 1 house, the person taking out a loan and paying interest is not making as much profit as the person paying all cash (assuming they buy and sell the house at the same price points).
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Originally Posted by bluewin888
Time value of money. Inflation!
Quote:
Originally Posted by HudsonCoNJ
You’re not accounting for opportunity cost. Buying the house in cash is usually not the wisest choice financially. Let’s say you have 500k cash. You buy a house for 500k, put 100k down and take out a 400k 30 yr mortgage at 4%. You can take that 400k still in your bank account and invest it in an S&P 500 fund for 30 years and you’ll likely earn somewhere between 7-9% average annual return. Or if you’re less risk averse, invest in rental properties that cash flow and make some income while building equity.
Thank you.
Also, mortgage interest is a tax deduction (subject to IRS limits).
Investing in real estate is the good choice, but only if you have mix of houses and buildings for rent, and at least 5 of them at the times. If you are conscious landlord and have a soul, you will not see so much of cash flow as one starts thinking in the beginning. Maintenance (abiding by local codes), taxes, insurance may cost you more than income received in first 5 years, but eventually if you keep an eye on market and sell before new real estate crash, you may see some earnings. Government subsidized renters housings are your options to go with if you know how to play government financial games, for that your versed accountant is necessary.
You think Jersey City provides a better quality of life than Newark? How so? the Newport section having high rises and clearer streets? OK - yea let me pay double in housing costs for that and live in a more congested city.
I do only live once. That's why Newark has allowed me to go to 2-3 vacations outside of the US each year.
What the hell does Hoboken provide? A neatly manicured Washington Avenue with some bars and restaurants? OK let me run and pay $4,000 per month in rent. That is not living a qualify life, that is pure financial stupidity if that is more than 30% of your annual income. I am a CFP (certified financial planner) and I'll put up my financial path up against any 30-40 year old that decided to live it up with the Jones' in Hoboken. I took a few steps back in quality of live when from age 27-34, that will put me so far ahead of the game by age 35. People have to stop living in the now. A few years go being frugal can go a long long way.
For the record, I have multiple tenants that have moved form JC to the Ironbound and prefer the Ironbound to JC.
Not having to look over your shoulder all the time counts for a lot in my book.
Articles like these need to be taken with a bowl of salt.
For someone who bought during the height of housing bubble, they would be lucky - and/or be happy - if the losses they have are limited, much less for a 'profit'.
Saying 'buy within your means' is all fine and good, if it is indeed practical. For many areas which are 'hot' for the job market, it would be impossible to buy within anyone's means.
I see someone saying this "People have to stop living in the now. A few years go being frugal can go a long long way"
- for what?! For whether if you will live upto 65 or 70 or 75? Why is there not a balance. You cannot always be saving for when you will be 65 year old, and you should actually be spending some money to live in the now.
It is great that some of you have been able to buy something in a location at a point, but whatever way you claim - not 100% of it is due to your financial acumen alone. More than a portion of it is also due to a factor called 'luck', whether you like it or not.
Finally, it is okay to agree to disagree. There is no need to get personal. Just my $0.02
Articles like these need to be taken with a bowl of salt.
For someone who bought during the height of housing bubble, they would be lucky - and/or be happy - if the losses they have are limited, much less for a 'profit'.
Saying 'buy within your means' is all fine and good, if it is indeed practical. For many areas which are 'hot' for the job market, it would be impossible to buy within anyone's means.
I see someone saying this "People have to stop living in the now. A few years go being frugal can go a long long way"
- for what?! For whether if you will live upto 65 or 70 or 75? Why is there not a balance. You cannot always be saving for when you will be 65 year old, and you should actually be spending some money to live in the now.
It is great that some of you have been able to buy something in a location at a point, but whatever way you claim - not 100% of it is due to your financial acumen alone. More than a portion of it is also due to a factor called 'luck', whether you like it or not.
Finally, it is okay to agree to disagree. There is no need to get personal. Just my $0.02
Rings true. A lot of our individual experiences can be largely chalked up to “luck” of some kind. And agree that in an overpriced market like NJ or, god help us, LA, it’s pretty hard to buy within your means if your household income is < 200k. I don’t see how this market is sustainable, personally.
it's not sustainable pbecause you will have an lowners class and a renters class of people... in larger citys with majority of renters...the politicians tend to redistribute income from owners to renters over even non renters .. via taxation and regulation..Thr the tax base drops due to over taxation ... after tax based drops home values drops... ll rents cant keep up with taxation... then ppl flee or go into protectionist enclaves.. all that's lefts is the political class... the upper elite class and the poor ..also know as a communist society were
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