Should I buy a house?
09-11-2003, 10:12 PM
#1
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Thread Starter
Should I buy a house?
A year or two ago I came into some money. Other than a few incidental purchases and paying off a all my credit cards, I put the rest in the bank. It has been sitting there since, doing nothing. Some have suggested that I buy a house, while others have said to wait till you are where you want to settle down to buy. I will be at my present location for another 3yrs. I currently rent a nice apartment for 560/month. The cost of townhome in the area I live (which is where I would want to buy) runs about 130K on up. I could get one, but the house payment would be more than my rent. I won't get a roomate b/c I can't stand them (I need MY space). The upside would be a tax break, but the downsides are (1) I might not be here long enough to get my money back...the prices of places have skyrocketed and I fear that the bubble is stretched and about to burst (much like the stock market boom)
Any advice? If not, any other investments or things I should look into b/c the savings account thing is for the birds.
Any advice? If not, any other investments or things I should look into b/c the savings account thing is for the birds.
09-12-2003, 03:49 AM
#2
Steve
Everything you say is true. And, as with everything, there is risk involved.
Keep one thing in mind, when you are paying rent, you are paying the landlord, when you are paying a mortgage you are, to a certain degree, building equity.
Also, cash flow is an important consideration. Don't concern yourself with whether or not you can afford it over 20 years, concern yourself with whether or not you can afford it each month.
Everything you say is true. And, as with everything, there is risk involved.
Keep one thing in mind, when you are paying rent, you are paying the landlord, when you are paying a mortgage you are, to a certain degree, building equity.
Also, cash flow is an important consideration. Don't concern yourself with whether or not you can afford it over 20 years, concern yourself with whether or not you can afford it each month.
09-12-2003, 05:18 AM
#3
If you know you will be elsewhere in 3 years, or know there is a very high likelyhood you will be elsewhere, don't buy now. Three years is too short a time for a real estate investment at this time in the economy. Interest rates are already climbing. I, for one, beleive that real estate has held its own over the past three years because interest rates kept falling. Buyers look at the monthly payment, compare it to rent and decide to buy a starter house or condo. This drives the market, along with the desire of other homeowners to "move up" in the housing market.
When interest rates climb, the gap between rent and purchase increases and the market cools. With unemployment and job creation continuing to be a problem, there is a chance the demand for starter homes may decrease over the next year. In other words, when you are ready to sell in three years, the market may still be very slow or down from when you purchased it or both. If you knew you were going to be in the area for 5 or more years, the analysis would , in my opinion, change.
Add to this the rising stock market and I think your best bet is one or two or three good mutual funds. If you had been invested in mutual funds or something that tracks the general market, you would have realized between 10 and 20 percent gains this year already. The dow hit its bottom at around 8200 and has been going up since. Naturally, the unpredictable world events could have an impact on this, so you may want to hedge some of your money in a safer investment.
As always, I could go on and on.... G_d, I'm a windbag.
When interest rates climb, the gap between rent and purchase increases and the market cools. With unemployment and job creation continuing to be a problem, there is a chance the demand for starter homes may decrease over the next year. In other words, when you are ready to sell in three years, the market may still be very slow or down from when you purchased it or both. If you knew you were going to be in the area for 5 or more years, the analysis would , in my opinion, change.
Add to this the rising stock market and I think your best bet is one or two or three good mutual funds. If you had been invested in mutual funds or something that tracks the general market, you would have realized between 10 and 20 percent gains this year already. The dow hit its bottom at around 8200 and has been going up since. Naturally, the unpredictable world events could have an impact on this, so you may want to hedge some of your money in a safer investment.
As always, I could go on and on.... G_d, I'm a windbag.
09-12-2003, 05:26 AM
#4
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Having spent 22 years in the military, I moved on average every three years. I lived in "base housing" twice, which was like renting, as I forfeited my housing "allowance." I also rented an apartment once, for a one-year assignment. The other four times I "bought" and sold--shortest was 2 1/2 years, longest was 5. Twice we sold using a realtor, twice we were lucky and sold without. After realtor fees, and short tenure (the shortest and longest time periods), we pretty much broke even on those two, but made a couple grand on one (three year residence) and about 10K (4 1/2 years) on the other we sold ourselves. Mind, we put money into each house--landscaping, new roofs, patio additions, etc. which I included in my "cost." So, there was mostly zero capital gain. Using 30-year mortgages on these homes, the short tenures didn't accumulate much equity, so my main monetary benefit from my owning was the tax break each April. Of course the pleasure of owning one's own home, and able to paint walls and make changes without having to deal with a landlord is, without saying, primarily why I preferred owning.
During my career, my interest rates ran from the low of 8 3/4% to 13%, but with today's (or at least those of a few months ago) rates being considerably lower, you can build up a good bit of equity by using a 15-year mortgage and/or making additional payments into your principle each month. I recently sold the house I bought when I retired, on which I had a 15-year, 6 3/8% mortgage. About $125K, with $30K down--probably no more than $8K in landscaping and upgrades--sold for $138.5 10 years later. I got a check for about $85K at closing. I also rented this house out the last two years, for $300 a month more than my mortgage/insurance/property management fees.
I would support any one's decision to purchase a home, as long as it is in a good to fair market area. In Norfolk, I assume you have a military presence in your housing market, somewhat to a lesser percentage than I have here in New Mexico. In such a market, you have people moving in and out on a fairly regular basis looking for (but also selling) housing. If your home is attractive, and not outrageously priced ($130K seems to be a reasonable price for a mid-grade officer or senior NCO these days) for the local salaries, the chances of selling it when you relocate are probably pretty good. Of course, today's market is pretty hot, with low interest rates. In three years, who can say--it's a gamble. Personally, I've always preferred to own (well, make payments on) my "castle," as opposed to paying into some one else's equity. Likewise, you may be able to rent your place out, if you can't sell it, as I did with mine--and eventually sell when the timing's right.
During my career, my interest rates ran from the low of 8 3/4% to 13%, but with today's (or at least those of a few months ago) rates being considerably lower, you can build up a good bit of equity by using a 15-year mortgage and/or making additional payments into your principle each month. I recently sold the house I bought when I retired, on which I had a 15-year, 6 3/8% mortgage. About $125K, with $30K down--probably no more than $8K in landscaping and upgrades--sold for $138.5 10 years later. I got a check for about $85K at closing. I also rented this house out the last two years, for $300 a month more than my mortgage/insurance/property management fees.
I would support any one's decision to purchase a home, as long as it is in a good to fair market area. In Norfolk, I assume you have a military presence in your housing market, somewhat to a lesser percentage than I have here in New Mexico. In such a market, you have people moving in and out on a fairly regular basis looking for (but also selling) housing. If your home is attractive, and not outrageously priced ($130K seems to be a reasonable price for a mid-grade officer or senior NCO these days) for the local salaries, the chances of selling it when you relocate are probably pretty good. Of course, today's market is pretty hot, with low interest rates. In three years, who can say--it's a gamble. Personally, I've always preferred to own (well, make payments on) my "castle," as opposed to paying into some one else's equity. Likewise, you may be able to rent your place out, if you can't sell it, as I did with mine--and eventually sell when the timing's right.
09-12-2003, 05:28 AM
#5
Well, Legal, you are a windbag with some sense!!! LOL...Steve, I agree with everything Bill said.
09-12-2003, 08:52 AM
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i finally bought in 1999 after 4 years of renting a condo after getting out of the military. main reason for move was i needed a garage.
rentign is easy if you know you are temporary, my place was nice because major utilities were flat fee included in the rent, i.e. AC at 40 in summer, heat at 120 in winter, washer/dryer loads for 1 item at a time was no more expensive.
looking at short term historical prices, bubbles, etc can kill you.
in my case, 114k loan @ 6% for 2br, 2 bath, garage townhouse in 4 years sold for 215k. my new place is 155k @ 4.875 and a SFH with about 1/3 acre. it is only 3 years old and original owner paid 98k for it.
i think if you are considering buying, go for some place that is new with builber rebates, or fairly new so you do not have to spend a lot of upkeep/repair dollars. make sure it is in a nice community, local schools, shopping etc. you may not care about that much for yourself, but when it comes time to sell, those buyers might go for it more than some cottage in the woods and 30 miles to school/shopping.
the tax break is not that big of a deal for a lot of people, in some ways i think it is a con job made up by the banks... instead of giving uncle sam 1000 in income taxes, take out a loan and pay us 6000 in interest, but yuo save 1000 on taxes.... hmmm, looks like i come out 5k ahead by paying taxes.
you also have to figure in property taxes, homeowners insurance, etc.
renting you complain to landlord to fix the plumbing, repair the roof. owning, well, you are the landlord....
if all else fails, when time to move if you cannot get price you want selling old place because of current housing market, you could always rent it for awhile until things get more favorable for sale. of course, you would still be the landlord and have to fix their problems with it.
keith
rentign is easy if you know you are temporary, my place was nice because major utilities were flat fee included in the rent, i.e. AC at 40 in summer, heat at 120 in winter, washer/dryer loads for 1 item at a time was no more expensive.
looking at short term historical prices, bubbles, etc can kill you.
in my case, 114k loan @ 6% for 2br, 2 bath, garage townhouse in 4 years sold for 215k. my new place is 155k @ 4.875 and a SFH with about 1/3 acre. it is only 3 years old and original owner paid 98k for it.
i think if you are considering buying, go for some place that is new with builber rebates, or fairly new so you do not have to spend a lot of upkeep/repair dollars. make sure it is in a nice community, local schools, shopping etc. you may not care about that much for yourself, but when it comes time to sell, those buyers might go for it more than some cottage in the woods and 30 miles to school/shopping.
the tax break is not that big of a deal for a lot of people, in some ways i think it is a con job made up by the banks... instead of giving uncle sam 1000 in income taxes, take out a loan and pay us 6000 in interest, but yuo save 1000 on taxes.... hmmm, looks like i come out 5k ahead by paying taxes.
you also have to figure in property taxes, homeowners insurance, etc.
renting you complain to landlord to fix the plumbing, repair the roof. owning, well, you are the landlord....
if all else fails, when time to move if you cannot get price you want selling old place because of current housing market, you could always rent it for awhile until things get more favorable for sale. of course, you would still be the landlord and have to fix their problems with it.
keith
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09-12-2003, 09:19 AM
#8
Originally posted by tenblade2001
Bill, any recs for mutual funds?
Bill, any recs for mutual funds?
I like Fidelity (as do millions of other people) but some do not. My only advice on picking a managment company is to pick a large, reputable one. While non of them are perfect, the small ones are more likely to have problems with managment. This is seperate from any problems with the performance of the investments. I am talking about things like misappropriation.
The money you put into the agressive funds should be money you are comfortable not touching for 10 years. Of course, you can take it out anytime and if the market is up it doesn't matter if you take it out in a year. But if you know that you will buy a house in say 3 to 4 years, keep the down payment money in something more conservative. The growth funds can fluctuate and if you need the money for a down payment you may have to sell at a bad time.
Most Mutual Fund companies will assign you to an advisor who will discuss your situation and goals and make recomendations. After the person gives you a rec, check it out yourself on the web, on Morningstar and with anyone else who knows anything about investment.
If you want, you can hire a financial advisor who works for you. Their advice is considered more trust worthy because they are not loyal to one employer like the managment company advisors. If you go that route, make sure the financial advisor is competent and not paid a commision by the fund companies he or she recommends. I consider this a conflict of interest, even if it is allowed by law.
09-12-2003, 11:15 AM
#9
Originally posted by tenblade2001
Bill, any recs for mutual funds?
Bill, any recs for mutual funds?
I also like DODGE & COX BALANCED fund; cranks out >8% yield year in and year out for >10 years. I've now cashed out my son's college savings and moved it into a Vanguard bond fund.
Most financial advisers would suggest dollar-cost averaging by investing your funds each month over a 12 month period. Also, Vanguard has lots of advice on-line and most of their funds are NO LOAD (thanks to Jack Bogle
)
09-12-2003, 01:12 PM
#10
One piece of advice on Mutual funds, after you have bought your first, be sure that you have the prospectus with the companies that that fund hols, and as you look at other funds make sure that you are infact diversifying. Too many funds invest in a limited number of the same securities.