Home buying first time, humbly asking advice

[WildCard600]

Originally Posted by Capt Spaulding

I think he's talking about trying to time the market. The old adage about never trying to catch a falling knife.

Trying to time the market at the peaks and lows is usually a fools errand. But I can't disagree with the spirit of gtpvette's posts. I know of a few people who are just now not "underwater" on their homes purchased ~2005-06.

I'm not saying that people should be expecting their homes to forever appreciate in value 2x,3x,4x etc. just because "muh investment". However, people also need to be mindful that a home purchased when the market is high could very well see half or more of it's value evaporate overnight due to market conditions.

If all of a sudden your life situation changes and you need to get out from under that $500k home you purchased that is now only worth $300k, the average person isn't going be able to weather a $200k bath financially.

[Atmo]

One of the better indicators for future appreciation in a normal market is school ratings available on the bigger real estate sites.

If you're flexible on location, compare county property taxes. There can be a benefit to buying in the next county, or state, a few miles away and other benefits like low or no income taxes in some states. Property taxes are cruel, punishing homeowners under the trope of "ability to pay" merely because their home value increased yet they can't easily spend the equity. Those taxes can run into five figures annually in many states even with caps when special assessments are included.

Check crime stats available on the FBI and US Census sites for your chosen zip code.

Look at the site on Google Earth and fly around looking for any nearby hazards like landfills, junk yards, hog farms, crappy neighbors, then use Street View to see if the neighbors care about home and landscaping upkeep.

Be aware that nationwide suburban zoning is being targeted for "reform" that would bribe local governments to eliminate exclusionary zoning. It would allow multifamily public housing in communities currently zoned for single family housing. That's a big deal. Overlay crime stats with Section 8 housing to see what could happen to property values. That's partly why rural properties are taking off.

Or, buy an RV or houseboat and join the enormous increase in full timers living property tax free and buy Berkshire Hathaway Class B shares with the savings.

[Capt Spaulding]

Originally Posted by WildCard600

Trying to time the market at the peaks and lows is usually a fools errand. But I can't disagree with the spirit of gtpvette's posts. I know of a few people who are just now not "underwater" on their homes purchased ~2005-06.

I'm not saying that people should be expecting their homes to forever appreciate in value 2x,3x,4x etc. just because "muh investment". However, people also need to be mindful that a home purchased when the market is high could very well see half or more of it's value evaporate overnight due to market conditions.

If all of a sudden your life situation changes and you need to get out from under that $500k home you purchased that is now only worth $300k, the average person isn't going be able to weather a $200k bath financially.

Agree completely. I've seen it happen too many times. In Houston between the mid 70s and 1981 real estate was a license to print money. In '82 a lot of folks drowned under their house notes. And, we all watched the debacle of 2006 - 2009 unfold on CNN. The lesson I've taken from it is, to the extent possible, compartmentalize housing and investment strategies. But, that's just me.

[Spuds]

I like to compare gains/losses on a house to what I would have paid in rent. My first house turned out to be a lower monthly payment than I was renting for to begin with, so even if I sold it for a 70k loss after 5 years, I would have broke even. Even investing in the stock market, you still have to live somewhere.

[humfrz]

I bought a brand new house in San Jose, CA in 1969 and paid $21,000. Nothing down with a VA loan. Today that house is estimated to be valued at over a million dollars.

Maybe I should have kept it and rented it out?

Who knew?

[Capt Spaulding]

Too soon old - too late smart?

I knew I overpaid that Gypsy for the crystal ball she sold me. My Ouija board worked a lot better.

[Irace86.2.0]

Buy the house you want to retire in. Rent it out for 30 years. Live in a cheap rental. Take the savings from your rental and invest it in a 401k. In 30 years, move into your house that is paid off. Keep investing.

[humfrz]

Originally Posted by Irace86.2.0

Buy the house you want to retire in. Rent it out for 30 years. Live in a cheap rental. Take the savings from your rental and invest it in a 401k. In 30 years, move into your house that is paid off. Keep investing.

DANG, Irace86.2.0 , are you trolling us? - that makes no sense to me at all.

[bcj]

Was born in the house I'm retiring in. Went out and paid for all my own stuff.
Also put in more sweaty equity in this one than anyone should really want to.
It's a life. Obla Di Obla Da & etc.

[Irace86.2.0]

Originally Posted by humfrz

DANG, Irace86.2.0 , are you trolling us? - that makes no sense to me at all.

For many people, renting is better. It allows them to be more flexible and results in the most savings compared to owning. People of the same social class who rent are more likely to advance their careers by moving where job opportunities are. They can make wiser decisions about their housing by increasing the size of their home and then decreasing the size of their home, for instance, when they get older and no longer need a five bedroom house that they continue to pay for. There is an investment opportunity that is lost when people move and buy a new house in closing costs, inspections, realtor fees, taxes, etc, so many people who own take a loss each time they sell in an opportunity cost. Their best financial decision is often to stay in the same house forever, but this is typically not possible, as many buyers purchase a starter home, and then they upgrade, and then they downgrade after retirement. Through this process, they often pay more for the same living space when we account for mortgage, mortgage and property insurance, HOAs, property taxes, renovations, home repairs, time and money spent on maintaining the property, etc.

My brother is an extreme example, but it illustrates how renting could be better than buying. He works as a state officer for parks, and he was living in rural California (specified for price comparison) in a government house where he paid $425 in rent. They recently decided they wanted to buy a home instead of renting. He told me that it made no sense to continue to rent and throw that money away when he could buy and be investing in a home by paying a mortgage, which would be paying himself. This couldn't have been further from the truth.

The historic rate of return on housing appreciation is much lower than the historic rate of return on investing in the stock market. For my brother, he now predicts that he will be paying around $2000 for a $400k home, which includes a low HOA, mortgage, fairly low property tax for California, mortgage and property insurance, etc., but what he didn't include in that price was the time cost spent maintaining his property, nor did he include the average monthly cost of renovations, improvements and maintenance on the home like a new roof or fixing the broken water heater when it goes out. Let's generously say that it is only $200. Now he pays $2200, and he was paying $425.

He could have bought the home and rented it out. The renter would pay off the home. The renter would like pay less than all expenses, but as rent rises over time, the difference would be covered. In 30 years, my brother would then move into the home that is paid off, and he would have his savings. What would his savings have been? Rent would likely go up over the years from $425 to something higher based on inflation, but for the sake of illustration, let's just do the straight math. If he paid $425 in rent and invested $1,775 every month into a 401k then in 30 years at a historic rate of 7% return his account would have a balance of $2.2 million.

Now, I don't know what the future housing market looks like, but I doubt his $400k home will be worth $2.2 million in 30 years. The only time housing will exceed the stock market is if someone buys cheap in an undeveloped area that then goes through massive development like San Jose during the tech boom. This isn't a guarantee and if it was predictable then we would all be rich.

My brother's case is an extreme example, as is your case for your home appreciating. Historically, people who buy have more money than people who rent, and they tend to be better with money and also invest their money, so buying typically seems better. Moreover, buyers commit to investing, but renters always have the option not to invest in their 401k or whatever. They could buy that car part or take a trip instead of investing, so historically, buyers invest more than renters, but this isn't a guarantee. There are plenty of renters who rent even though they own and rent out multiple investment properties. The take away: renting isn't wasting money, and in fact, it can often be much better than buying. It can also provide someone freedom, time, mobility, etc. There is the cost of living under a landlord and in living in a property that they might not identify as their own or be able to improve it or have it be there own, so that is a consideration too.

These are good videos to illustrate that renting isn't always worse than buying. It really depends on the individual and what they value and how they want to live. My comment was more to shed light on the other option: renting and investing.

[WildCard600]

Originally Posted by Irace86.2.0

For many people, renting is better. It allows them to be more flexible and results in the most savings compared to owning. People of the same social class who rent are more likely to advance their careers by moving where job opportunities are. They can make wiser decisions about their housing by increasing the size of their home and then decreasing the size of their home, for instance, when they get older and no longer need a five bedroom house that they continue to pay for. There is an investment opportunity that is lost when people move and buy a new house in closing costs, inspections, realtor fees, taxes, etc, so many people who own take a loss each time they sell in an opportunity cost. Their best financial decision is often to stay in the same house forever, but this is typically not possible, as many buyers purchase a starter home, and then they upgrade, and then they downgrade after retirement. Through this process, they often pay more for the same living space when we account for mortgage, mortgage and property insurance, HOAs, property taxes, renovations, home repairs, time and money spent on maintaining the property, etc.

My brother is an extreme example, but it illustrates how renting could be better than buying. He works as a state officer for parks, and he was living in rural California (specified for price comparison) in a government house where he paid $425 in rent. They recently decided they wanted to buy a home instead of renting. He told me that it made no sense to continue to rent and throw that money away when he could buy and be investing in a home by paying a mortgage, which would be paying himself. This couldn't have been further from the truth.

The historic rate of return on housing appreciation is much lower than the historic rate of return on investing in the stock market. For my brother, he now predicts that he will be paying around $2000 for a $400k home, which includes a low HOA, mortgage, fairly low property tax for California, mortgage and property insurance, etc., but what he didn't include in that price was the time cost spent maintaining his property, nor did he include the average monthly cost of renovations, improvements and maintenance on the home like a new roof or fixing the broken water heater when it goes out. Let's generously say that it is only $200. Now he pays $2200, and he was paying $425.

He could have bought the home and rented it out. The renter would pay off the home. The renter would like pay less than all expenses, but as rent rises over time, the difference would be covered. In 30 years, my brother would then move into the home that is paid off, and he would have his savings. What would his savings have been? Rent would likely go up over the years from $425 to something higher based on inflation, but for the sake of illustration, let's just do the straight math. If he paid $425 in rent and invested $1,775 every month into a 401k then in 30 years at a historic rate of 7% return his account would have a balance of $2.2 million.

Now, I don't know what the future housing market looks like, but I doubt his $400k home will be worth $2.2 million in 30 years. The only time housing will exceed the stock market is if someone buys cheap in an undeveloped area that then goes through massive development like San Jose during the tech boom. This isn't a guarantee and if it was predictable then we would all be rich.

My brother's case is an extreme example, as is your case for your home appreciating. Historically, people who buy have more money than people who rent, and they tend to be better with money and also invest their money, so buying typically seems better. Moreover, buyers commit to investing, but renters always have the option not to invest in their 401k or whatever. They could buy that car part or take a trip instead of investing, so historically, buyers invest more than renters, but this isn't a guarantee. There are plenty of renters who rent even though they own and rent out multiple investment properties. The take away: renting isn't wasting money, and in fact, it can often be much better than buying. It can also provide someone freedom, time, mobility, etc. There is the cost of living under a landlord and in living in a property that they might not identify as their own or be able to improve it or have it be there own, so that is a consideration too.

These are good videos to illustrate that renting isn't always worse than buying. It really depends on the individual and what they value and how they want to live. My comment was more to shed light on the other option: renting and investing.

*removed video links to make quote smaller*

I agree it's something people might want to look at as an option, but it will probably vary quite a bit depending on location and personal situation.

Around here rent on a decent house is $1300-1500 a month. A nice house a year and a half ago before the real estate craze was $220-250k. Even today those same houses can be had for under $400k. It's a lot harder to make the math work in this area, you are better off just buying the house and living in it.

[Irace86.2.0]

Originally Posted by WildCard600

I agree it's something people might want to look at as an option, but it will probably vary quite a bit depending on location and personal situation.

Around here rent on a decent house is $1300-1500 a month. A nice house a year and a half ago before the real estate craze was $220-250k. Even today those same houses can be had for under $400k. It's a lot harder to make the math work in this area, you are better off just buying the house and living in it.

Where I live, the rental market is heavily impacted, yet a person could still rent a newer apartment in a nice area with central AC, washer/dryer with a detached garage, as I do for under $2k, but that same property would probably be $3000+ to own when all costs are considered. The cheapest condos that are converted apartments with less amenities in the worst neighborhoods start at $300k with $500+ HOAs. If someone planned to buy a condo and then move in 5-10 years into a starter home and then move in 5-10 years when they needed room for 2-3 kids and then added that granny flat edition in 15 years on top of upgrades, the outlook is less ideal for buying.

For most people, buying works out to be better, but it really depends on a lot of factors coming together. My parents bought low and sold high in a flip when retiring and made a lot of money on the swing in the market, regardless of the sales price difference of the home because the market was right, but if it had been the opposite then they wouldn't have been able to move into a retirement home, or they would have needed to take a $150k loss into the profits from downsizing. This could have nullified the benefits incurred from buying over renting.

I think it is important for every home buyer to consider their lifestyle choices and be realistic about their goals, but chiefly, they shouldn't blindly go into a home sale with the idea that their home is their strongest, best, only or safest investment option.

[Irace86.2.0]

It is also worth mentioning that the housing market is so tight right now that the entry price into starter homes is proportionally inflated. My wife and I don't have or want kids, so we only need a small place. Buying a condo with high HOAs is a financial waste compared to renting. Buying a smaller home means paying a premium. Buying a larger home means getting more value, but it will also be beyond our needs, so we incur higher costs than necessary and will need to devote more time and money to the larger property. We will also have to pay a premium to have a smaller place in a nicer neighborhood because most homes in nicer neighborhoods are larger, so smaller homes there are more impacted and go for a premium. Moreover, larger homes have larger occupants, which tend to have kids, which tend to want to be in better school districts, which also incur a premium.

Our best bet is to wait for the market to stabilize and for production to increase. This is unlikely to happen, so our other option is to move to a different market that isn't so hot, which will likely happen after I finish nursing school, and it gets us out of California and up north like in Washington where there hopefully will be less fires, but I could imagine renting forever too if this persists forever, as we aren't young either and starting a mortgage post 40 isn't ideal.

So much to consider.

[Capt Spaulding]

Waiting may be a good thing. My son is buying a house in the Seattle area and the housing marker strikes me as reminiscent of SoCal in 2000s.

Edit: I don't see or hear a lot about speculative flipping or that sort of thing, but it walks, quacks, swims and flies like a bubble.