Buying a House - Venting/Freaking Out

mtn wrote:

ProDarwin wrote:

Duke wrote: Between purchase price and major renovations about 6 years ago, we have about $300,000 invested in it. I could sell it by the end of the year for $300,000 meaning I've put a roof over my head for 25 years for the cost of utilities.

Grumpy way of looking at this: $300k in a house in the market I'm in will be worth around $330k in 10 years. That's less than the cost of inflation. $300k in my investments will be worth, conservatively, around 600k. The $270k difference will pay a lot of rent.

Nope, that only works if you are paying all cash all up front. You're paying a mortgage. Right idea, but not fleshed out.

Duke said he has "$300k invested in it"

Yes, a mortgage is a different story. You'd start with only $60k sunk in it, making your earnings a lot different.

pheller wrote:

z31maniac wrote:

pheller wrote: Still can't get over how inflated the market feels, how Flagstaff feels "temporary" for me, even though I like my job and don't want to leave for another couple of years, and how it's the biggest geographically limiting decision I've made of my life.

I would not buy if Flagstaff isn't where you want to be. That's just me personally though.

The problem is, it's where I want to be the foreseeable future. It's not like I'm in college where I can say "yes, in 3 more years I will move on." In 3 more years I might be looking for a new job, but that doesn't mean one will present itself with satisfactory terms for another 6.

I still wouldn't want to deal with the hassle of buying, moving in, fixing it up, then if you want to leave and start getting offers, you're hamstrung by the house and your ability to sell it.

Or have to sell, rent in town while you look somewhere else, then start the process over again.

It just sounds like a huge PITA to me.

pheller wrote: Anyone have any fun stories about home ownership they can tell me?

Bought our 1894 4BR Victorian for $38,000 in 1978. Closing on the house was to be on Monday.

We rented a farm house which was a pit , be suspicious of lotsa paneling and suspended ceilings. Thursday before the closing, the pipe running from the well froze solid, no running water in the house we lived in but 3 ft. in the basement. Our dog got hit by the snowplow and had a cast on her leg, Vet kept cranking at us because she chewed it off all the time. My very first out-of-the-showroom car, a Fiat 128; would stop working for no reason, but then start up 15 minutes later like nothing happened.

We went cross country skiing with friends to relax, destress. Trish slipped on ice, the ski hit her in the back, she's in the hospital an hour later passing blood from a good kidney punch.

I go do the closing by myself. In front of both lawyers and on speaker phone, I call the fuel oil company to deliver oil to the just bought house, "No problem sir".

The next weekend we go to move in, it's freezing in there, puddles of ice on the hardwood floors. Oy. They didn't deliver oil, furnace went out, all hot water baseboard radiators split. I was 26 at the time, second of seven kids, we moved in with my parents until things were sorted. I had five brothers still living at home, I worked the second shift. Came home one night at 1:00am to find Trish leaning on the sink half asleep. "They're watching a movie"; her bed was the couch.

Funny now.

For all those who don't believe it's worth owning - you're obviously doing the exact opposite math from your landlord

I actually walked out of a closing once. The finance guy hadn't done what he said he'd do, so I left. Based on the reactions of all involved, that doesn't happen often.

Keith Tanner wrote: For all those who don't believe it's worth owning - you're obviously doing the exact opposite math from your landlord

Many landlords are really bad at math

BTW, if you're a veteran bring your DD-214 to your county office building or the VA; I didn't pay property taxes for the first 10 years.

ProDarwin wrote: Grumpy way of looking at this: $300k in a house in the market I'm in will be worth around $330k in 10 years. That's less than the cost of inflation. $300k in my investments will be worth, conservatively, around 600k. The $270k difference will pay a lot of rent.

I've seen you make many similar posts about investing and opportunity cost, etc in the past. If you're following your own advice, I'd guess that you'll be pretty well off at some point in your life. Congrats. I admire your drive.

That being said, what's the plan when that eventually happens? Will you then buy your own place when you're wealthy? Will you buy nice, new cars? Will you retire early? Almost everything that we buy is a depreciating asset, and money exists to be spent. Why work so hard to achieve financial independence if you can't enjoy the fruits of your labors?

This is not meant to be a judgement on you personally, I just hope that you're not so focused on opportunity cost, and the mindset of "I could've had xxx more if I'd invested that money" that you don't enjoy life along the way. I wrestle with some of the same thoughts, and have to remind myself that it's ok to splurge from time to time. I want to be financially secure in my future, but I also don't want to wake up when I'm retired and wish that I hadn't deprived myself of nice things when I was younger that I could've been enjoying along the way, just to have those same nice things later in life. Life is about the journey as much or more than it is about the final destination.

ProDarwin wrote:

mtn wrote:

ProDarwin wrote:

Duke wrote: Between purchase price and major renovations about 6 years ago, we have about $300,000 invested in it. I could sell it by the end of the year for $300,000 meaning I've put a roof over my head for 25 years for the cost of utilities.

Grumpy way of looking at this: $300k in a house in the market I'm in will be worth around $330k in 10 years. That's less than the cost of inflation. $300k in my investments will be worth, conservatively, around 600k. The $270k difference will pay a lot of rent.

Nope, that only works if you are paying all cash all up front. You're paying a mortgage. Right idea, but not fleshed out.

Duke said he has "**$300k invested in it**" Yes, a mortgage is a different story. You'd start with only $60k sunk in it, making your earnings a lot different.

Fair point, guess I missed the 6 year part of his post.

Most of the calculations I made had it much better for me to buy on a relatively short term (6 years). Obviously there were situations that made it a much worse situation (market drops out and we lose our jobs, or get transferred very soon after purchase). Ironically, the situation that would be the best for us is if godzilla came and knocked our house down (assuming that the policy covers lizard attacks). It would cost a lot less to build our home than to buy it, just because most of our value is in the land--the lot is worth 90% of what we paid for the house.

ProDarwin wrote:

Keith Tanner wrote: For all those who don't believe it's worth owning - you're obviously doing the exact opposite math from your landlord

Many landlords are *really bad at math*

I expect their math is different than yours - and it's also been fairly heavily tested. Sure are a lot of rental properties out there, each one losing money...

Keith Tanner wrote:

ProDarwin wrote:

Keith Tanner wrote: For all those who don't believe it's worth owning - you're obviously doing the exact opposite math from your landlord

Many landlords are *really bad at math*

I expect their math is different than yours - and it's also been fairly heavily tested. Sure are a lot of rental properties out there, each one losing money...

Probably not losing money, but probably not making as much as they were in the stock market.

It is an issue with scale, from my calculations. That isn't to say it is a bad investment, often times its among the best there is. But in my 2 attempts at it (meaning I drew up business plans and projections, even including having me live in one of the units) I couldn't make it work out. If I were older and had more money that wasn't marked for something, I probably could do it, but it would be as diversification--not because I thought I'd be doing better in the rental than in my index funds.

FWIW, one of the plans for our house that we just bought after we "upgrade" is to possibly rent it out. We'll see if that happens, but that is at least 5 years down the road.

Keith Tanner wrote: For all those who don't believe it's worth owning - you're obviously doing the exact opposite math from your landlord I actually walked out of a closing once. The finance guy hadn't done what he said he'd do, so I left. Based on the reactions of all involved, that doesn't happen often.

Just like we always talk about the difference in paying a mechanic and taking your Saturday to do the work............it ignores how you value your time.

For me, the ability to be able to move (no kids, no wife, no mortgage) far outweighs whatever minimal equity would be gained in a few years.

I just accepted a job in OKC (live on the west side of Tulsa), if I had kept the house and not let my ex-wife keep it. I would be facing a 220-mile roundtrip commute everyday until I could get it sold. Not exactly a desirable proposition in a lowered BRZ on 18s.

I rent. So I signed the offer letter and drove to OKC the next day to put a deposit down on a place.

It's all about your priorities. So renting isn't always dumb. Just like buying a new car isn't always dumb.

I've rented. I've been a landlord. I've decided not to be a landlord. I've bought new cars, and I've bought used cars. I've also had investments that turned into absolutely nothing, whilst a house has never disappeared on me Investments in intangibles don't work out well for me overall, I'm bad at it and so is everyone else I get advice from.

I agree that it doesn't always make sense - there was a property that came up for sale next to us and I couldn't make the math work on it. If I'd had a chunk of change I was willing to throw into it the math would have been different.

When I decided to move to a different country 18 months after buying my first house, it didn't hold me back. I rented it out below market so that it was covering its costs and nothing more - this was the quick and easy route. Canadian rental regulations kept them there as the house never went empty on me. When I sold it a few years later the appreciation of the property gave me a nice payout, far more than I could have managed with investments. But even without that, it was revenue neutral at that low rent.

In my experience as a renter, the value of your time is not a major factor. If something needs to be fixed, you have to invest time in getting it fixed by the landlord. If you own the house, you can just do it on your own schedule. I don't spend a lot of time on repairs to our property, and when I do work on it the end result is better than just fixing a problem.

ProDarwin wrote:

mtn wrote:

ProDarwin wrote:

Duke wrote: Between purchase price and major renovations about 6 years ago, we have about $300,000 invested in it. I could sell it by the end of the year for $300,000 meaning I've put a roof over my head for 25 years for the cost of utilities.

Grumpy way of looking at this: $300k in a house in the market I'm in will be worth around $330k in 10 years. That's less than the cost of inflation. $300k in my investments will be worth, conservatively, around 600k. The $270k difference will pay a lot of rent.

Nope, that only works if you are paying all cash all up front. You're paying a mortgage. Right idea, but not fleshed out.

Duke said he has "**$300k invested in it**" Yes, a mortgage is a different story. You'd start with only $60k sunk in it, making your earnings a lot different.

It doesn't have to be cash to be invested. Borrowed money put into a property is still invested. If I borrow on margin in the stock market, and leverage my stock purchases, does that mean I have invested less? Of course not. You are defining equity as investment. They are not the same.

You are also missing 3 massive issues- taxes, fixed expense, and leveraged investment.

1- When you own:

• Mortgage interest is deductible

• Property taxes are deductible.

• Most of us could get a bit of a business use exemption.

• Some improvements are deductible.

None of those things are available when you rent.

2- Fixed expense:

• When you commit to a purchase price and start making payments on a mortgage, you have a fixed expense for the duration of the loan (depending on loan type). 20 or 30 years worth of your living expenses not increasing. Rents WILL go up. A LOT, in 20 years.

3- Leveraged investment:

• Buying a house with a mortgage means controlling an asset with less money than it is worth. If you put $300K cash into an investment which grows in value by 10%, you have earned $30K- 10%. By contrast, if you buy a $300K house with a $30K down payment and it increases by 10% in value, your $30K investment has earned you an additional $30K in growth- that's 100%, not 10%. You never have to share the growth with the bank.

So, my opinion is that your take on rent vs buy is grossly oversimplified, and incorrect when the other factors are taken into consideration.

I'm 26 and bought my first house this summer. The whole 30 year commitment thing kinda freaked me out at first, and we (SWMBO especially) definitely went through a bit of a cold feet period after the inspection. Sounds like that's right about where you are right now.

Our house was built in 1850 and we knew going in that there were a few known issues that needed to be corrected, and expected a few unknown issues to crop up as well. Still, I think hearing the inspector pick everything apart and go through everything that COULD go wrong really messed with SWMBO's psyche for a short period. Fortunately, we were able to talk it through with friends and family, talked through our plan to budget for repairs and improvements and convinced ourselves it was a) more than adequate to cover the needs of the house and b) manageable within our budget, and reassured ourselves that this was indeed the right decision.

And really we haven't looked back or second guessed ourselves since - no sleepless nights leading up to closing, no buyers remorse after the fact, nothing. We're just happy to have a place to call our own, where we know we're not going to have to move again in a year or two, where we can make the changes and improvements that we want without having to ask a landlord for permission, only to then have the next tenant realize the benefit. Sure, there's been work involved, but it hasn't been unmanageable and I find it satisfying. Financially it feels much less burdensome than I had anticipated, and our 'house fund' has been collecting money faster than expected.

Looking back on the whole process, I think the defining moment for me was the evening of moving day, sitting in a lawn chair in my new garage, cracking a beer and looking around and just thinking this is MINE - MY little corner of the world. I know you've posted a lot on this topic the past year or so and put a ton of thought into it. You just have to trust that you're making the right decision and forge ahead, and you'll get to your moment as well.

Best of luck!

STM317 wrote: That being said, what's the plan when that eventually happens? Will you then buy your own place when you're wealthy? Will you buy nice, new cars? Will you retire early?

FWIW, I do have my own place (mortgaged). It just isn't all its cracked up to be. When I've achieved financial independence I'll probably:

• retire
• work a little bit on the side
• travel for extended periods of time (rent for a few months in one area or country then move on to the next, etc.)
• mountain bike a whole lot more than I do currently
• might have a house, but more than likely it'll be a condo or a very small home with minimal upkeep required. Renting is certainly an option.

I may buy new-ish cars, but I generally work toward a lifestyle where I don't need a car.

In reply to SVreX:

All of those are valid points, but my post was made under the assumption that "300k invested" was not a leveraged investment.

Re #3 on your list, its easy to estimate that. If you live in an area with low home appreciation rates (much of the country outside of large metro areas), its still easy for a market investment to outperform a leveraged home investment.

In reply to SVreX:

In your third point, have you included interest at all? Buying a $300,000 house with a 30,000 down payment and 4% would mean paying over 190k in interest over 30 years. And the bulk of that interest would be paid in those first 10 years. The bank doesn't care that the property value has increased, because they've made more than that increase in interest during the same period.

There is certainly some planning involved in that equation (opportunity costs) as well. I'm not a college student, I've got a cool boss, my company has never layed off anyone, and I'm doing well in my relatively recent job. If I had to raise a newborn right now, I'd sooner do it under my current boss than a brand new boss, simply because he's a really understanding dude.

I wanted to buy as early as possible. I've been at my job 18 months.

My other thought is that I've never worked a "real" job for more than 2 years. I've had 10+ jobs since high-school. I worked at a catering place for 6 years during college, but I really need a resume entry that says "this guy isn't bouncing around trying to get the most amount of money". 3-5 years at this position would really help quell some of those hiring fears.

So not only do I now need to stay due to home ownership, but I've also gotta stay to prove to future employers I'm relatively stable. If kids are happening in the coming years, that'll be a benefit to have flat housing payments as well, since we'll be able to budget more effectively.

The only reason I'm thinking that we'll be looking again in 3-5 years is because that'll be about the time I'll be looking to move upward or onward in my position, and my wife may be in a place in here career (or stay at home motherhood) that she wants to be someplace closer to family.

In reply to STM317:

No. I did not calculate the interest. Feel free. There are other expenses I did not calculate either- like Realtor fees, etc.

The point is there is much more to look at than the simple math ProDarwin used (and he also avoided talking about various expenses).

The bank doesn't care about the growth because they've made more money on the interest... That is true. But keep in mind, you are making money on money you didn't have. You only had $30K to invest in the first place.

Also, earnings in the stock market are taxed. Earnings on your primary residence are not. That's another HUGE difference.

ProDarwin wrote: In reply to SVreX: All of those are valid points, but my post was made under the assumption that "300k invested" was not a leveraged investment.

I understand that, but my point was that may or may not be a reasonable assumption. Most houses have mortgages.

Bought my first house at 25 and haven't looked back. Its great to have a place to call your own and I've been lucky enough to have a separate shop at both homes I have owned. The second one we had built, That was four months of stomach ache, but I don't know if I'll ever leave that house now.

In reply to ProDarwin:

Let's look again at that math:

$300k grows to $330k in 10 years. Tax free.

$300k in investments will be worth, conservatively, around 600k. That's $300K in earnings.

The $300K earnings is completely taxable. Probably 15% capital gains (could be 20%, depending on your tax rate). That would reduce the earnings to $255K. And, you will have to liquidate it monthly to pay the rent (including during the market downturns).

So, how much would the rent cost for a $300K house in Winston-Salem? Today? How about in 10 years? Are the rents going to go up? Can you actually rent a comparable house for 10 years for $255K?

I don't think that $300K earnings is anywhere near as much as you think it is. In fact, I think you will be looking for a place to live before you reach 10 years.

And THAT assumes you actually have $300K in cash laying around to put in the stock market. You won't earn $300K over 10 years unless you put it all in up front, and leave it there for the full 10 years. For most people, that's unlikely.

Your math equation is right, but you are missing the time/value of the money. You:

• Don't have $300K now to invest.

• Need monthly cash flow to pay the rent.

• Won't leave the full amount in the market for the full 10 year duration, therefore you will earn less.

• Will need to liquidate at various points in the cycle (sometimes at a LOSS).

SVreX wrote: - Will need to liquidate at various points in the cycle (sometimes at a LOSS).

Why? I'd just let it sit in index funds.

SVreX wrote: I understand that, but my point was that may or may not be a reasonable assumption. Most houses have mortgages.

The assumptions, reasonable or not, are based on a specific example that Duke mentioned earlier in the thread, not a general comparison.

Also, the comparison doesn't need to be rent vs. buy. It could be 100% equity vs. 20% equity. I.E. if you have $300k invested in a house, mortgage it. Now you have 20% equity and $240k you can still invest in other assets.

My point was never to show that renting is cheaper than buying or whatnot. It was more to show that "I've put a roof over my head for 25 years for the cost of utilities" is flawed financial reasoning.

Pheller, it's normal to get nerves around a big purchase like this. And don't be surprised if there's some buyer's remorse once you close and walk in those doors and realize it's now your problem. But know that there will be a lot of good times and on average the good will outweigh the bad.

I was terrified when I closed on my latest house - $350k of shabby run down mess with falling ceilings, mold in the walls, and half of everything broken. I was still making payments on the last house and the new house wasn't ready to be moved into and my wife was six months pregnant. Two months later we moved in, a month after that the baby was born, and a month or two later we closed on the sale of the old house. That was two years ago; we just refinanced and the new appraisal came in at $550k. Life is good! I'm not bragging - just saying you will have an adventure ahead of you like no other and sometimes stability is amazing.

Don't be afraid to feel scared; that's normal. But don't let it rule your life.