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Old 11-14-2011, 04:51 PM
 
422 posts, read 1,322,813 times
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Yes, I know there financial advisors who do this sort of thing for a living but between what I know and what I think the knowledgeable folks on this forum know, I truly believe it won't hurt my asking this question here.

If "math" and "financial smartness" is all that matters, what would be a good way to go here:

* Stay in the current house, invest about $1500/month in a CD or some type of investment assuming a 4% annual return.
* Borrow additional money and put that towards the house, so this $1500/month goes towards the mortgage.

30 years later, the bank deposits return about $1M (with the initial principal). If the house (in Brambleton) appreciates from $550K to about $1.5M, I would be better off going with option #2.

Now, expecting a house currently priced at $550K to appreciate to $1.5M, is it reasonable? What is the average annual appreciate in the US, in general, in areas such as these (Metro suburbs)?
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Old 11-14-2011, 05:40 PM
 
Location: Northern Virginia
4,489 posts, read 9,586,420 times
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Quote:
Originally Posted by vauser View Post
What is the average annual appreciate in the US, in general, in areas such as these (Metro suburbs)?
You can't predict such stuff. Historically, long term, it's about the same as inflation. Short term, it can do anything. Several studies have come out recently that show renting was a better financial decision than buying over the past 30 years (if you had invested the difference in money, as opposed to spending it).

Study shows renting was better than buying in the last 30 years : Bundle

Basically, I wouldn't buy a bigger house for a financial gain. Buy it because you like it and will be happy living there for 30 years, even if the housing market tanks.
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Old 11-14-2011, 05:46 PM
 
371 posts, read 733,034 times
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There are many good reasons to move from one house to another. "Financial Smartness" isn't one of them. Even if your house triples in value in thirty years, your existing one would too. You also don't factor in the additional costs of a more expensive and probably larger house, such as increased taxes and maintenance costs. Anytime you sell one house and move into another it costs around 10%.

No one knows what the housing market will be in 30 years. If your only reason is for "financial smartness", I'd stay where you are and save your money.
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Old 11-14-2011, 06:12 PM
 
422 posts, read 1,322,813 times
Reputation: 151
Quote:
Originally Posted by CaliTerp07 View Post
You can't predict such stuff. Historically, long term, it's about the same as inflation. Short term, it can do anything. Several studies have come out recently that show renting was a better financial decision than buying over the past 30 years (if you had invested the difference in money, as opposed to spending it).

Study shows renting was better than buying in the last 30 years : Bundle

Basically, I wouldn't buy a bigger house for a financial gain. Buy it because you like it and will be happy living there for 30 years, even if the housing market tanks.
"Buy it because you like it and will be happy living there for 30 years, even if the housing market tanks."

I think you nailed it. That's all that it probably comes down to. We love a couple of the homes we have seen but don't want to be financially stupid, hence the need for advice.
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Old 11-14-2011, 06:14 PM
 
422 posts, read 1,322,813 times
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Quote:
Originally Posted by spleuchan View Post
There are many good reasons to move from one house to another. "Financial Smartness" isn't one of them. Even if your house triples in value in thirty years, your existing one would too. You also don't factor in the additional costs of a more expensive and probably larger house, such as increased taxes and maintenance costs. Anytime you sell one house and move into another it costs around 10%.

No one knows what the housing market will be in 30 years. If your only reason is for "financial smartness", I'd stay where you are and save your money.
"If your only reason is for "financial smartness", I'd stay where you are and save your money."

This is why I love this forum and everyone here. I see more value in this forum than in advice I've gotten from professionals, to be honest!

We want to have the cake and eat it too, is what it sounds like..
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Old 11-14-2011, 10:04 PM
 
504 posts, read 653,515 times
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A few more things to consider here:

Tax implications. The gains in your option #1 will be treated very differently from a tax stand point from options #2, assuming 2 is your primary residence. If #1 is in a taxable account, you will likely pay a lot more takes on it than option #2. With option #2 you also get the benefit of tax deductions on the mortgage interest which will bring your actually borrowing cost down to somewhere in the neighborhood of 3%.

For option #2, what is your ability to keep paying the bigger mortgage if something bad happens? Divorce, loss of job, health issues, and any number of other things can hurt your income and ability to pay that bigger loan.

In your hypothetical scenario #2, for a $550k property to appreciate to $1.5M over 30 years, you would need an average annual appreciation of 3.4%. Your scenario #1 also relies on assumptions about the interest rates you can earn. While these are in the ball park of historical averages, there are no guarantees about the future. If those rates are off by even .5% over 30 years your results could be significantly different.
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Old 11-14-2011, 10:53 PM
 
2,633 posts, read 3,065,317 times
Reputation: 1675
Quote:
Originally Posted by vauser View Post
Yes, I know there financial advisors who do this sort of thing for a living but between what I know and what I think the knowledgeable folks on this forum know, I truly believe it won't hurt my asking this question here.

If "math" and "financial smartness" is all that matters, what would be a good way to go here:

* Stay in the current house, invest about $1500/month in a CD or some type of investment assuming a 4% annual return.
* Borrow additional money and put that towards the house, so this $1500/month goes towards the mortgage.

30 years later, the bank deposits return about $1M (with the initial principal). If the house (in Brambleton) appreciates from $550K to about $1.5M, I would be better off going with option #2.

Now, expecting a house currently priced at $550K to appreciate to $1.5M, is it reasonable? What is the average annual appreciate in the US, in general, in areas such as these (Metro suburbs)?
Good luck finding a CD at 4%; right now they're hovering around 1%. This is what I'd do:
1. Stash the $1500/month in a savings account until you have three months worth of of reserves.
2. Then start applying the $1500/month towards the principal on your home in addition to your regular mortgage payment. Mathematically, this is the equivalent of investing the money with a return equal to the interest rate on your loan.
3. Once your primary residence is paid off, buy a second house and move into it. The first home becomes a rental property, the second one your residence (with a homestead exemption and a residential mortgage). Set aside some funds as a contingency for each home.
4. Rinse, lather, repeat.
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Old 11-15-2011, 07:07 AM
 
Location: Northern Virginia
5,104 posts, read 5,405,123 times
Reputation: 12617
You could also ask this question under CDs Business, Finance, and Investing forum.
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Old 11-15-2011, 10:59 AM
 
1,287 posts, read 1,737,904 times
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I concur w/ Smoke and we did parts of this. We are a family of 3 and lived in small TH and paid down our mortgage and had 1 year of savings before we decided to trade up to a SFH. Our mortgage payments did not double though (35%). We wanted to get dogs, have gatherings in our home which we could only do on a very small scale in the TH. We wanted to have our neices/nephews have slumber parties, go all out on the holiday decorations, have a workout room in the basement etc. Bottom line, it was a life style choice. It's almost been 3 years and we have fully enjoyed the extra space and made the most of it. I would ask yourself if your lifestyle would change for the better? remain the same?
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Old 11-15-2011, 12:01 PM
 
422 posts, read 1,322,813 times
Reputation: 151
Quote:
Originally Posted by Middlin View Post
I concur w/ Smoke and we did parts of this. We are a family of 3 and lived in small TH and paid down our mortgage and had 1 year of savings before we decided to trade up to a SFH. Our mortgage payments did not double though (35%). We wanted to get dogs, have gatherings in our home which we could only do on a very small scale in the TH. We wanted to have our neices/nephews have slumber parties, go all out on the holiday decorations, have a workout room in the basement etc. Bottom line, it was a life style choice. It's almost been 3 years and we have fully enjoyed the extra space and made the most of it. I would ask yourself if your lifestyle would change for the better? remain the same?
Will definitely be an improvement in lifestyle and we would unquestionably enjoy the extra room for similar reasons you mention above. Our payments would double though (1.5K to 3K per month), so the additional 1.5K would be a 360 month commitment.
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