My fear about buying a house justified?

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Rupert
Posts: 3633
Joined: Fri Aug 17, 2012 12:01 pm

Re: My fear about buying a house justified?

Post by Rupert » Fri Oct 27, 2017 12:32 pm

Do you plan on having children? If not, consider buying a weekend home outside DC. Some of my middle-aged DC friends have done this. They keep a small apartment in the city, buy a reasonably-priced house somewhere in Virginia or Maryland 2 or 3 hours drive outside DC so that they have somewhere to escape and spread out on weekends and holidays.

If you have kids, this plan obviously will not work. Kids would require a larger apartment, and kids' activities would keep you in DC on many weekends.

hightower
Posts: 510
Joined: Mon Dec 12, 2016 2:28 am

Re: My fear about buying a house justified?

Post by hightower » Fri Oct 27, 2017 12:47 pm

You make approx 120k per year and you want to buy a 520k property with 160 down. That would get you a mortgage that is approx 3x your annual salary. That is more than I personally would recommend. I think 2x your yearly salary for the size of the mortgage is as big as people should go if they want to avoid being house poor.
You have 200k in cash, another 160k in CDs and only 50k in retirement savings. That's not much for retirement so far. You really need to boost your retirement savings in my opinion. I think you should either keep renting and start saving for retirement much more aggressively or you should plan on purchasing a much cheaper place (if you feel you must buy).

hightower
Posts: 510
Joined: Mon Dec 12, 2016 2:28 am

Re: My fear about buying a house justified?

Post by hightower » Fri Oct 27, 2017 12:58 pm

Riley15 wrote:
Thu Oct 26, 2017 9:57 am
I tend to differ in opinion than all others. I will say go ahead and buy if you plan to settle in the area. There's a lot of things some of the responses are not taking into account. First and foremost, you'll be be building equity in a home which is also a form of investment, retirement or otherwise. Not to mention, the mortgage interest and property tax deduction which will reduce your taxable income. There is no lost opportunity cost if the returns in investment accounts don't outperform real state. Neither one is guaranteed to appreciate and you can gain/lose money either way. You'll be increasing your quality of life, is there no ROI in that.
Yes, a home can be a form of investment. But, in this particular scenario she would have 50k in the stock market and 520k in the real estate market in a SINGLE property. This means her portfolio is over 90% exposed to that one risky investment. That's the ultimate case of putting all your eggs in one basket. Investing her cash in a diversified, low cost index fund now, and continuing to add to it over the years while renting (which is by far cheaper) will be a far, far safer way to go. Yes, there will be market declines, but over time her investments will most likely grow much more than her over priced condo in DC will.

stoptothink
Posts: 4400
Joined: Fri Dec 31, 2010 9:53 am

Re: My fear about buying a house justified?

Post by stoptothink » Fri Oct 27, 2017 1:22 pm

rebellovw wrote:
Fri Oct 27, 2017 12:09 pm
randomguy wrote:
Fri Oct 27, 2017 12:01 pm
rebellovw wrote:
Fri Oct 27, 2017 10:39 am
randomguy wrote:
Fri Oct 27, 2017 10:07 am

That is pretty much all personal opinion. Some people are fine living in condos (I have spend a decade in them and I have never heard my neighbors. ) and don't want yards. Others do. And without knowing the person you have to way of judging if you have moved the person from a 10 min commute to a 60 min one. Or if you have picked high crime areas. And so on. As always people need to figure out what matters to them and what doesn't.
Of course it is personal opinion and I don't know the area - that is a given and a commute could easily be negatively affected. Being from the Bay Area - an hour commute sucked - but was a fact of life - buy a nice car stereo.

Anyhow - I find it impossible to believe that you never heard your neighbors - must have been a very nice condo. If I had people living on top of me and can hear them walking around - I'd never get to sleep - I'd stew.

I think it would be rare not to want privacy and a yard - that you can go out into (BBQ) and sit and chill - relax after a tough week at work.

You definitely have to weigh the pros and cons - how do you want to spend the life you have? If the condo has great views, privacy, and dead silence where you can sleep undisturbed - then perhaps stay.
Now imagine that the person here was thinking about a house in Pac Heights and your listing was on in say hunters point (i.e. assuming it is still as crime ridden as a decade ago). I know when I was in the area my mom used to send me listing of places in East Palo Alto saying they looked nice...... And you might be willing to give up 2 hour/day of your life to save a bit of money. Other people people aren't.

Condos have vastly different levels of constructions quality. I had far less noise in my 17th floor one in SF than in a stand along house in the surburbs. In the suburbs you would constantly be hearing the noise of people running their lawn mowers and leaving their dogs outside to bark. In the end it is all about trade offs. Having a BBQ is nice. Walking 2 blocks and being able to be at a dozen nice restaurants was also nice.

I think a lot of what people buy is crazy. But I also realize that I am injecting my values into their lives.
Yeah - you definitely have to know the area. Having grown up the Bay Area - I knew the areas and have to assume the OP is familiar with DC.

I'd certainly give up backyard BBQ for any food in SF - that is a gold mine of food - which you cannot find ANY where else.

I agree with you - it depends on the pros/cons and the area.
You have to be careful about interjecting your priorities/values onto other people. For me (and my wife), work commuting was the single greatest quality of life killer. We were OK paying more for a townhome that was right next to our offices, than a larger SFH with a yard just 10 miles away, and we have never once heard a peep from our neighbor. Doesn't make either one of us right or wrong.

runner540
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Joined: Sun Feb 26, 2017 5:43 pm

Re: My fear about buying a house justified?

Post by runner540 » Fri Oct 27, 2017 1:54 pm

jadd806 wrote:
Fri Oct 27, 2017 8:19 am
mbdav wrote:
Thu Oct 26, 2017 3:27 pm
About the retirement savings, I think we are very behind as you all pointed out. My husband tells me his Thrifty savings plan has 3% rate, which probably is not very high. He's been a government employee only since 2015.
Your husband should increase his Thrift Savings Plan contribution to at least 5%. He is missing out on free matching money. I believe he is getting 4% matching for his current 3% contribution (7% total). If he contributes 5%, he will get an extra 1% matching money for a 10% total contribution.

If he never bothered to increase his contribution to 5%, it's possible he never bothered to change his contribution allocations. By default, all of his investments would be going to the G Fund, which is a bond fund. In your situation, I would recommend using the L Fund which most closely aligns with his targeted retirement year. If he hasn't been doing this, he will want to do a contribution allocation change to put all future TSP contributions in that fund, as well as an interfund transfer to move the money currently in his account to that fund. The L Funds are very good target date funds for a hands-off approach to investing. Personally I'd recommend contributing more to the TSP (potentially even maxing it out, given that you have $2500/month of free cash flow and your house fund appears to be very healthy).
+1
OP, there's good advice here. I'm concerned that you're dependingn so much on a pension where your spouse has only 2 years of service. You two need to supplement that with more savings of your own. And also consider life insurance since his future earnings and pension credits are so critical to your planning.

Nearly A Moose
Posts: 877
Joined: Fri Apr 22, 2016 5:28 pm

Re: My fear about buying a house justified?

Post by Nearly A Moose » Fri Oct 27, 2017 9:39 pm

rebellovw wrote:
Fri Oct 27, 2017 9:48 am
I think perhaps you are being too picky about your first house. A first house should be a fixer upper. Perhaps you are looking for a perfect turn key house which is going to come at an inflated price.

I think this is cute- but I don't know the area:

https://www.realtor.com/realestateandho ... 42#photo17

I'm going to go out on a limb and suggest OP isn't going to want to buy a home in this area. But your broader point about buying a fixer-upper is good if OP and spouse have the basic skills to fix it up or manage the process. I kind of forget what it's like not to have kids (a survival mechanism, I think), and it's probably a lot easier in that situation. Could be a good way to get the space you want while gradually growing into the house. Of course, DC being DC, the truly cheap houses get bought and mangled by flippers. But you could definitely find a single family home that you could put a little work into to make your own over a period of time.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

Nearly A Moose
Posts: 877
Joined: Fri Apr 22, 2016 5:28 pm

Re: My fear about buying a house justified?

Post by Nearly A Moose » Fri Oct 27, 2017 9:50 pm

KlangFool wrote:
Fri Oct 27, 2017 10:11 am
randomguy wrote:
Fri Oct 27, 2017 10:02 am

There are two choices
a) Live in a 1 bedroom or a 2 bedroom
b) rent versus buy

A 1 bedroom is cheaper than a 2 bedroom. Buying is likely to be slightly cheapr than renting. Now you might not be willing to commit to 10 years in a 1 bedroom but are for 2 bedroom.
randomguy,

You are correct. But, people will rent 1BR Condo but buy 2 BR Condo. They would never rent a 2 BR Condo. But, they use the rent of 2BR Condo to justify their purchase of 2BR Condo.

This is the usual game that people play to trick themselves into buying.

We should have a name for this LIE/GAME. It is a very common occurrence.

KlangFool
I'm afraid I'm not following. Lots of people rent two-bedroom apartments/condos in DC. Are you saying a person currently renting a 1 BR apartment might create a false choice by comparing renting a 2 BR condo versus buying a 2 BR condo, when in fact they'd never actually follow through on renting a 2 BR condo? That could be true in a given situation, but again renting a 2 BR condo is certainly something that's done here.

I and a few others had mentioned OP's spouse's pension. We're too far out to have looked at this closely and I'm not sure spouse would stay a Fed long enough anyway, but I believe you need a significant number of years of service for the pension to become meaningful. I'd agree that once it's vested it should be considered, but it also seems like you're asking a lot of yourself to lock yourselves into the job for decades to vest the pension. And I believe that the current pensions, while still good, are significantly different than they were before FERS. Again, I could stand be corrected.

Finally, I agree with the sentiments that there is a lot of tradeoff to be considered when thinking about things like yards versus neighbors versus commutes, etc. I've found having a smallish yard isn't really adding much to my life, except for maintenance costs. I'd prefer a small well-hardscaped patio. Too muggy and buggy here to enjoy much else.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

knick17
Posts: 81
Joined: Sun Jul 02, 2017 9:39 am

Re: My fear about buying a house justified?

Post by knick17 » Fri Oct 27, 2017 11:10 pm

I think everyone is a bit afraid of doing a big investment now days. Current economy does not allow you to be confident in thesesituations.
But we all need a house!and it is something you should maybe go for.

KlangFool
Posts: 10159
Joined: Sat Oct 11, 2008 12:35 pm

Re: My fear about buying a house justified?

Post by KlangFool » Sat Oct 28, 2017 3:06 am

Nearly A Moose wrote:
Fri Oct 27, 2017 9:50 pm
KlangFool wrote:
Fri Oct 27, 2017 10:11 am
randomguy wrote:
Fri Oct 27, 2017 10:02 am

There are two choices
a) Live in a 1 bedroom or a 2 bedroom
b) rent versus buy

A 1 bedroom is cheaper than a 2 bedroom. Buying is likely to be slightly cheapr than renting. Now you might not be willing to commit to 10 years in a 1 bedroom but are for 2 bedroom.
randomguy,

You are correct. But, people will rent 1BR Condo but buy 2 BR Condo. They would never rent a 2 BR Condo. But, they use the rent of 2BR Condo to justify their purchase of 2BR Condo.

This is the usual game that people play to trick themselves into buying.

We should have a name for this LIE/GAME. It is a very common occurrence.

KlangFool
I'm afraid I'm not following. Lots of people rent two-bedroom apartments/condos in DC. Are you saying a person currently renting a 1 BR apartment might create a false choice by comparing renting a 2 BR condo versus buying a 2 BR condo, when in fact they'd never actually follow through on renting a 2 BR condo? That could be true in a given situation, but again renting a 2 BR condo is certainly something that's done here.

I and a few others had mentioned OP's spouse's pension. We're too far out to have looked at this closely and I'm not sure spouse would stay a Fed long enough anyway, but I believe you need a significant number of years of service for the pension to become meaningful. I'd agree that once it's vested it should be considered, but it also seems like you're asking a lot of yourself to lock yourselves into the job for decades to vest the pension. And I believe that the current pensions, while still good, are significantly different than they were before FERS. Again, I could stand be corrected.

Finally, I agree with the sentiments that there is a lot of tradeoff to be considered when thinking about things like yards versus neighbors versus commutes, etc. I've found having a smallish yard isn't really adding much to my life, except for maintenance costs. I'd prefer a small well-hardscaped patio. Too muggy and buggy here to enjoy much else.
Please read OP posts. This is exactly the case for OP. He is renting 1BR Condo now.

Klangfool

Leemiller
Posts: 1049
Joined: Sat Jun 01, 2013 12:42 pm

Re: My fear about buying a house justified?

Post by Leemiller » Sat Oct 28, 2017 7:15 am

Op, you and your spouse need to learn about the Thrift Savings Plan. It is not 3% returns. Mine is over 15% this year (I invest in a couple of funds). There is also a significant employer match. Some agencies also offer a 401k with match.

One option is for you to work more that would increase your housing choices. There are much cheaper condo options, but you want to live in one of the most expensive areas of DC. As a 40 year old buying on a 30 year fixed mortgage that is so high with limited retirement savings and only a very small pension is a bad idea. The pension also may change in the future. And because of the rate your husband is paying into it, it isn't a great deal.

Why not get a cheaper condo and metro to work?

mbdav
Posts: 20
Joined: Thu Mar 31, 2016 6:35 am

Re: My fear about buying a house justified?

Post by mbdav » Sat Oct 28, 2017 7:43 am

randomguy wrote:
Thu Oct 26, 2017 11:08 pm
MikeWillRetire wrote:
Thu Oct 26, 2017 11:55 am
I can provide my experience as one data point. When we bought our house in the DC suburbs 24 years ago, our mortgage was twice our combined incomes. We were also government employees like you with little saved for retirement. We were able to raise two children, pay for daycare/private schools/public university, and still were able to save on average about 9% per year (plus 5 % matching) into our retirement account.

It sounds like your mortgage will be 3 times your income, which may be doable provided you aren't planning to have children in daycare, private schools, etc.
You both would have roughly the same monthly payments. Assume you were both making 100k/year

Yours: 200k @8% = 1473
Hers: 300k @4% = 1432

Need to throw in taxes and insurance and the like to make it really accurate.

If I planned on living in the area for 10+ years I would buy. If I wasn't sure I would rent.
I feel embarrassed to say it, but I am not following the math above. Could you tell me what is 1473 & 1432? Are they they the retirement income?

mbdav
Posts: 20
Joined: Thu Mar 31, 2016 6:35 am

Re: My fear about buying a house justified?

Post by mbdav » Sat Oct 28, 2017 7:49 am

KlangFool wrote:
Fri Oct 27, 2017 8:38 am
randomguy wrote:
Thu Oct 26, 2017 10:41 am
KlangFool wrote:
Thu Oct 26, 2017 8:48 am
mbdav wrote:
Thu Oct 26, 2017 8:30 am

So now we are pondering about buying a 2br condo in a very nice DC metro area at $520,000. If we put down $160,000 the monthly mortgage would be about $2500(w hoa $300). The rent for 2br in the area is about $2500 currently.
mbdav,

It is cheaper to rent by a large margin. Why would you buy? The opportunity cost of 160K downpayment is at least 8K per year with a conservative return rate of 5%.

KlangFool
Funny that most people here think 5% is super aggressive return and that you should be using 1-2%.:)

It is very close.
House: 2800-800 (paying off mortgage)-300 (tax savings) + 2-400 (opportunity cost) = 1900-2100
So buying the same house is cheaper. The question is does the added bedroom add enough value to your life to pay for it? That is a personal choice.

And obviously all this assumes that 2 bedrooms will be enough (i.e. you don't decide in 3 years to have triplets), move in the short term, and so on.
randomguy,

My mistake.

It is between renting 1 BR Condo ($1,700) versus buying 2BR Condo ($2,800). My usual observation applies. People justify their purchase decision by comparing apple and orange. OP do not plan to rent a 2BR Condo.

KlangFool
I don't follow the math very well: "House: 2800-800 (paying off mortgage)-300 (tax savings) + 2-400 (opportunity cost) = 1900-2100" What is -800, and + 2-400?

mbdav
Posts: 20
Joined: Thu Mar 31, 2016 6:35 am

Re: My fear about buying a house justified?

Post by mbdav » Sat Oct 28, 2017 7:57 am

jadd806 wrote:
Fri Oct 27, 2017 8:19 am
mbdav wrote:
Thu Oct 26, 2017 3:27 pm
About the retirement savings, I think we are very behind as you all pointed out. My husband tells me his Thrifty savings plan has 3% rate, which probably is not very high. He's been a government employee only since 2015.
Your husband should increase his Thrift Savings Plan contribution to at least 5%. He is missing out on free matching money. I believe he is getting 4% matching for his current 3% contribution (7% total). If he contributes 5%, he will get an extra 1% matching money for a 10% total contribution.

If he never bothered to increase his contribution to 5%, it's possible he never bothered to change his contribution allocations. By default, all of his investments would be going to the G Fund, which is a bond fund. In your situation, I would recommend using the L Fund which most closely aligns with his targeted retirement year. If he hasn't been doing this, he will want to do a contribution allocation change to put all future TSP contributions in that fund, as well as an interfund transfer to move the money currently in his account to that fund. The L Funds are very good target date funds for a hands-off approach to investing. Personally I'd recommend contributing more to the TSP (potentially even maxing it out, given that you have $2500/month of free cash flow and your house fund appears to be very healthy).
Thanks a lot, that's a great tip! We will definitely increase to 5% & switch to L fund. :happy

mbdav
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Joined: Thu Mar 31, 2016 6:35 am

Re: My fear about buying a house justified?

Post by mbdav » Sat Oct 28, 2017 8:11 am

Unfortunately SE DC still is still crime ridden. Once we went to see a house there and were robbed in front of the house by two teenagers who live on the block. Finding fixer upper is a good idea, but a bit tricky. In DC metro area there too many developers who snatch the as-is/rehab condition houses with cash and fast closing, and the houses get bidded up. Also it's harder for regular homebuyers to get a loan if the house is not in good condition. Moving to suburb is an option, but it will entail long commutes for my husband, and I do not enjoy driving on highways(fear of speed).

Njm8845
Posts: 74
Joined: Fri Aug 05, 2016 1:28 am

Re: My fear about buying a house justified?

Post by Njm8845 » Sat Oct 28, 2017 8:19 am

rebellovw wrote:
Fri Oct 27, 2017 10:39 am
randomguy wrote:
Fri Oct 27, 2017 10:07 am

That is pretty much all personal opinion. Some people are fine living in condos (I have spend a decade in them and I have never heard my neighbors. ) and don't want yards. Others do. And without knowing the person you have to way of judging if you have moved the person from a 10 min commute to a 60 min one. Or if you have picked high crime areas. And so on. As always people need to figure out what matters to them and what doesn't.
Of course it is personal opinion and I don't know the area - that is a given and a commute could easily be negatively affected. Being from the Bay Area - an hour commute sucked - but was a fact of life - buy a nice car stereo.

Anyhow - I find it impossible to believe that you never heard your neighbors - must have been a very nice condo. If I had people living on top of me and can hear them walking around - I'd never get to sleep - I'd stew.

I think it would be rare not to want privacy and a yard - that you can go out into (BBQ) and sit and chill - relax after a tough week at work.

You definitely have to weigh the pros and cons - how do you want to spend the life you have? If the condo has great views, privacy, and dead silence where you can sleep undisturbed - then perhaps stay.
Seems like it’s tough for you to understand people who think differently than you.

I’ve lived mostly in condos, and have rarely heard neighbors.

There are millions of people who have not placed a high priority on having a yard. In dense cities like philly, nyc,Chicago, there’s not much of an option, yet many people still live there.

mbdav
Posts: 20
Joined: Thu Mar 31, 2016 6:35 am

Re: My fear about buying a house justified?

Post by mbdav » Sat Oct 28, 2017 8:22 am

mbdav wrote:
Sat Oct 28, 2017 7:43 am
randomguy wrote:
Thu Oct 26, 2017 11:08 pm
MikeWillRetire wrote:
Thu Oct 26, 2017 11:55 am
I can provide my experience as one data point. When we bought our house in the DC suburbs 24 years ago, our mortgage was twice our combined incomes. We were also government employees like you with little saved for retirement. We were able to raise two children, pay for daycare/private schools/public university, and still were able to save on average about 9% per year (plus 5 % matching) into our retirement account.

It sounds like your mortgage will be 3 times your income, which may be doable provided you aren't planning to have children in daycare, private schools, etc.
You both would have roughly the same monthly payments. Assume you were both making 100k/year

Yours: 200k @8% = 1473
Hers: 300k @4% = 1432

Need to throw in taxes and insurance and the like to make it really accurate.

If I planned on living in the area for 10+ years I would buy. If I wasn't sure I would rent.
I feel embarrassed to say it, but I am not following the math above. Could you tell me what is 1473 & 1432? Are they they the retirement income?
I got it now, thanks

KyleAAA
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Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: My fear about buying a house justified?

Post by KyleAAA » Sat Oct 28, 2017 8:42 am

Your fears aren’t unfounded but I think you’re giving them more weight than they objectively deserve. Bogleheads tend to be conservative to a fault, but 4x income in a HCOL area is entirely reasonable and people do it every day. Is there a way for you to make more money working full time? If you could pull in an extra $30k or so per year it would go a long way towards buying you financial freedom.

I wouldn’t count too much on the tax benefitsif you buy, though. Yes, you’ll probably get a nice deduction but you’ll probably also have additional expenses you didn’t have before crop up from time to time, even in a condo (new HVAC or water heater, etc).

rebellovw
Posts: 407
Joined: Tue Aug 16, 2016 4:30 pm

Re: My fear about buying a house justified?

Post by rebellovw » Sat Oct 28, 2017 1:56 pm

Njm8845 wrote:
Sat Oct 28, 2017 8:19 am
rebellovw wrote:
Fri Oct 27, 2017 10:39 am
randomguy wrote:
Fri Oct 27, 2017 10:07 am

That is pretty much all personal opinion. Some people are fine living in condos (I have spend a decade in them and I have never heard my neighbors. ) and don't want yards. Others do. And without knowing the person you have to way of judging if you have moved the person from a 10 min commute to a 60 min one. Or if you have picked high crime areas. And so on. As always people need to figure out what matters to them and what doesn't.
Of course it is personal opinion and I don't know the area - that is a given and a commute could easily be negatively affected. Being from the Bay Area - an hour commute sucked - but was a fact of life - buy a nice car stereo.

Anyhow - I find it impossible to believe that you never heard your neighbors - must have been a very nice condo. If I had people living on top of me and can hear them walking around - I'd never get to sleep - I'd stew.

I think it would be rare not to want privacy and a yard - that you can go out into (BBQ) and sit and chill - relax after a tough week at work.

You definitely have to weigh the pros and cons - how do you want to spend the life you have? If the condo has great views, privacy, and dead silence where you can sleep undisturbed - then perhaps stay.
Seems like it’s tough for you to understand people who think differently than you.

I’ve lived mostly in condos, and have rarely heard neighbors.

There are millions of people who have not placed a high priority on having a yard. In dense cities like philly, nyc,Chicago, there’s not much of an option, yet many people still live there.
If you care so much about my thoughts - see my last post where I agree with randomguy. I'd definitely live in a nice condo in SF, NYC, Chicago, Philly - but you are not going to find a nice one at 2500 a month - or even buy one at say 400K in those areas.

This isn't a thread about condos vs houses - the OP seems to definitely want a house. I think the only way to get to your dream house - is by steps. That is how we did it. It is like any big expense - it is stressful - then once done - about a week later - the stress is gone.


If their work isn't steady and guaranteed - then I'd absolutely not take the risk.

I'll say it again - weigh the pros and cons. Perhaps rent and throw away 2500 each month - while saving for a retirement house in a different area - that could be a very good idea - leave DC and live in a beautiful 200K house in a LCOL area - or if you want to stay in DC all your life - bite the bullet.

And there are places where the house prices never drop - I'm not sure about DC - but our houses in the Bay Area (first in Castro Valley second in Alameda) always increased in value or stayed the same even during the last bubbles. Huge risk for us - but we were lucky.

No easy answer - not black and white.

User avatar
jadd806
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Location: New England

Re: My fear about buying a house justified?

Post by jadd806 » Sun Oct 29, 2017 12:23 pm

KyleAAA wrote:
Sat Oct 28, 2017 8:42 am
Your fears aren’t unfounded but I think you’re giving them more weight than they objectively deserve. Bogleheads tend to be conservative to a fault, but 4x income in a HCOL area is entirely reasonable and people do it every day. Is there a way for you to make more money working full time? If you could pull in an extra $30k or so per year it would go a long way towards buying you financial freedom.

I wouldn’t count too much on the tax benefitsif you buy, though. Yes, you’ll probably get a nice deduction but you’ll probably also have additional expenses you didn’t have before crop up from time to time, even in a condo (new HVAC or water heater, etc).
Emphasis mine.

If we based our investing decisions on what people did every day, what kind of advice would this forum give? Don't bother saving more than 3% in your 401k. Spend all of your cash on depreciating assets. Buy and sell the hot stock of the month based on what TV news pundits are saying.

Your average person is a very poor model for, well, almost everything. I'm not sure why Americans have such an obsession with being "home owners." From what I overhear from coworkers, it seems like more trouble than it's worth, especially with how far some people stretch themselves to be "home owners" in HCOL areas.

randomguy
Posts: 6284
Joined: Wed Sep 17, 2014 9:00 am

Re: My fear about buying a house justified?

Post by randomguy » Sun Oct 29, 2017 1:39 pm

mbdav wrote:
Sat Oct 28, 2017 7:43 am
randomguy wrote:
Thu Oct 26, 2017 11:08 pm
MikeWillRetire wrote:
Thu Oct 26, 2017 11:55 am
I can provide my experience as one data point. When we bought our house in the DC suburbs 24 years ago, our mortgage was twice our combined incomes. We were also government employees like you with little saved for retirement. We were able to raise two children, pay for daycare/private schools/public university, and still were able to save on average about 9% per year (plus 5 % matching) into our retirement account.

It sounds like your mortgage will be 3 times your income, which may be doable provided you aren't planning to have children in daycare, private schools, etc.
You both would have roughly the same monthly payments. Assume you were both making 100k/year

Yours: 200k @8% = 1473
Hers: 300k @4% = 1432

Need to throw in taxes and insurance and the like to make it really accurate.

If I planned on living in the area for 10+ years I would buy. If I wasn't sure I would rent.
I feel embarrassed to say it, but I am not following the math above. Could you tell me what is 1473 & 1432? Are they they the retirement income?
For people that don't follow, the huge decrease in interest rates makes it much easier to pay off debt. You pay a lot less interest for the same monthly payment.

Now if rates go up, we might have another housing crash

randomguy
Posts: 6284
Joined: Wed Sep 17, 2014 9:00 am

Re: My fear about buying a house justified?

Post by randomguy » Sun Oct 29, 2017 1:43 pm

mbdav wrote:
Sat Oct 28, 2017 7:49 am
KlangFool wrote:
Fri Oct 27, 2017 8:38 am
randomguy wrote:
Thu Oct 26, 2017 10:41 am
KlangFool wrote:
Thu Oct 26, 2017 8:48 am
mbdav wrote:
Thu Oct 26, 2017 8:30 am

So now we are pondering about buying a 2br condo in a very nice DC metro area at $520,000. If we put down $160,000 the monthly mortgage would be about $2500(w hoa $300). The rent for 2br in the area is about $2500 currently.
mbdav,

It is cheaper to rent by a large margin. Why would you buy? The opportunity cost of 160K downpayment is at least 8K per year with a conservative return rate of 5%.

KlangFool
Funny that most people here think 5% is super aggressive return and that you should be using 1-2%.:)

It is very close.
House: 2800-800 (paying off mortgage)-300 (tax savings) + 2-400 (opportunity cost) = 1900-2100
So buying the same house is cheaper. The question is does the added bedroom add enough value to your life to pay for it? That is a personal choice.

And obviously all this assumes that 2 bedrooms will be enough (i.e. you don't decide in 3 years to have triplets), move in the short term, and so on.
randomguy,

My mistake.

It is between renting 1 BR Condo ($1,700) versus buying 2BR Condo ($2,800). My usual observation applies. People justify their purchase decision by comparing apple and orange. OP do not plan to rent a 2BR Condo.

KlangFool
I don't follow the math very well: "House: 2800-800 (paying off mortgage)-300 (tax savings) + 2-400 (opportunity cost) = 1900-2100" What is -800, and + 2-400?

When you pay off the mortgage some amount of money is to pay off the mortgage. In theory you get that money back when you sell. Opportunity cost is having your down payment locked up in a house(hopefully with 2% or so appreciation) versus investing it.

KyleAAA
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Joined: Wed Jul 01, 2009 5:35 pm
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Re: My fear about buying a house justified?

Post by KyleAAA » Mon Oct 30, 2017 12:32 pm

jadd806 wrote:
Sun Oct 29, 2017 12:23 pm
KyleAAA wrote:
Sat Oct 28, 2017 8:42 am
Your fears aren’t unfounded but I think you’re giving them more weight than they objectively deserve. Bogleheads tend to be conservative to a fault, but 4x income in a HCOL area is entirely reasonable and people do it every day. Is there a way for you to make more money working full time? If you could pull in an extra $30k or so per year it would go a long way towards buying you financial freedom.

I wouldn’t count too much on the tax benefitsif you buy, though. Yes, you’ll probably get a nice deduction but you’ll probably also have additional expenses you didn’t have before crop up from time to time, even in a condo (new HVAC or water heater, etc).
Emphasis mine.

If we based our investing decisions on what people did every day, what kind of advice would this forum give? Don't bother saving more than 3% in your 401k. Spend all of your cash on depreciating assets. Buy and sell the hot stock of the month based on what TV news pundits are saying.

Your average person is a very poor model for, well, almost everything. I'm not sure why Americans have such an obsession with being "home owners." From what I overhear from coworkers, it seems like more trouble than it's worth, especially with how far some people stretch themselves to be "home owners" in HCOL areas.
Nobody is suggesting OP do it BECAUSE it is commonly done. It's just to illustrate the point that the traditional rules of thumb given here are laughably conservative (i.e. not smart) in this low interest rate environment. And if people in VHCOL areas followed them, almost nobody would own a home there. Life is about tradeoffs and this is a very reasonable one. 4x income is quite easily affordable without stretching at all for many buyers who otherwise have their affairs in order.

mbdav
Posts: 20
Joined: Thu Mar 31, 2016 6:35 am

Re: My fear about buying a house justified?

Post by mbdav » Wed Nov 01, 2017 9:36 am

randomguy wrote:
Sun Oct 29, 2017 1:43 pm
mbdav wrote:
Sat Oct 28, 2017 7:49 am
KlangFool wrote:
Fri Oct 27, 2017 8:38 am
randomguy wrote:
Thu Oct 26, 2017 10:41 am
KlangFool wrote:
Thu Oct 26, 2017 8:48 am


mbdav,

It is cheaper to rent by a large margin. Why would you buy? The opportunity cost of 160K downpayment is at least 8K per year with a conservative return rate of 5%.

KlangFool
Funny that most people here think 5% is super aggressive return and that you should be using 1-2%.:)

It is very close.
House: 2800-800 (paying off mortgage)-300 (tax savings) + 2-400 (opportunity cost) = 1900-2100
So buying the same house is cheaper. The question is does the added bedroom add enough value to your life to pay for it? That is a personal choice.

And obviously all this assumes that 2 bedrooms will be enough (i.e. you don't decide in 3 years to have triplets), move in the short term, and so on.
randomguy,

My mistake.

It is between renting 1 BR Condo ($1,700) versus buying 2BR Condo ($2,800). My usual observation applies. People justify their purchase decision by comparing apple and orange. OP do not plan to rent a 2BR Condo.

KlangFool
I don't follow the math very well: "House: 2800-800 (paying off mortgage)-300 (tax savings) + 2-400 (opportunity cost) = 1900-2100" What is -800, and + 2-400?

When you pay off the mortgage some amount of money is to pay off the mortgage. In theory you get that money back when you sell. Opportunity cost is having your down payment locked up in a house(hopefully with 2% or so appreciation) versus investing it.
Got it, thanks for all the helpful inputs.

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