House - Remind Me Why?

Discussion in 'After Hours Lounge (Off Topic)' started by Anthony_J, Dec 22, 2004.

  1. Anthony_J

    Anthony_J Stunt Coordinator

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    I'm 29, single, and just bought my first house (2 bed, 2.5 bath townhome).

    We had the general inspection this morning and I just finished signing a slew of mortgage papers. I feel that I've been treated well by everyone I've dealt with, but it's still been quite an ordeal (and I have yet to go through the actual closing).

    My question - I was paying $1,300/month in rent before this, had a bunch of cash saved or invested, and had zero debt to my name. After buying the house, I have and will be bleeding cash - down payment ($26,000), closing costs ($4,000), prepaids ($1,200), inspection fee ($450), mortgage application ($350), new carpet & paint ($5,000), etc, and will have over $200,000 of debt and a higher housing payment every month.

    It's a ton of money and basically everything I had saved plus some (God bless parents).

    I don't regret buying the house at all, but somebody please remind me again - why is buying property worth it for someone in my situation? Wouldn't I have been just as well served to continue renting and saving/investing cash?
     
  2. Elinor

    Elinor Supporting Actor

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    You'll be able to deduct all the interest of the mortgage (which is most of the payment) and prop. taxes from your income tax. That's a nice payback.

    You'll be flush in credit for the rest of your life ( if you don't screw anything up).

    You're building equity, which you don't do renting.

    Saving cash just gives you cash.
     
  3. Alf S

    Alf S Cinematographer

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    But the big question is will you even be able to have a "home theater" in a townhouse or will you always end up having neighbors banging on the wall telling you to keep it down?? [​IMG]

    We rented a condo before my wife and I got married and hated having to keep the HT system turned down low all the time (didn't want to piss of the ladies that lived next to us).

    Congrats though on gettin outta rental hell.

    [​IMG]
     
  4. Elinor

    Elinor Supporting Actor

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    Alf, it depends on the design of the house. I asked my neighbors to please let me know if my music/movies ever bothered them. I don't play too loud, but you know, explosions and stuff can go loud momentarily. They have never said a word. And yes, they are friendly too. The house design and how I'm set up just doesn't conduct sound to where they spend most of their time. Lucky.
     
  5. Ted Lee

    Ted Lee Lead Actor

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    1. you're investing in your future. your house (probably) will appreciate over time. (my house is worth about 33% more then i paid for it - in less then two years)

    2. pride of ownership. you're going to be *amazed* at how interesting home depot has become. (i think i literally know where everything is in that damn store)

    3. freedom. you can do what you want to it, when you want. you can crank your stereo, put pink flamingos in your yard, wash your car at 3 in the morning, etc)

    having a house is great -- congrats!
     
  6. Joe Szott

    Joe Szott Screenwriter

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    "don't regret buying the house at all, but somebody please remind me again - why is buying property worth it for someone in my situation? Wouldn't I have been just as well served to continue renting and saving/investing cash?"

    Financially - yes, you were better off renting and investing. By far. Considering that the amount you deduct on taxes for interest only on your (6%) loan plus the constant moneysink of repairing a house, it's not a great investment. If you could put that money to work earning 10-12% (even with taxes), you would be a much better position long term. Adding on closing costs and all that BS, you really need to stay in a house for 5+ years on average before the equity catches up with your inital payments. It's a huge myth that houses make great investments to live in, compared to the other returns you could make with that money over 30 years houses are lousy.

    Personally - this one is up to you. There are a lot of personal freedoms that come with a house that an apt can't provide. Plus ownership feels damn nice. Only reason I bought a house was to prepare for kids with my wife, it's so much easier in a house to raise a family.

    My suggestion is be sure you want this house before you finally buy it. Nothing worse than discovering renting was just fine for you the month after you buy the house. Just like a car, the money is gone for good once you sign the dotted line.
     
  7. Justin Lane

    Justin Lane Cinematographer

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    I do not necessarily agree with this argument for the benefits of home ownership, especially for someone younger in age. Yes houses go up in value, but unless you are willing to relocate to an area with lower real-estate costs (i.e. you are close to retirement or re-located from your job), those gains will never be realized. When your sell your house, you will either be moving up to a more expensive residence or in the chance you downsize, the smaller residence will have inflated in price as well, knocking out any gains.

    J
     
  8. Anthony_J

    Anthony_J Stunt Coordinator

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    Ah yes, after five years of suffering, I'll finally be able to watch "Das Boot" at reference levels. [​IMG] And I do understand the pride of ownership factor (although pride of ownership tends to trigger big spending). It'll be nice not to have upstairs neighbors anymore.

    Here's the thing. Given today's wicked high real estate prices (I'm in central New Jersey), I'm not sure that the financial justification for buying over renting carries as much weight as it used to.

    The interest deduction should be nice, but that will almost exactly net against the increased housing payment on an annual basis. In past years, lower housing prices meant that more of the tax benefit went directly into your pocket.

    I guesstimate it'll take me about 7 or 8 years to build enough equity to recoup the cash I've paid out of pocket for the downpayment and closing costs. This, when coupled with the zero tax cash flow benefit, means that I just put myself 7 years behind where I am right now from a liquidity/savings standpoint. The only incremental benefit that owning will give me is the appreciation in the property's value over the term of my ownership.

    While I paid a fair price for the house in today's market, I'm not so sure that prices will continue to rise as they have in the past. I think the gold rush may be over and that I may be hard pressed to find housing appreciation in this area that exceeds the performance of a solidly performing stock portfolio. Maybe I would have been better to pay a lower monthly rent, and hold onto and invest my free cash?

    Again, this is totally theoretical and I'm not complaining at all, but does it make sense? Could it be that those who say "You're better off buying than renting" are quoting an out of date adage?

    Sorry Joe - didn't see your response before posting. My thoughts exactly. I don't regret the house at all, but it just seems like a whole lot of trouble for a single twenty-something whose main concern is HT set up and having a great collection of wine. I've been fairly lucky with both so far.
     
  9. Philip_G

    Philip_G Producer

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    well, maybe [​IMG]

    The walls are damn thin on my townhouse. Unless there is some kind of masonry partition between houses, I'd bet you'll probably piss off the neighbors unless they don't really care.
     
  10. Elinor

    Elinor Supporting Actor

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    I bought a house with my ex 13 years ago. I came out of it with only a pool table (after all his refi's, there was virtually no equity) ... however, I DID have an 8 year record of on-time payment with the mortgage company, which led to quick approval when I went to buy my own house 5 years ago after the split-up.

    In 5 years my new house has doubled in value.

    I can't see how either house purchase represents an "out of date adage."

    What good would a bunch of cash do ya?
     
  11. Jeff Ulmer

    Jeff Ulmer Producer

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    You only have to recoup your closing costs, your downpayment is equity that you already have. That $26,000 has only moved from your bank account to your claim on the property.

    I can't see how anyone can say that paying someone else $1300 a month for a roof over your head is better than paying yourself the same amount for something you own. What exactly are you getting for your money? That's $15,600 per year you are giving away with nothing to show for it at the end of the day. Even in the begining of a mortage you will see at least a percentage of that $15K in increased equity, you can't say that for rent - it's just gone.

    You say your costs are higher, but are you living in the same quality of housing you were before? Moreover, you will be able to use the house as leverage should you need more liquid cash.

    Sure, a great performing stock portfolio could net more, but that assumes that the stocks are up when you need to sell, which is the only time they are worth anything. Historical performance is no guarantee that your portfolio won't be worthless when you need it. I know plenty of people who were riding high on their stocks until they took masive losses, to the tune of hundreds of thousands of dollars. The fact that they were once worth something didn't matter much then.

    You made the right decision, and at least if you do take a bath on the stock market, you'll still have a house...
     
  12. ScottHH

    ScottHH Stunt Coordinator

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    Anthony,
    When you are comparing the financials of your new owned home and your previously rented apartment, I think you're leaving something out: I'll bet you are consuming more housing. Is this true? Is the place bigger and/or nicer?



    If the real estate market continues to go up at astronomic rates, at least you'll have the gains in your current house to help pay for the other over-priced one.

    I think if you know you're going to be in the place for at least 5 years, you're better off owning. If you might move, or need a bigger place in less time, I think you should be renting. The fact that if you bought anything in the last 10 years you would have made out like a bandit isn't terribly useful to you. And when long-term rates start heading higher, we'll be much less likely to see the kind of rapid appreciation in housing values that we've seen over the last few years.
     
  13. Elinor

    Elinor Supporting Actor

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    Yeah, what Jeff said.
     
  14. Randy Tennison

    Randy Tennison Screenwriter

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    All I know is that my house increases in value $300.00 every month I live there! (based upon the initial appraisal vs. my refi appraisal done recently).
     
  15. Anthony_J

    Anthony_J Stunt Coordinator

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    Good point. But that assumes that I can find another sucker who would pay the same price I paid for the place if I were to sell it tomorrow :b

    To play devil's advocate - why is equity better than liquid cash or investments? I'm still not 100% clear on that.
     
  16. Anthony_J

    Anthony_J Stunt Coordinator

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    Based on what I've seen it's impossible to make money in the rental market with prices as high as they are (unless you buy cheap and fix up). The rent I could get on my place would just about break-even with my mortgage/fees/taxes payment.

    A one bedroom apartment rents for about $1,100. An equivalent one-bedroom condo costs about $200,000 (I was shocked, too). If we assume 10% down and a 30 year mortgage at 6%, your monthly payment would come out to $1,100 per month, plus there would be a condo fee (say $100/month) and taxes (say $200/month). You'd just barely break even in this case after the tax break plus you'd lose your liquidity in the down payment.

    As long as were stuck in a cycle when housing prices are increasing much faster than rents, the only benefit to buying that I can see rests on the appreciation of the property.
     
  17. Philip_G

    Philip_G Producer

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    Every month someone else makes your payment for you is another couple hundred in equity, not to mention if the home's value increases.

    I'm moving out of my townhouse and into a house in a few months and will rent the townhouse out, figuring I can get 1100 for it I'm out 100 bucks or so towards the HOA fees, but it still makes more financial sense in the long run vs. selling it for a loss.
     
  18. Jeff Ulmer

    Jeff Ulmer Producer

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    Plus, if you do any improvements to the house in order to rent it, that should be deductable as a business expense, as long as you claim the income. I wouldn't really complain if someone else was buying me a house...
     
  19. Philip_G

    Philip_G Producer

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    And, I'd assume you could writeoff the interest on both loans, but then would need to claim the rent as income, so I'm not entirely sure how that works (yet)
     
  20. Carl Miller

    Carl Miller Screenwriter

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    I'm 40, and spent the first 17 years of my post college life renting with my wife and two children. We never had enough money to buy a house until nearly 3 years ago...Because we always rented. There was no other choice, but in retrospect, it galls me to think of how much I paid in rent all those years, for absolutely nothing in return. Call it $1,000 month on average for rent for a family of four over the past 17 years and do the math.

    If I had purchased a home 17 years ago and spent $200,000 on mortgage payments for a house where I'm living now over the years, instead of on rent that house would be easily worth $400,000 today and I'd have a huge chunk of equity in the house, perhaps 65% or so. Instead, at 40, I have 27 years worth of mortgage payments to make.

    Spending all those years paying rent is my biggest regret in life, and I'm being totally serious.

    Our house has increased 30% in value in less than three years, and as an investment has out performed our IRA's, TSP retirement plans and our meager investment portfolio of stocks and funds.

    The problem with the idea of putting that money spent on a house, to work in other investments is that you have to live somewhere...so the bulk of this money (unless you're a 6 figure earner or something) we'd like to put to work in reality isn't available for working...It has to be spent either on mortgage payments, or on rent.

    Thinking in these terms, your money is better spent on a mortgage than it is on rent and renting is an absolute waste of money.

    Owning a rental property however, is not. Many people purchase rental property simply for the tax benefits of being able to take a huge loss, and have their adjusted gross income reduced by that loss on their tax return. For some, the idea with owning rental property isn't to make money at all...it's to lose money.
     

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