Home buying thread

Heylel said:

Probably going to be looking to move soon. Bought my first house in 09, still here now. Got some maintenance to handle, but we've got to move closer to work for my wife. She spends well over 2 hours a day in the car. Plus I'm tired of owning a swimming pool. It was fine when I was younger and it got used, but now that I'm busier and married it's just a waste of money and effort.

Need a coat of paint and some minor repairs, then we'll start looking at putting the house on the market.

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Could you afford to keep it and buy another house and rent this one?
Is that a common thing to do in merica?

latheboy said:

My Wife and I bought a house in 07, almost paid it off.
We are looking at buying another and renting this one.
In Australia there are tax breaks for second homes so it might work out ok.
We also need something to fall back on when we are old and not working and it'd be a cool house for the kids to live in and party when they grow up... Hot tub on the deck hidden from view

Does anyone have a second home? Are there any down sides to it?


In a perfect world I'd buy a Hill and bang a house on it, needs to have a river at the base (rapids would be nice), cliffs for rock climbing and we'd build MTB trails and a race track all the way around.... Not going to happen

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I bought a home back in 2005, then another in 2013. I converted the 2005 into a rental. Like you, I envision retiring someday and using the rental income as a passive income stream.
I live in the US, so below may not apply to you, but...

PROS:

Rental income is used to pay off mortgage on property.
Rental home will presumably build up equity over time.
Can be a nice source of income, especially during retirement assuming mortgage is paid off.

CONS:

Net rental income is combined with my regular income and taxed together.
Re-financing is less appealing because interest rates are higher for rental properties than for primaries.
Carrying a mortgage on rental properties increases your income/debt ratio, which can make getting a larger loan down the road more difficult.
Renting a property required oversight, unless you want to hire a property manager (I use one, takes 7% off the top each month).

I just bought another home, closing escrow tomorrow as a matter of fact. I almost didn't get a loan approved because of my outstanding mortgages on all my properties fucking up my income/debt ratio. In the end, I had to put more money down in order to lower the amount I needed to borrow.

Still, I think real estate is an important part of any investment portfolio. Just like any investment, don't put all your eggs in one basket, I would never advocate for someone to sink all/most of their money on real estate, you should have a good balance between real estate, stocks, bonds, currency, etc....

That's pretty much what I thought Mizake.
Are these houses/properties inner city, suburbs or rural?
I see that there are plenty of places that have empty houses in say Detroit, are the cities dying and everyone moving out?
I just had a look at the housing prices there, I'd almost be keen to buy a whole block and build a fortress for my retirement.

There are rural towns in Aus that are dying, lots of them are full of old people because all the kids move away for life/work.
the problem here is the housing prices don't get that much cheaper when you move further away from the cities.
Then there is the lack of work and poor pay rates in the country towns, or you travel for work.

All the homes I own are what I would consider suburban.

I would avoid buying homes in run-down areas. Sure it's enticing when you can buy a home in Detroit for like $10,000, but remember home costs include maintenance, repairs, taxes, etc...so it's a sinkhole unless you can make money off of it. What kind of people are going to rent your $10,000 Detroit home? Probably not the best clientele.

Case in point. I own two rental homes in Las Vegas. I kind of wish I never bought them. My renters are always temps, because that's Vegas. It's usually bartenders, dancers, cocktail waitresses, cab drivers......basically it's people who don't report a lot of income so don't qualify for a good loan to buy a home, so they rent. Renters, in general, don't take care of homes as well as owners, and moreso if they are lower income, in my experience.

If I had to do it over again I would have bought one big house in a better neighborhood than two smaller ones in a less desirable area. My renter would have *probably* taken care of my home better, and my home would *probably* have appreciated better than the smaller homes.

I think investing in real estate works best if you can double-dip for profit. What I mean by that is make money two ways. The first is collecting rent, which is like having someone pay your mortgage for you. The second is by letting your home appreciate in value, so not only is your rent being paid off, but by sitting on the property you are make money as it's value increases. The second point is more likely to happen in good areas, which is why I would avoid shitholes like Detroit, or the rural areas of Australia that you mention. As an example, I lived in Houston for a brief time. I had a nice two bedroom condo I had bought for $50,000. Ten years later I sold it for.....$50,000. So basically no appreciation on the property. I had moved to San Diego in 1995. I bought a condo there for $60,000. Ten years later I sold it for.....$280,000. Now some of it's timing of course, but location is important also. So buy property where people want to work and live, and you will be better off.

I have another property that is near a local college. That one does real well. It always rents out because every year new kids come in and want to live near campus. The downside is they tend to trash the place, the good thing is they also aren't looking to live in the Taj Mahal so it's doesn't need to be fixed up. Again.....location.

So, I have been working overseas the last ~15 years as a means to save money and get ahead. I've got a fat 401k built-up, which gives me a nice peace of mind. The situation I find myself in now is that I am looking to relocate back to the US in the next year or two. Here's the housing question: I nearly have enough money to outright buy a house in cash. This same cash pile I have been using in the stock markets to build more money. Am I wasting all of that liquid investment capital by dumping it into a property?

Naturally, the idea of a mortgage free home is very appealing! I know how mortgage interest is front-loaded and just can't stomach throwing money away to interest. The simple answer I have come up with is if the mortgage interest is < stock gains, then my money is best left in the markets and take on a loan. (I also qualify for a VA loan as a veteran)

I just don't feel comfortable with the stock markets these days. Stocks have been on a massive bull run since 2009 and really haven't corrected. We are at an all time high with the DOW this week. It could all come tumbling down tomorrow with an overdue correction. Again.. paid off house or liquid cash??

I figured some of you might have better insights in this, as I have never owned a home / property before.

TIA.

Well, you have a good handle on the crux of the situation, which is would you be better off investing all of your money in your home, or would you be better off saving some of the money and putting it in a different investment vehicle, like stocks? Which will return the greater dividend?

I can't give you an answer because I don't know your complete situation, like how much of this cash represents your entire net worth. It sounds like you have a nice 401k, so the cash may represent only a small portion....or it could represent 50%, I don't know. I would say the smaller the amount it represents, then you should lean towards buying a home outright, since it will represent a smaller percentage of your net worth. If your cash represents a larger portion of your current net worth (like my 50% example), then you should probably diversify your investment more, and get a traditional or semi-traditional mortgage.

LIke you, I hate "giving" away money, which is what you do when you pay the interest on your mortgage, but remember it's not entirely a loss because that interest is tax-deductible (well currently, there has been talk of eliminating this tax break but I just can't see it happening). So depending on your salary it may be advantageous to have the deduction. Also, interest rates are super low right now which makes taking a loan out more appealing rather than sinking all your money into the home.

Don't forget you should also have an emergency fund, in case of accidents like you become temporarily disabled or somesuch. I know a lot of numbers are thrown around, personally I keep 6 months salary/expenses in reserve. If you need cash for emergencies, then don't buy the home outright. If you have plenty of cash for emergencies and still have enough to buy the home, then maybe buy the home.

Another way to kind of hedge the situation is to put more money down to lessen the mortgage/interest payments. The escrow I just closed I put 40% down on the home, as an example. It keeps my mortgage payments low, yet still leaves me with money to pursue other interests. In my situation, the extra cash was sitting around anyways, I didn't have anything else I had planned to do with it (like you, I'm wary of the stock market currently), so I figured I would just sink it into my new home.

Everyone has their own beautiful and unique situation, but yes, you're wasting all of that liquidity by dumping it into a property. Mortgage interest rates remain at or around all time lows. Take out a 5/1 ARM or 7/1 ARM, initial teaser rate will have a 3.x% handle on it, you can refi or pay it off in 5 or 7 years before the rate resets. Or take out a 30-year fixed in the low 4% range. Keep the rest in investments and reserve funds.

Keep the peace of mind of your large reserve fund, put down at least 20% to buy the house, more if you want to bring the payment down into a more comfortable range.

Mizake said:

Well, you have a good handle on the crux of the situation, which is would you be better off investing all of your money in your home, or would you be better off saving some of the money and putting it in a different investment vehicle, like stocks? Which will return the greater dividend?

I can't give you an answer because I don't know your complete situation, like how much of this cash represents your entire net worth. It sounds like you have a nice 401k, so the cash may represent only a small portion....or it could represent 50%, I don't know. I would say the smaller the amount it represents, then you should lean towards buying a home outright, since it will represent a smaller percentage of your net worth. If your cash represents a larger portion of your current net worth (like my 50% example), then you should probably diversify your investment more, and get a traditional or semi-traditional mortgage.

LIke you, I hate "giving" away money, which is what you do when you pay the interest on your mortgage, but remember it's not entirely a loss because that interest is tax-deductible (well currently, there has been talk of eliminating this tax break but I just can't see it happening). So depending on your salary it may be advantageous to have the deduction. Also, interest rates are super low right now which makes taking a loan out more appealing rather than sinking all your money into the home.

Don't forget you should also have an emergency fund, in case of accidents like you become temporarily disabled or somesuch. I know a lot of numbers are thrown around, personally I keep 6 months salary/expenses in reserve. If you need cash for emergencies, then don't buy the home outright. If you have plenty of cash for emergencies and still have enough to buy the home, then maybe buy the home.

Another way to kind of hedge the situation is to put more money down to lessen the mortgage/interest payments. The escrow I just closed I put 40% down on the home, as an example. It keeps my mortgage payments low, yet still leaves me with money to pursue other interests. In my situation, the extra cash was sitting around anyways, I didn't have anything else I had planned to do with it (like you, I'm wary of the stock market currently), so I figured I would just sink it into my new home.

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Mizake expounded on it in more detail than I did. You don't want to blow your entire wad on a depreciating asset (the house) and then get laid off, injured, have to move, etc. and be stuck with it and completely unable to walk away. I sleep better at night and work better during the day having my year-plus of fuck-you money in the bank in the event that I get laid off or just can't take my job anymore in my rented apartment in Manhattan than I would owning a ridiculously expensive condo here and knowing that if I ever got laid off I could be absolutely fucked having to wait it out and find another finance job.

P Poster Normally, I would agree 100%. My big hesitation is due to the current stock market that seems to be pretty damn oversold. I feel that if I keep investing right now, it is a pretty big gamble, while the house is a sure thing. If the market took a massive 10-20% dip in a correction, I would likely dive right back into stocks and not look back.

Mizake Thanks for the solid advice. FWIW, my net worth mix is roughly 67% 401k / 33% cash and stock investments.

Jysin said:

P Poster Normally, I would agree 100%. My big hesitation is due to the current stock market that seems to be pretty damn oversold. I feel that if I keep investing right now, it is a pretty big gamble, while the house is a sure thing. If the market took a massive 10-20% dip in a correction, I would likely dive right back into stocks and not look back.

Mizake Thanks for the solid advice. FWIW, my net worth mix is roughly 67% 401k / 33% cash and stock investments.

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To be frank, I expect a correction on the housing market. Not a full collapse like 2009, but a pricing correction. If you are in no great hurry I would put your money where it will make you the most money and find housing which loses you the least and wait until the hit where it will become a liquid buyer's market.

Anyone know any good sites for renting a room? Moving to the city for school and I'm having a lot of trouble finding a room to rent. Using Craigslist right now due to the sheer quantity of postings on it, but the majority of people I respond to don't reply back. Been doing this for about two weeks now and getting worried because school starts soon.

Kriptini said:

Anyone know any good sites for renting a room? Moving to the city for school and I'm having a lot of trouble finding a room to rent. Using Craigslist right now due to the sheer quantity of postings on it, but the majority of people I respond to don't reply back. Been doing this for about two weeks now and getting worried because school starts soon.

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You might also check with your on-campus housing people (if applicable). Usually they or your student services group will have a list of recommended landlords/properties in your area. I'd trust them a bit more than craigslist but that could just be me.

orcmauler said:

You might also check with your on-campus housing people (if applicable). Usually they or your student services group will have a list of recommended landlords/properties in your area. I'd trust them a bit more than craigslist but that could just be me.

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Yeah I've tried their online resources which hasn't been very helpful, but maybe I'll try going over to the student services center and talking with someone directly, that seems like a good idea.

Maybe it's the camera, but it looks like you get a 1/4" of rain and goes down the driveway into the garage.

Yeah, had a friend that had a slight slope on the driveway and when a real turd floater came it would back up in his garage. They put down an asphalt bump over the driveway to divert the wter.

Nice looking house, I like the colour.