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Old 02-09-2018, 09:37 PM
 
Location: Saint John, IN
8,355 posts, read 2,211,992 times
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Quote:
Originally Posted by emm74 View Post
What is your wife going to say when you get engaged to your girlfriend? And do you have 45K in savings but still are trying to save up enough for an engagement ring? I feel like I'm missing some of the details here



What to do with $1,000 "bonus"?


Funny!
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Old 02-09-2018, 09:44 PM
 
Location: Billings, MT
8,370 posts, read 6,265,856 times
Reputation: 10892
"With a mortgage, your house payment would remain the same during those years, while the value goes up,..."
Uh, no!
Taxes will go up, insurance will go up. As they go up, so goes the monthly payment.
I recently had to make an extra escrow payment of nearly $300 to cover the projected taxes and insurance, and the monthly payment went up to cover future T&I payments.
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Old 02-09-2018, 11:30 PM
 
5,156 posts, read 2,711,561 times
Reputation: 10881
Quote:
Originally Posted by Redraven View Post
"With a mortgage, your house payment would remain the same during those years, while the value goes up,..."
Uh, no!
Taxes will go up, insurance will go up. As they go up, so goes the monthly payment.
I recently had to make an extra escrow payment of nearly $300 to cover the projected taxes and insurance, and the monthly payment went up to cover future T&I payments.
Which are the same calculations his landlord will be making to decide how much to raise the rent every time the lease is up for renewal.
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Old 02-09-2018, 11:58 PM
 
5,570 posts, read 2,638,989 times
Reputation: 10894
Quote:
Originally Posted by JC4E View Post
Hi,


My wife and I currently make $135 between us, and we do not plan to have children. We give 10%, invest 11% into retirement, both have no debt, and currently share a 700 sq ft apartment for $1,200 all-in.


We do not want anything ridiculously large, and are fine with a 'starter home' as our 'end home' as well. In our area, this would be about $200-$225 for a 1,400 sq ft ranch style which we would like.


If we currently have $45 saved, how absurd is it to want to save the full amount? We both do not like debt, and we are (realistically) happy in our current setting. But, it would be nice to own and have something permanent and not owe anything other than property taxes.


We just don't know if it's stupid to do this instead of, say, putting the usual 20% down and carrying a rather large (160-180 ish) mortgage that will be oppressive.


Thanks for all input!
If you are young, I'd take out at least a partial mortgage. You can pay more than 20% down. You also will get a deduction on your taxes for the interest.

I paid in cash for the last house, but that's because I'm retired, it saved on closing costs and expenses, and I wasn't sure I'd qualify because loans go by income, not cash in the bank.
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Old 02-10-2018, 04:13 AM
 
10,359 posts, read 12,365,109 times
Reputation: 16430
It's a moot point since you don't have the cash to buy the house in full. So you really mean is it worth it to continue to rent and save to pay cash instead of take on a mortgage.

Take a SHORT mortgage, like 10-15 years and prepay the mortgage.

Which means you pay principle only, in advance, and you'll be finished with it way before the scheduled pay off date.

Of course with so little info, nobody knows if this is the right choice for a life plan.

Home purchases were always smart when people stayed IN THEM long "enough". Most people didn't have to even question how long they'd live there. It was assumed it would be "at least" X amount of years depending if it was a starter home and career plans.

Back in the day, PLENTY of people started with a duplex and rented out the other apartment while living in one, and made the sacrifice of the fancy 3 bath "dream home" until they could ACTUALLY afford the dream home. And they KNEW it would be later in life, even post kid.

What about your jobs, having 18 months to 3 years salary cash emergency fund, continuing your retirement accounts, healthcare security, cars and other potential debt or expenses on the house?

You didn't even state your ages. But you sound Millennial. I could guess you're probably happy in your location judging from your charity contribution but that's just a guess. Most people I know when they give 10% have some affiliation with a local group, not just give randomly to some online thing.

Then again, it could be donations to ANY charity like animal welfare so who knows.

The 11% is nice. GREAT by most standards. Some would say bump it to 16%. Possibly after tax dollars.

IME, there's no rush to own versus rent if you're in your 20's but I'd do it. You're obvs using today's dollars.

I've done both. I didn't particularly see a great financial gain in owning since I only stayed in my first house 10 years. I had a 15 year mortgage. During the 90's when we had a RE bubble and burst. So I sold it for the same price as I bought it. AFTER replacing all the appliances and some other stuff like flooring, painting. It wasn't cheap to begin with - $135K at purchase in 1987 for an end unit townhouse. I was early 20's then and my job was fixed (and remained so for life - optionally)

I sold it after a great flood , too, AFTER I had already replaced all that stuff which had to be replaced again (yes I had insurance but still....).....which cost me plenty in time and money. I rented thereafter because I just didn't want to be bothered with the angst and being the sole party responsible for EVERYTHING.

I even had to replace the flooring because there was destructive dry wall on the floors. AND WALLS. And furniture, bookcases, books, etc.

A huge job. The entire ceiling collapsed from water upstairs. Studs exposed. I owned a business then which suffered. There are only so many hours in the day.

If I had had a reason to sell DURING the bubble I would have walked away with about an extra $75 K or so, but at the time I had no reason do to that and wanted to live in that neighborhood where I also had a child with a fixed life. Social circle. My parents 10 minutes away. Built in babysitting yada yada.

Then during the crash of 2008, after my kid was an adult and not a factor... I chose to buy a condo cash when I moved to FL because I thought it would be wise to have some money in that asset. In retrospect I should have waited to reach the true bottom, but that wasn't my concern. I knew we weren't at the bottom, but I also knew the condo was a good purchase and worth the value. AND I knew it would take ten years to come back after bottoming out in FL.

Which is exactly how long it took.

Ironically, I bought in one county in FL and then my company offered me a position 3 hours away 2 months later. So that condo sat empty for 4 years until I moved back. And I carried the rent at the new place AND the HOA fees, taxes and ins on the condo. While the appliances and HVAC aged so they just got replaced. MORE money LOL. The HVAC was $4000 for a 1200 sq ft condo.

So you have to budget in about $40 per month in advance to replace HVAC in 10 years if you want to just pay cash when the time comes.

So choose wisely if you do it. Sounds like you are the type to factor all this stuff in. I would be SURE to chose a house that I was SURE would hold it's value - location wise. Depending on where you live it's easy to see now. Because SO MANY neighborhoods are still suffering from the crash. Deferred maintenance etc. FL is a mess in this regard. Lots of renters, too where there used to be homeowners.

Renters are a BAD THING when it comes to home ownership and neighborhoods.

So if you have a "good neighborhood" which survived the crash relatively unscathed, it's probably a good location to buy NOW. NOT some kind of "up and coming" nonsense etc. Of course a condo or duplex is probably the wisest bet. Smaller, cheaper, more manageable and easier to update, renovate, sell. But that's probably not what you're going for, and that's logical.

Last edited by runswithscissors; 02-10-2018 at 04:33 AM..
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Old 02-10-2018, 04:47 AM
 
1,084 posts, read 410,342 times
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Quote:
Originally Posted by oldtrader View Post
If you are in an area where homes are appreciating rapidly, it can be very much your advantage of locking in today's prices, while if you wait for a few years to save up a lot more money, you can actually be priced out of the real estate market. Example: We owned 4 different homes, in Cupertino Ca. Saratoga Ca, etc. Homes we bought for $13,750 that was a tear down 10 years ago at $850,000, and 1 bought for $18,000, and and one for $20,000 that 50 years later, are reselling for $1,250,000, and one at $22,000 that today would go for about $1,450,000. If I had kept those 4 homes, what I paid less than $75,000 would today be worth Millions of Dollars. Even people that bought just before the recent crash, are back in the black again in the same area.

There are many factors that have to be taken into consideration when you make your plans, as to wait for years till you can pay cash, buy on a mortgage today, or you rent. The thing you have to do, is sit down and do a real analysis of what is best for you, and act on that. If you are planning on living in the home for less than 5 years, it is always wise to rent rather than role the dice and put yourself at risk. Home ownership is a long term investment, not a short term investment medium. Short term it is a gamble not an investment.
Also responding to your inline comments which are not shown above.

My point was not that all 3 scenarios (owning with a mortgage, owning without a mortgage, and renting) have the same financial impact. Clearly they don't. I agree that you need to do the analysis and every case is different.

Some people don't like the idea of paying interest to a bank. Others don't like the idea of "throwing away" money to rent as they see it. My point is simply that you are always linked to the cost of borrowing/cost of money whether you own outright, are highly mortgaged, or you rent.

The financial results that you reference may or may not be good compared to investing in other things. Remember, for some of the time you're talking about, you could make 14% return in a no risk CD or bond (circa 1980 era). Never mind that you could have invested that 13,750 in a certain cupertino company rather than a Cupertino house. But let's talk just about low/no risk investments. Tying up money in a home cost you 14% just by not having it in the bank. With the risk premium factored in, you might be looking at a need to generate +20% returns after maintenance, taxes, management costs, etc. during that time of high interest rates. And for a homeowner, tying up 100k in a house cost you 14k per year in 1981. Obviously tax implications need consideration but let's keep it simple. I don't know the rental market in the 1980s but I bet you could rent a pretty sweet place for 14k/year or 11k after taxes. I understand that it's a long term investment and there are many different ways to evaluate financial results but any comparison of renting vs owning needs to consider the cost of money and opportunity costs of investing in other things. But if you're talking about your own home, there are other reasons why people choose to buy.
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Old 02-10-2018, 07:33 AM
 
Location: Raleigh NC
6,103 posts, read 5,019,630 times
Reputation: 5269
Quote:
Originally Posted by just_because View Post
Let's look at 3 scenarios:

-if you own outright (no mortgage), you 'pay' for tying that money up in a property rather than in bonds or the bank (or stocks) - you expect to be no worse off than tying up that money at the current cost of borrowing.
-if you own and have a mortgage, you pay the bank for use of their funds (tied to the going cost of borrowing)
-if you rent, your landlord has capital tied up in the property and expects to get a return equal to the cost of borrowing plus his risk premium. So indirectly, you pay for the cost of his capital.

In other words, the difference between these three scenarios is not as great as everyone may believe. Yes, there is a difference and you need to do the math but conceptually, they all follow similar rules in that they are tied to some degree to interest/borrowing rates.
if you were buying residential investment property with cash, and that property was appreciating at an average 3 year rate of 4%, what would you consider an acceptable rate of return from the cash flow?
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Old 02-10-2018, 08:11 AM
 
Location: SW Florida
6,729 posts, read 2,770,679 times
Reputation: 13842
Quote:
Originally Posted by Redraven View Post
"With a mortgage, your house payment would remain the same during those years, while the value goes up,..."
Uh, no!
Taxes will go up, insurance will go up. As they go up, so goes the monthly payment.
I recently had to make an extra escrow payment of nearly $300 to cover the projected taxes and insurance, and the monthly payment went up to cover future T&I payments.

I bought an older house back in August. Put about $20K into fixing it up and still had some in savings for emergencies. My payments were $818 for a 2 bedroom, 2 bath single family house in a nice, quiet neighborhood. Then I received notice of an escrow shortage and now my payments will be $1069 for the next 12 months and then after my homestead & widow exemption kicks in the end of this year, it should go back down. But it has been a bit difficult to have a $250 unexpected monthly expense.


So yeah, everybody says if you have a mortgage you will pay the same every month. Not necessarily true considering taxes and insurance. If you live in an area that has a lot of natural disasters your homeowner's may continue to increase every year. Still, it's better than renting in most cases. No more listening to inconsiderate neighbors and being surrounded by people. The condo I was living in before I bought this house would have seen the rent go up to $1000 a month. The only good thing was, if something broke I just had to make a phone call to the management company.


As for having kids, one never knows. You and/or your wife may change your minds. I know when I was in my early 20's I never wanted kids but as I approached 30 my view changed.


Good luck with whatever you decide to do.
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Old 02-10-2018, 12:00 PM
46H
 
626 posts, read 349,712 times
Reputation: 1139
Get a 30 year mortgage.
180K @3.92 is 851/month
Think about how money loses value over time and in 15 years you are still paying $851/month while building up equity in a property. Usually, there are no penalties for prepaying a mortgage, so as your income increases, you can make additional payments if you want. At the same time you should be maxxing out your 401k/retirement accounts that grow tax free.

While property taxes and insurance do increase, so does rent.
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Old 02-10-2018, 12:14 PM
gg
 
Location: Pittsburgh
15,949 posts, read 16,005,540 times
Reputation: 9853
Quote:
Originally Posted by JC4E View Post
We both do not like debt, and we are (realistically) happy in our current setting. But, it would be nice to own and have something permanent and not owe anything other than property taxes.
You are always better off if you can afford it to be debt free. Banks aren't your friend. I have NO debt and live within my means. People say, "tax write-offs" and blah, blah, blah, but banks get their cut one way or another. Fees are there and lumped into financing. Cash is king. Now all this is in response to the quote above. I DON'T like debt and you stated you don't either. Now if I was going to get a loan, it would be leaned on a home due to tax advantages, but no need here.
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