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16 February 2022, 03:43 AM | #181 | |
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-Second point: Again, I’ve assumed an unemotional, P2P analysis. Not sure why anyone would sell at a low point, albeit many do. If you remain disciplined and invest only money above and beyond your emergency fund, I see no reason to sell as mean reversion occurs. I’m not assuming exit is necessary, as it wouldn’t be the case with a home’s down payment right? -Third point (and fourth): risk/reward. Fixed income investing also provides a high degree of certainty in increasing net worth over time. I’m specially talking opportunity cost of say, buy a broad US equity market index. Real estate can be a great way to drive a positive net worth, no doubt. But based on my calc (which btw, has still yet to be disproven), still don’t see how RE is a better driver of NW growth… This is all in the spirit of the initial question: should I buy a home? - |
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16 February 2022, 03:45 AM | #182 | |
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100% debt free minus the house and 20k a month, it’s doable. If the mortgage is $6,500 that’s going to be a $7500 total house cost by the time you factor in electricity, tv, internet, water, all that good stuff. Might be closer to 8k if your heating and air bill are high in the summer. If it’s in an area where that cost is the only opportunity to own, not much you can do. If their are options for 1m homes where the monthly payment is lower, that would be my preference. |
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16 February 2022, 03:47 AM | #183 |
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I do as well. This actually is rather common, considering the fact that wage growth has not kept pace with asset prices. When you add historically low interest rates, viola, you have high debt-to-income ratios.
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16 February 2022, 04:35 AM | #184 | |
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16 February 2022, 05:05 AM | #185 |
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In my opinion yes, and most of the people I know who’ve run into financial issues got themselves into trouble by carrying too much mortgage debt. Every is fine until it isn’t, and one of the earners loses a job, etc. Just not enough margin of safety for me, but I’m very averse to debt. YMMV.
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16 February 2022, 05:08 AM | #186 |
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Would’ve been a good poll thread.
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16 February 2022, 06:41 AM | #187 | |
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So if I try to rent a nice house in a nice location, there may be nothing available. Luxury rentals are a real thing in NYC, and you could go rent something here for $50,000 a month, but in most of the country renting is considered lower-end. in Chicago, most of the rental stock had poor finishings and was filled with loud/rude recent college grads. To live somewhere nice, you had to buy a condo or a house. Even the "luxury rentals" there were miserable and full of kids smoking weed in the hallways and getting drunk on a Tuesday. Long term I'm going to buy something, and it has nothing to do with financial analysis. it's about quality of life. |
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16 February 2022, 08:01 AM | #188 |
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to each their own, not going to convince anyone to own, I always need renters :)
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16 February 2022, 08:07 AM | #189 | |
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Where are you getting your information? You do realize more than a third of the US rents, regardless of financial situation. 48 million rental units in the US alone, so to assume they’re all frat houses is just insanity. https://www.nar.realtor/blogs/econom...finance-survey There are pros and cons, as meticulously outlined previously. Financially, however, it’s a common misconception that buying a home is better than renting mathematically by default. |
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16 February 2022, 08:09 AM | #190 |
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16 February 2022, 09:05 AM | #191 | |
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the rent versus own math is not difficult. My point is, most people don't reduce their choice of primary residence to a math problem. There are three levels of sophistication at play here Level 1 (Average Joe): "Owning is always better than renting, because renting is throwing money away. If you own, you build equity." Level 2 (You): "Financially, renting isn't necessarily worse than owning. You have to do the math and fully consider the opportunity cost of capital" Level 3 (Me): "Where and how we live is not only a financial decision, but a deeply personal decision. And even the most financially astute are ultimately going to do whatever they want to do." |
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16 February 2022, 10:20 AM | #192 |
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I bought ten years ago because at the end of my loan I will have that much money available should I want to sell. If I rented for that long the money would belong to the landlord and not me.
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16 February 2022, 10:55 AM | #193 | |
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I also understand that most couldn’t execute on this style, as from experience, were imperfect and prone to making knee-jerk financial decisions and reactions based upon variables that are simply out of our control. Plus, life happens (which I’d argue is representative of all the frantic moves and foreclosures). Market volatility being a big one. Goal is to stay the course. Here are some takeaways of such a lifestyle choice: Pros- more $$, better financial habits (spending), compound interest, no maintenance on the depreciating asset, no upkeep, no renovations, liquidity, way early retirement, flexibility to move family on a dime, learned to live with ‘less,’ experiences, adventures and travel- moved to a new country during COVID and wake up to the sound of the beach, friends all around the world. Have young kids and want them to be in the best school district possible? Easy. Cons- all emotional points written above, no mortgage interest deduction on primary residence just investment property (which still would not come close to the benefit I've received by investing- “tax tail doesn’t wag investment dog”), doesn’t feel right to join neighborhood groups with such a transient mindset. |
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16 February 2022, 11:40 AM | #194 |
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Owning a home -- worth it?
One benefit of buying is making it a “home“. By that I mean in the 20 years we’ve been here, we’ve built a custom wine cellar, a waterfall, added an RV parking pad, and done an addition. We have the home we want in the location we desired and have about $350k into it over the years but it’s worth north of $800k now and we have many great memories here. Could we have made more renting and investing the difference? Maybe but right now rents far exceed our mortgage payment - so that math is market specific. Living life is not a math equation.
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16 February 2022, 03:50 PM | #195 |
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Its always better to own. Look at the gains RE has made over the last 15 months. Staggering.
Renting ( to me ) is only viable if you had a life changing event or you move around for employment. |
16 February 2022, 09:29 PM | #196 |
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Owning definitely. Although I’d love to be able to call someone and have stuff fixed for free.
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16 February 2022, 11:53 PM | #197 | |
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Truth is, based on your thought process, which I do agree has merit, if we had all been taught financial literacy from a young age, no one would employ financial advisors. Based on the math, and logic, investors should simply invest in low fee index funds. They would avoid the fee of an FA and enjoy the consistent, long term appreciation of the markets. FWIW, I have an FA and I am mostly happy with him. I constantly struggle with the idea that I should move away from this model and put it all into low fee funds. My point is only that black and white does not typically work when dealing with a lot of different factors, which is a certainty when dealing with people.
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16 February 2022, 11:58 PM | #198 | |
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There are always factors. What is this persons net worth? Do they live pay check to pay check? Do they have an 18 month emergency fund? How much equity is in the home? I too have seen so many people over leverage themselves and eventually find themselves in peril. This is why I pay cash for literally everything with only one exception at this point. But as with all things, various factors come into play.
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17 February 2022, 12:12 AM | #199 | |
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I, in a minority, do not charge for asset management, as to your second point, investors fare much better when investing in low cost ETFs and funds. I’ve done the math what feels like a thousand different ways (plus would be happy to share if interested), and financial advisors that charge for assets under management tend to underperform relative benchmarks. Investing doesn’t need to be as complicated as ‘professionals’ make it seem. Hourly financial planners, like myself, strive to add value around topics like this one. So I agree, if financial literacy were part of our core curriculum, perhaps we could do away with financial underperformance and egregious fees. And as you stated, every situation is unique. The initial one I floated is more common than one would think… |
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17 February 2022, 01:18 AM | #200 | |
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19 February 2022, 01:19 AM | #201 |
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Again, a lot of very interesting points being made I appreciate the financial POV and, agree that owning a home is not an "investment" for many, but more a life style choice. I love the idea of an ETF growing at a much faster clip, but when the upstairs neighbor is stomping around at 1 AM (and we lived in a nice apartment...), that ETF will be of no use. I need sleep. ;-)
Some may point out that renting a house is better quality of life than an apartment, which is true, but home rentals are insane in this area. Easily twice apartment rates. That is surely not a wise investment.
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19 February 2022, 04:49 AM | #202 | |
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19 February 2022, 07:44 AM | #203 |
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Great thread. Owning a home (with a mortgage) is a much better option than renting in the long run, however in order to break even depending in location I think you have to stay put at least 5 years. I live in NYC, where home prices have appreciated drastically in the past few years and relatively speaking the market will always increase steadily. Therefore, owning will pay off as long as you keep the property for a long time - the longer the better! Just take a look at a mortgage amortization schedule for a 15-30 yr mortgage and you will soon realize that the first years of owning the home you primarily pay interest.
My recommendation to anyone having this dilemma, is buy a house when you can as a primary home (owner occupied) and when you ready to move or upgrade, keep the house as an investment and get a second house. I'm sure not everyone would like to deal with tenants, but you can always hire a property manager. 20-30 yrs from the time of purchase you will be very happy you did- when you have a house paid off and makes retirement sweeter. Good luck! |
21 February 2022, 02:38 AM | #204 |
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Downside to owning a rental: I've have a current tenant that hasn't paid rent in over six months. And because of COVID and some some other legal maneuvering, we just can't evict.
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26 February 2022, 02:10 PM | #205 |
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26 February 2022, 11:44 PM | #206 | |
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That’s a very generic statement. House prices go up. Yes there are market dips through cycles, but it’s ultimately always going to go up in price. No-one is making any more land. |
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27 February 2022, 02:16 AM | #207 |
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We bought a second home in Florida a couple of years ago. We took out a very low interest rate mortgage. The house has appreciated wildly. We realize what goes up can go down, especially in Florida real estate, but we have no plans to sell. It’s nice to have a real asset that we can enjoy and use. You can’t live in a stock or bond.
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