House Fund

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
ChapMan
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House Fund

Post by ChapMan » Wed Dec 22, 2010 8:39 pm

Hi All,

This forum has been amazing helpful in helping my slim down my portfolio (see my earlier thread). Now I have a slightly different question to pose to the forum.

My girlfriend (later wife) are trying to save up for a house. She wants a $600k house. We're actively fighting about this, since she believes that she can just buy one house in live in it forever (I am of a different opinion, people move for various reasons in today's economy, and you're just not likely to keep a house for your entire life in 2010 IMHO). Nonetheless, for a house like that, we'd need $120k for a down payment (I'm not too willing to pay the associated costs with a lower down payment). Worse yet, she wants it in 5 years. I don't know how the hell that's going to happen, frankly (she works for the federal government, around the GS-11 level). Thus, I come to the forum for advice.

We're looking for investment vehicles with time horizons around 5 years. We have a moderate tolerance for risk, since honestly, we're very unlikely to make our goal otherwise. We'll have around $15k per year to put into a house fund. If we put it into a fund and it doesn't reach the $120k goal, it doesn't, that's just life and we'll have to live with that. Otherwise, however, we have little chance of reaching that goal.

Are there any funds/combination of funds anyone would recommend? I'm currently thinking of an allocation of something along the following lines:

50% CD/high interest checking
other 50% divided between international and domestic equity funds.

livesoft
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Post by livesoft » Wed Dec 22, 2010 8:45 pm

Do you need to buy a house in December 2015? Or can the goal be squishy? Does it need to be a $600K house?

We invested in equity mutual funds for our house down payment. We were patient and did not care what the market return or the fund performance was. In the end, we had enough money to pay cash for our home, but just put 20% down anyways.

I personally do not believe in saving for a down payment in 5 years in a CD or FDIC-insured account. If the market goes down, I would just suck it up and save longer or save more. If the market goes up, I would buy a house sooner.
Last edited by livesoft on Wed Dec 22, 2010 8:59 pm, edited 1 time in total.

ChapMan
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Post by ChapMan » Wed Dec 22, 2010 8:54 pm

livesoft wrote:Do you need to buy a house in December 2015? Or can the goal be squishy? Does it need to be a $600K house?

We invested in equity mutual funds for our house down payment. We were patience and did not care what the market return or the fund performance was. In the end, we had enough money to pay cash for our home, but just put 20% down anyways.

I personally do not believe in saving for a down payment in 5 years in a CD or FDIC-insured account. If the market goes down, I would just suck it up and save longer or save more. If the market goes up, I would buy a house sooner.
That's one of the...*ahem*... points of contention between me and my SO. I do NOT need to buy a house within 5 years. She feels it to be a (unreasonable, IMHO) goal. I would like it to be squishy, honestly. Let's go under my assumption, since under her's there'd be very few options from what I understand.

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alec
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Post by alec » Wed Dec 22, 2010 8:57 pm

Whenever my wife wants to buy something huge, I say "Okay, run the numbers and show me that we can afford it." After a few days, she comes down to earth.

btw - aren't you a military officer, which would entail getting detailed around the world?
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Gill
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Post by Gill » Wed Dec 22, 2010 9:09 pm

If you're stretching to have the down payment in five years, do you feel you'll be able to afford the carrying costs of a $600,000 home then?
Bruce

ChapMan
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Post by ChapMan » Wed Dec 22, 2010 9:12 pm

alec wrote:Whenever my wife wants to buy something huge, I say "Okay, run the numbers and show me that we can afford it." After a few days, she comes down to earth.

btw - aren't you a military officer, which would entail getting detailed around the world?
Yes, which is another bone of contention. This whole plan only works if I leave active duty in four years -- hence the five year time horizon.

Bruce -- that's a great point. Something I've pointed out to her as well. Numbers apparently just mean nothing to her. I've pointed out things like the insurance, mortgage, maintenance, etc. I'm totally fine with buying a $200k-$300k condo or something, and building up from there. She, for some reason, has the impression that families should just stay in one house and stay there for rest of their lives.

In the alternative to investment advice, I'd also appreciate collections of articles and such advocating my point of view (ie: No, we can't afford a $600k house, we should worry about retirement before buying a house, people move often in the economy of the 21st century, etc.)

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Rager1
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Re: House Fund

Post by Rager1 » Wed Dec 22, 2010 9:14 pm

ChapMan wrote:Hi All,

This forum has been amazing helpful in helping my slim down my portfolio (see my earlier thread). Now I have a slightly different question to pose to the forum.

My girlfriend (later wife) are trying to save up for a house. She wants a $600k house. We're actively fighting about this, since she believes that she can just buy one house in live in it forever (I am of a different opinion, people move for various reasons in today's economy, and you're just not likely to keep a house for your entire life in 2010 IMHO). Nonetheless, for a house like that, we'd need $120k for a down payment (I'm not too willing to pay the associated costs with a lower down payment). Worse yet, she wants it in 5 years. I don't know how the hell that's going to happen, frankly (she works for the federal government, around the GS-11 level). Thus, I come to the forum for advice.

We're looking for investment vehicles with time horizons around 5 years. We have a moderate tolerance for risk, since honestly, we're very unlikely to make our goal otherwise. We'll have around $15k per year to put into a house fund. If we put it into a fund and it doesn't reach the $120k goal, it doesn't, that's just life and we'll have to live with that. Otherwise, however, we have little chance of reaching that goal.

Are there any funds/combination of funds anyone would recommend? I'm currently thinking of an allocation of something along the following lines:

50% CD/high interest checking
other 50% divided between international and domestic equity funds.
Hi ChapMan,

I don't want to burst your bubble but my trusty HP12C calculator tells me that payments of $15,000/year for 5 years would need to compound at a rate of 23.7% to reach a level of $120,000 at the end of that period. If you made the $15,000 payments at the beginning of each of the 5 years, you would need to compound at 16.1%.

I don't know of any investment(s) that would turn that kind of performance.

Ed

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BTDT
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Post by BTDT » Wed Dec 22, 2010 9:17 pm

She is still a 'girl friend'........right :)
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ChapMan
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Re: House Fund

Post by ChapMan » Wed Dec 22, 2010 9:24 pm

Rager1 wrote:
ChapMan wrote:Hi All,

This forum has been amazing helpful in helping my slim down my portfolio (see my earlier thread). Now I have a slightly different question to pose to the forum.

My girlfriend (later wife) are trying to save up for a house. She wants a $600k house. We're actively fighting about this, since she believes that she can just buy one house in live in it forever (I am of a different opinion, people move for various reasons in today's economy, and you're just not likely to keep a house for your entire life in 2010 IMHO). Nonetheless, for a house like that, we'd need $120k for a down payment (I'm not too willing to pay the associated costs with a lower down payment). Worse yet, she wants it in 5 years. I don't know how the hell that's going to happen, frankly (she works for the federal government, around the GS-11 level). Thus, I come to the forum for advice.

We're looking for investment vehicles with time horizons around 5 years. We have a moderate tolerance for risk, since honestly, we're very unlikely to make our goal otherwise. We'll have around $15k per year to put into a house fund. If we put it into a fund and it doesn't reach the $120k goal, it doesn't, that's just life and we'll have to live with that. Otherwise, however, we have little chance of reaching that goal.

Are there any funds/combination of funds anyone would recommend? I'm currently thinking of an allocation of something along the following lines:

50% CD/high interest checking
other 50% divided between international and domestic equity funds.
Hi ChapMan,

I don't want to burst your bubble but my trusty HP12C calculator tells me that payments of $15,000/year for 5 years would need to compound at a rate of 23.7% to reach a level of $120,000 at the end of that period. If you made the $15,000 payments at the beginning of each of the 5 years, you would need to compound at 16.1%.

I don't know of any investment(s) that would turn that kind of performance.

Ed
Hi Ed,

That's correct, I guess it looks like we'll either have to increase our time horizon and/or get more risky investments...

stan1
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Post by stan1 » Wed Dec 22, 2010 9:32 pm

Hopefully your soon-to-be wife works in a career field where she can get promoted to a GS-14/15 fairly quickly. If each of you is making 6 figures, the plan might be more feasible.

ChapMan
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Post by ChapMan » Wed Dec 22, 2010 9:58 pm

stan1 wrote:Hopefully your soon-to-be wife works in a career field where she can get promoted to a GS-14/15 fairly quickly. If each of you is making 6 figures, the plan might be more feasible.
Yes, that's the plan. If DOJ hires me, I could be GS-14/15 in four years. Private sector would pay much more at the higher end. It's all somewhat of a crapshoot in my specialty, though...

thedude
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Post by thedude » Wed Dec 22, 2010 10:41 pm

Man, this is just insane. For starters:

1. What's so special about $600K? Why not a $400K house? What's so special about 5 years? Why not 6 years?
2. I just don't see how you're going to arrive at your savings goal of $130K given the amount of money you're able to put away. Counting on investments to get you there in 5 years is foolish. Risk is risky - what if you lost $30K of your house fund? It'd take 2 years to "recover" using new savings.
3. It takes a lot more than $120K to buy a $600K house if you're planning to live a reasonable lifestyle. Don't forget closing costs, maintenance, taxes, transportation, and you'd be a fool not to have an emergency fund of, say, $25K, which is enough to cover (at most) 10 months of mortgage payments alone.

I sympathize, as my wife and I (married in September) are also saving for a house. Combined income of $130K and we have about $105K cash right now. Full disclosure - I took some risks and had a pile of cash in equities throughout the financial downturn and subsequent recovery - ended up a few thousand ahead of where I started. Not gonna lie, I did some market timing to achieve that. In retrospect, it was kinda dumb - a few extra thousand just ain't worth the risk. That's why I'm >95% cash right now, earning a cool 1.3%.

I figure I need something like $140K before I could consider a purchase of up to $500K (we need a little extra cash for a car). I've been saving for about 5 years (wife helps, but she's on a grad student stipend). It'll take me another 1-2 years to get to my goal, but frankly, I'd be more comfortable if I had closer to $160K in cash. And that's for a $500K house, not $600K.

Your goal isn't realistic, IMO. Somehow, you've got to communicate that to your GF. I hope this doesn't come off as harsh; just trying to keep you focused on the reality of your situation. Good luck.

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Toons
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Post by Toons » Wed Dec 22, 2010 11:04 pm

Make her a lowball offer,,150k house :D :D :D
Oh yes don't forget 15 year mortgage(and work on paying that off early) :D
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White Coat Investor
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Post by White Coat Investor » Wed Dec 22, 2010 11:19 pm

We had a plan to do something similar, $500K house in 4 years. We made our goal. Our investment vehicle was our then current mortgage at 6.125%. Our income at the time was similar to a GS14 or 15 I believe. There were a lot of sacrifices but we're very happy with the home now. Good luck. You're unlikely to get 16% returns, so better plan on saving more. If you can only put $15K a year toward the downpayment, how are you going to make the mortgage payments later? Those two seem pretty disconnected.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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MossySF
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Post by MossySF » Thu Dec 23, 2010 12:09 am

Seems like an easy answer.

"I want a 600K house," says A.

"Ok, if that's your wish, let's do it. We are saving $15K now, we need to bump that up to $25K ASAP."

Then start selling/cancelling the amenities of life you are used to squeeze an extra $10K a year in savings. Live like a recently-arrived immigrant and see how long A can handle it. If you and A can last 5 years like this, you've proved you can handle a 600K house on less-than-600K-house-income. (Yes, I've lived through this in my youth -- it's a spartan lifestyle but doable.)

word
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Post by word » Thu Dec 23, 2010 12:17 am

She should be providing the plan for achieving this if she is setting the goals. This sound VERY one sided.

You won't have a successful relationship if every conversatin comes down to 'my way or the highway' type situation, this should be about compromise and a realistic approach. Many couples divorce over money, it is important that you are able to come to some kind of agreement.

Honestly, the 600k number sounds like it is more about status than anything else. Find a house that fits the needs you have.

Avo
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Post by Avo » Thu Dec 23, 2010 12:20 am

Have you considered getting a new girlfriend? Much cheaper! :)

Jacobkg
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Post by Jacobkg » Thu Dec 23, 2010 12:21 am

The advantage here at least is that you have a clear goal with specific numbers and a relatively compact timeline. You can be very concrete about exactly how much you need to cut your monthly spending by in order to reach your goal. You and her can have a frank discussion about whether you really need that [insert luxury nonessential here]. The personal finance blogosphere will be happy to provide with a myriad of ways of slightly downgrading your standard of living in order to save money. Come up with a monthly budget that lets you meet your savings goal (assuming 0% interest because let's be honest here). If you can't come up with a budget that works then she will be hardpressed to keep insisting on an unreasonable goal. If you can fix a budget then it should be easier to stick to because anytime she is tempted to overspend you can remind her of that dream house (and even tell her how many more months she will have to wait).

Best of luck!

bttn_2010
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Post by bttn_2010 » Thu Dec 23, 2010 1:10 am

If you are able to put 20% down-payment AND furnish the house AND run the household (utility bills is a shocker if you used to dwell in apartments, as we did) AND pay the property tax AND fund other expenses like landscaping (or buying a lawnmower)... you'll see that a $600K house escalates to more than just the $600K house.

She's set on her idea that she will live in that house forever, so I wouldn't dissuade her on that - but I'd like her to come up with the plan to meet these goals. Who knows, you may be surprised :)

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scubadiver
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Post by scubadiver » Thu Dec 23, 2010 6:41 am

Are you planning to have children? If so, can you afford to maintain such a house on just one income? If not, are you absolutely certain that you both will be happy continuing to work after the arrival of children?

My wife and I made the decision to not commit to anything we couldn't afford on just one income. Since you'll both be working for the gov't, job loss probably isn't a factor. May want to discuss whether or not both of you will continue to work after children.

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stemikger
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Post by stemikger » Thu Dec 23, 2010 7:11 am

This is just my free advice and my humble opinion so take it for what it's worth.

Here goes.

Why put that kind of stress on yourselves. If you really want to be a homeowner sooner, rather than later I would look for a much cheaper house. Live in it for as long as you can and build equity in it and by then I'm sure the real estate market will be much better than it is today and move up in house.

I'm old school and don't believe in starter homes. What saved my sanity and my marriage was that I bought a very reasonable house and thank God never struggled to make my payments. They were low enough where I could still make them on what I would get from unemployment if I lost my job. I have many friends who extended themselves and the quality of their live definitely suffered because of it. Also it takes away from the quality of your marriage when you are always stressed about that big hairy mortgage payment every month.

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Post by Beantown85 » Thu Dec 23, 2010 7:20 am

I would do something like 50% CDs/High Interest Savings, 50% ST Bonds. I don't think 50% equities makes any sense for a 5 year horizon, stretching for short term return is a recipe for disaster.

Now, in 5 years, when in all likelihood you do not have 120k, you can re-address the issue of when and how much to buy. Right now, that 5 years away date and dream home purchase most likely seem abstract to your SO. Perhaps it will be viewed differently when the time comes. If you are able to save more and can afford the house at that point or soon after, then great. If you have to wait a while longer, that's OK too. The only big mistake you can make right now is investing short term money in risky assets hoping for huge short term gains.

The Dude Abides
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Post by The Dude Abides » Thu Dec 23, 2010 7:40 am

Just want to point out that for short term savings goals (5 years), return of principal is far more important that return on principal. Matching inflation may be a worthy goal. We have no idea where the stock market will be in 5 years (some think we are 10 years into a 15-20 year secular bear market). Invest in equities for the short term at your own risk.
90% sure on indexing. Still thinking about buying duplexes though.

guitarguy
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Post by guitarguy » Thu Dec 23, 2010 8:22 am

Just to throw in my $0.02...

I would try to come to a compromise on the house timeline and price. That's what it's all about in the end. Why does it have to be a $600k house in 5 yrs? Can't you guys just look around and find something that suits you and that you like...you never know what you'll find. Save as much as you possibly can (responsibly) until you're ready to buy, then see where you're at.

I'm 25. My wife and I decided to go for the smallest house feasible...something we can afford on my income alone because we don't plan to raise our kids in daycare. When we outgrow this house, we'll move on and look for something bigger. Meanwhile, we're beating down our student loans and stocking away as much as we possibly can so we can hopefully retire comfortably at 60. Why buy so much more than you need right off the bat??

Frankly, it sounds like she's the one pushing this on ya. IMHO, if someone is unwilling to compromise about something like this, it might be a little dangerous to put your name on the dotted line. You may very well end up with a messy divorce or fighting about money all the time because of the added stress of (what sounds like) living slightly outside of your means, or just plain living with a higher expenses to savings ratio than you want.

Bottom line, I wouldn't let yourself get pushed into making a decision you don't really want to make. Period. Again...just my opinions...so take 'em for what they're worth.

Good luck!

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Opponent Process
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Post by Opponent Process » Thu Dec 23, 2010 8:40 am

reminds me of the old joke:

I don't think I'll get married again. I'll just find a woman I don't like and give her a house.
-- Lewis Grizzard
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guitarguy
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Post by guitarguy » Thu Dec 23, 2010 8:42 am

Opponent Process wrote:reminds me of the old joke:

I don't think I'll get married again. I'll just find a woman I don't like and give her a house.
-- Lewis Grizzard
:lol: :lol:

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alec
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Post by alec » Thu Dec 23, 2010 9:13 am

IIRC, Chapman is ~ 25 yrs old. A number of twenty somethings I work with have/had this sort of pipe dream. That is, until their coworkers, friends, family, etc. sat them down.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair

ChapMan
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Post by ChapMan » Thu Dec 23, 2010 9:36 am

Let's be clear here: I do NOT have this pipe dream. I think it is a pipe dream. I think $600k is an arbitrary figure meant largely to appease her social circles. We're going to have a long drawn out discussion/fight about this sometime soon, but I figured, on the off chance that someone here knew of any such vehicles, why not ask. I think the idea of planning to settle into one place for rest of your life is silly at 25. I think the idea of a $600k on our salaries is pretty ridiculous, especially, as others have mentioned, the carrying costs of a damn house (and she wants a yard, don't even get me started on how much landscaping and crap costs). She grew up in affluence and thinks she can continue that lifestyle while working to "make a difference" in government. There's a reason no one in her neighborhood ever worked for the government.

I keep telling her "look, if you want the $600k house, fine, but there are sacrifices that have to be made. First, gtfo of government. You can make more in the private sector (about 3x her current salary at market levels). You'll have crappy hours, but that's what you have to do to make it work." I dunno, it's slowly getting through to her I guess. She gets annoyed that other people have more and don't have to work as hard. That's life.

Anyway, part of this is really just venting. And truth be told, part of the purpose of this thread is also to look for more support for my position in the first place.

I mean, we could put more money into the house fund if I didn't do any retirement saving, which I am absolutely not willing to do. I prioritize retirement saving over any other saving. Is that reasonable? I figure that the opportunities to make contributions to retirement savings are simply lost if you don't do it in a given year, whereas that's not so for a house (ie: you can save a windfall for a house while you're limited to about $20k of retirement savings a year). I understand that a house will provide shelter, but so will money, and money won't be a liability that needs maintenance every year/month/day.

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Post by Beantown85 » Thu Dec 23, 2010 9:58 am

ChapMan wrote:Anyway, part of this is really just venting. And truth be told, part of the purpose of this thread is also to look for more support for my position in the first place.
Consider it a wild success then.

ChapMan
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Post by ChapMan » Thu Dec 23, 2010 10:01 am

Will do!

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Post by thedude » Thu Dec 23, 2010 10:05 am

ChapMan, it sounds like you're asking for a world of pain if you marry this woman. She is disconnected from reality. Good luck trying to talk some sense to her. I hope she comes around.

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PaddyMac
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Post by PaddyMac » Thu Dec 23, 2010 10:54 am

You are about to marry someone who is more concerned about keeping up with the Jones that your sanity. Think about that carefully.

Will this attitude stop at the house itself? What about the furniture? The high-end appliances? Cars? Does your wife value brand name clothing now? If so, what about kid's clothes?

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Opponent Process
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Post by Opponent Process » Thu Dec 23, 2010 11:06 am

yeah, give her the phone. we need to talk to her.
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supersharpie
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Post by supersharpie » Thu Dec 23, 2010 12:48 pm

Chapman, I know that you will take this with a huge grain of salt but...reconsider marrying your girlfriend. There are plenty of wonderful, sensible women out there who would be happy to share in your vision rather than force yours on you. So many unhappy marriages start (and end) with one party having entirely unrealistic expectations regarding financial status.

Your gf sounds very superficial and status driven; the type that may get frustrated and leave you if a wealthier "Prince Charming" offers her the lifestyle which she craves.

Easy Rhino
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Post by Easy Rhino » Thu Dec 23, 2010 1:21 pm

If 5 years is a drop dead date, then...

This year, buy a 5 year bond or CD, Next year, buy a 4 year, etc. You can do the math, returns will be miniscule.

Out of curiosity are you guys in DC or some other expensive housing market?

guitarguy
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Post by guitarguy » Thu Dec 23, 2010 1:22 pm

supersharpie wrote:Chapman, I know that you will take this with a huge grain of salt but...reconsider marrying your girlfriend...
Come on now don't adivse the man to break off his relationship and run for the hills so fast! :twisted:

Just talk about things dude. If she is unwilling to compromise on important issues when you guys disagree, and believe me, I'm a young cat and even I know you will disagree on more than one thing in your lives, then it might be a bad idea to get married. Just don't go through with anything you don't want to do...you'll only resent her later for it. Wear the pants brother! :lol:

I suppose I don't understand the necessity to go into buying a home with an exact timeline and home price already in mind. It seems very illogical to me...but then again it was your woman's idea (hey ho...just kidding). As I said before, just save whatever you can until you're ready to buy, invest it responsibly like the pros on here will advise you to do, then see where you're at. IMO, it's crazy to put anymore demand on yourselves than that. You can only do what you can do! 8)

mmmodem
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Post by mmmodem » Thu Dec 23, 2010 1:45 pm

Isn't the number reason for divorce, money? You're gonna start off marriage with a huge mortgage. It's not your pipe dream but it's something you should deal with sooner rather than later. I can sympathize because I was in a similar situation 18 months ago with my then fiancee.

She wasn't as ambitious as your wife for a house but she still wanted the big house that she can live in forever for $500k. I had to drag her back down to earth that I cannot afford a home by myself at $500k. It's just not worth it to live in such a lavish house and argue about money everyday. What if she wanted to stay home with the kids? What if one of us loses our job? What about contributing to our kids college fund?

To finally convince her, I decided to stop contributing to my retirement funds. I had the same mentality as you on retirement but I had to rethink it. I only did 401k up to the match. I know what you mean by 401k opportunity space being wasted but I view the home as like a bond fund and something you keep with you to retirement. It's a liability but it's a liability you will have anyway if your goal in life is to be a home owner and to keep the wife happy. I can argue a smaller home to my wife but I definitely cannot argue rent forever.

So I laid out the facts and risk. I showed her what I was willing to sacrifice with my retirement. And we finally agreed on something. I have no problem with the starter home well besides it being small and dinky but we're saving so much money each month. Have yet to make any equity even though we bought a foreclosure. After fees we'd probably just get back the money we put in. But the freedom we have right now is so good. Even if we both lost our jobs tomorrow, we're good to go for another year versus a few of our friends with children leaving the keys to their 700k house and moving in with their parents. Good luck!

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JupiterJones
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Post by JupiterJones » Thu Dec 23, 2010 2:41 pm

I am to women what technical analysts are to stocks: I know very little about them and what I do know is largely an amalgam of unscientific guesses that are probably all wrong... but that doesn't stop me from giving advice. 8)

What I'd do is sit down with the GF. Tell her what you feel you guys can afford to pay each month for a roof over your heads, giving your respective incomes. Explain how you came to that conclusion (this might involve veering into retirement savings explanation land for a bit).

Now figure out what property tax and insurance would probably be on a $600,000 house. Subract that from your monthly number. What's left is what you can afford as a mortgage payment.

Take an educated guess as to what mortgage interest rates will be in five years for the type of loan you want (15-year, 30-year, etc.). Figure out how much you would be able to borrow at that rate to wind up with the mortgage payment you desire. (I like to use this calculator.)

Now subtract the amount of that loan from $600,000. Subract any current savings, proceeds from the sale of current real estate, etc. That's how much you need to save up in five years.

I know you've already done this step... I'm just saying that you need to do it along with your GF, explaining every step of the way how you arrived at the figures you're arriving at. The idea is to get her to understand and agree with the reality of the situation.

Then, as others have said, it's a simple matter of calculating how much you'd need to save each year to meet the goal of saving up what you'll need for a down payment.

The result will probably be a cold, hard dose of reality for her. That's the point. It's one thing to want something. Quite another to be willing to make the sacrifices necessary to get that something.

The tricky part: The houses that are selling for $600,000 right now? You probably won't be able to buy them for $600,000 in five years. If real estate goes up by, for example, 3% a year, you're looking at about $700,000 for the same house.

JJ
Stay on target...

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scubadiver
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Post by scubadiver » Thu Dec 23, 2010 7:47 pm

darga19 wrote:
supersharpie wrote:Chapman, I know that you will take this with a huge grain of salt but...reconsider marrying your girlfriend...
Come on now don't adivse the man to break off his relationship and run for the hills so fast! :twisted:
+1

Chapman, you have a big issue to worth through with your girlfriend, but trust me, if it wasn't this, it would be something else. If you feel strongly about her, constructively working through this with her will only strengthen your relationship. The difference between a good marriage and a bad / short marriage is not that the happily married couple doesn't have arguments, but how they deal with those disagreements when they occur.

As has others have already commented, money will be the source of a great many of those arguments. Your financial intuition is correct here. Stick to your guns and work constructively with your girlfriend to help her understand the true price of her dream home and the sacrifices you would have to make to get it.

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Post by scubadiver » Thu Dec 23, 2010 7:52 pm

JupiterJones wrote:The result will probably be a cold, hard dose of reality for her. That's the point. It's one thing to want something. Quite another to be willing to make the sacrifices necessary to get that something.
This is spot on. The challenge for you is to patiently help your girlfriend recognize this while preserving your relationship in the process.

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englishgirl
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Post by englishgirl » Thu Dec 23, 2010 10:40 pm

You guys, running for the hills at the first sign of a problem. Sheesh! :roll:

It doesn't sound like she's unwilling to compromise. She's just got her pipe dream, and has just got to do some wising up about what is really feasible. If you work at explaining, and get her to work through the numbers, she should understand at some point. It sounds like she's already beginning to wise up if she's now saying that life is unfair!

As scubadiver said, patiently work with her and help her through this. If she's always been affluent, and her parents have been supporting her, she probably doesn't understand money and/or believes all the ads and hype that we all have to have the big house with the fancy car.
Sarah

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Post by Opponent Process » Thu Dec 23, 2010 10:50 pm

I agree. logically explaining things to people wins them over 100% of the time. it's how the world operates. so efficiently.
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Post by Curlyq » Thu Dec 23, 2010 11:10 pm

.....
Last edited by Curlyq on Wed Apr 18, 2012 4:08 pm, edited 1 time in total.

dwoten
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Post by dwoten » Thu Dec 23, 2010 11:21 pm

Maybe slightly off-topic, but I can not imagine living in a $600k house. I am 27 and was considering a move to Colorado a few months back for work. We were looking at 3000 sq. ft. houses at around 300k (finished basement is a chunk of that). Just touring the places, I felt like I could get lost. Our current house is 1240 sq ft and the only thing that I would change is a bigger kitchen. Obviously location can be a huge factor in cost and I imagine that kids can make spaces feel smaller. Heres a vote for buying a 120k house in cash in 5 years and calling it a day!

Disclaimer: Real estate in this area (northwest Arkansas) is affordable and I have no knowledge of real estate markets outside of the area (except parts of Colorado).

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Post by shuchong » Thu Dec 23, 2010 11:31 pm

Why does she have the 600k house, live there forever expectation? Did her parents do this? If not, perhaps you should have her talk to them and see what they say. (And if so, she should talk to them and see whether they ever regretted it, had to sacrifice etc.)

There are all sorts of reasons why talking to the parents wouldn't work (family relationships, family doesn't talk about money etc.) but if it does, then at least her folks would be the bad guys/voice of reality instead of you. And she may be more likely to defer to experience. :D

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Post by Tuxx » Fri Dec 24, 2010 1:55 am

Within 5 years:

Vanguard Short Term Investment Grade
1-3 year CDs
Everbank High Interest Money Market - 1.06%

You don't have the time horizon to be muking around with more risk.

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Post by HornedToad » Fri Dec 24, 2010 2:33 am

We went through this recently. There was a very very nice $600k townhouse in a good location and close to work. We looked at it and even put in an offer to see how much they would budge, but just wasn't comfortable with that much of a financial burden on us at this stage in our life. We also realized that our first house does not have to be as nice as our parent's last house.

Instead we are now closing on a nice $475k townhouse with a longer commute where we can have a comparable lifestyle to what we had renting but in a nicer house and building equity. e.g. rent was $2200/mo

I was willing to take a 401k loan to help with the initial downpayment provided as we repay the loan that we do not lower the 401k contribution rate. We were also saving ~$25k/year for the house and decided to buy now instead of waiting another couple years since we were unhappy with the apartment living.

Disclaimer: We make mid 6 figures. I wouldn't want to buy a $600k house unless I was around $180-200k income /w 20% down.

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Post by stemikger » Fri Dec 24, 2010 4:44 am

Posted by dwoten
Maybe slightly off-topic, but I can not imagine living in a $600k house. I am 27 and was considering a move to Colorado a few months back for work. We were looking at 3000 sq. ft. houses at around 300k (finished basement is a chunk of that). Just touring the places, I felt like I could get lost. Our current house is 1240 sq ft and the only thing that I would change is a bigger kitchen. Obviously location can be a huge factor in cost and I imagine that kids can make spaces feel smaller. Here’s a vote for buying a 120k house in cash in 5 years and calling it a day!

Disclaimer: Real estate in this area (northwest Arkansas) is affordable and I have no knowledge of real estate markets outside of the area (except parts of Colorado).
Yeah, these are the areas that Dave Ramsey must be talking about when he talks about his buy the house for cash plan. I live in the New York area and $120,000 is barley a down payment. My Townhome which I bought for $145,000 18 years ago now goes for over $400,000. My heart goes out to the young people who are just starting out. I'm 46 and I don't think I could have bought a house if I was just getting started. My salary did grow, but not that much.

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Post by jeh676 » Fri Dec 24, 2010 9:50 am

A previous poster brings up a good point about her parents/your parents. If they took the path of buying the forever home out of the gate, what enabled them to do it? If they did not, and she is just seeing the end results, that's something to point out as well.

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Post by ChapMan » Fri Dec 24, 2010 12:30 pm

jeh676 wrote:A previous poster brings up a good point about her parents/your parents. If they took the path of buying the forever home out of the gate, what enabled them to do it? If they did not, and she is just seeing the end results, that's something to point out as well.
Sorry, lots of things to answer here, but not much time on my end so far.

Quick update: We're going to have a long conversation about this soon. It does seem like she's slowly realizing that this scenario is a "dream" for her. Slowly, but surely...

With regard to the parents thing -- Yes, her parents did this. They could afford to because her father is a doctor. He has a (almost) guaranteed large income and could set up his practice wherever he wants, especially near a large city, which is where they are. He never had to worry about getting "transferred to another branch" or whatever. We are not doctors. We are not in professions that afford that type of stability. What I'm basically trying to explain to her is that there are costs to these things that she wants. $600k house? Fine. Work harder. Get a second job. Go into the private sector and put in 80-100 weeks. We'll be able to afford it, no doubt, but that's what it costs. Yes, there are other people in the universe who have money from family or from a cushy job. We're not them. If you want to be them, that's fine too. Go do it.

Anyway, I'm ranting again. Happy holidays all!

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