Are we in trouble?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
delamer
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Re: Are we in trouble?

Post by delamer » Wed Nov 07, 2018 10:22 am

welldone wrote:
Wed Nov 07, 2018 9:53 am
We've sold a couple homes in the Chicagoland area, both within 10 days of listing. One sold for 98% of list price, one sold for full list price. Neither of these homes were sold during hot sellers market. We listed one in October (not a great time to be selling) and the other was listed in February while the housing market was still quite weak. Some information we were given by our realtor when we were selling:

You need to know how to price your house to sell in Chicago and also, if you need to lower your list price, how to reduce your list price effectively. So many people drop their list price without realizing they aren't bring new eyes to their listing because their drops aren't big enough. Multiple price drops that aren't effective work against you selling your house quickly and for the best price you can get.

If you are selling a house for under $400k you can drop list price by $10k increments. People searching for houses under $400k in the area search listings in increments of $10k. There are many buyers at the lower end who increase their search price by $10k increments as they see what their money can (and can't buy).

At $400k - $600k, you need to drop list price by $25k each price drop or you aren't bringing new eyes. If you are listed at $550k, no one new is going to see your listing if you drop it down to $539k.

Between $600k - $800K, you need to drop list price by $50k to bring new eyes at each price drop.

This is why pricing your house is such an important factor, the more expensive a house is, the bigger the price drop needs to be to attract new eyes to a listing. Pricing the house correctly the first time helps to not have to make those big drops after the house has sat for a while. Little price drops don't work for a couple of reasons...you don't get new eyes and you also show that you are emotionally attached to the house price and opposed to understanding that it is overpriced. That can indicate to potential buyers that you might be a difficult seller, and also cause them to wonder what is wrong with the house.

In our current neighborhood (beautiful lots with mature landscaping, excellent schools, close to public transportation, strong hospitals, shopping, parks, etc) there are several houses that have lingered on the market for months. We have a couple that have been on the market for over a year. They are beautiful, custom homes that show well. Which the owners have priced too high. In the current climate (increasing property taxes, rising mortgage rates, reduced tax deductibility) - there just aren't a lot of people looking to buy houses in the $500 - $800k price range in our area.
Interesting comments regarding price drops.

I live in an area with lots of houses in the $800,000 to $1.25 million range.

And it is common to see a price reduction of $20,000 once a house has been on the market for awhile.

And my reaction always is “Who cares?” On a $800,000 house, that is less than a 3% drop.

I assume the realtor recommended a decrease and the owners don’t want to do it, and the $20,000 is the (ineffective) compromise.

an_asker
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Re: Are we in trouble?

Post by an_asker » Wed Nov 07, 2018 10:52 am

3funder wrote:
Mon Nov 05, 2018 4:04 pm
greg24 wrote:
Mon Nov 05, 2018 3:29 pm
You have made some sub-optimal decisions.

But your 370k annual income and 900k savings means you are far from "in trouble".
+1
I disagree! Unless that income jumped from near 0 to 370k relatively shortly, I don't understand how you (OP) have saved only 900k at age 47. Well, I do understand actually - it means that you've been spending most of what you've been earning. That does not bode well if you have only 900k saved.

But - on the bright side - you have a great income. If you maintain that income and cut back on your expenses, you should be very well placed in a decade.

That said, I don't think that for that income-savings-age combination, you are not in great shape.

michaeljc70
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Re: Are we in trouble?

Post by michaeljc70 » Wed Nov 07, 2018 11:07 am

an_asker wrote:
Wed Nov 07, 2018 10:52 am
3funder wrote:
Mon Nov 05, 2018 4:04 pm
greg24 wrote:
Mon Nov 05, 2018 3:29 pm
You have made some sub-optimal decisions.

But your 370k annual income and 900k savings means you are far from "in trouble".
+1
I disagree! Unless that income jumped from near 0 to 370k relatively shortly, I don't understand how you (OP) have saved only 900k at age 47. Well, I do understand actually - it means that you've been spending most of what you've been earning. That does not bode well if you have only 900k saved.

But - on the bright side - you have a great income. If you maintain that income and cut back on your expenses, you should be very well placed in a decade.

That said, I don't think that for that income-savings-age combination, you are not in great shape.
That was my thought as well on a post I made above. There are other explanations though. The spouse makes $220k and maybe took off to care for the kids or maybe their incomes recently went up a lot. Regardless, NW is definitely something I would factor into a large home purchase.

As a side note, building a house can be risky with regard to the housing market. Most people before 2008 (and not in CA or FL) didn't think about it because prices always were going up. What if in Sept of 2019 the $1.2M house is only worth $1M? They lost $200k before even moving in.

an_asker
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Re: Are we in trouble?

Post by an_asker » Wed Nov 07, 2018 11:18 am

michaeljc70 wrote:
Wed Nov 07, 2018 11:07 am
[...]
That was my thought as well on a post I made above. There are other explanations though. The spouse makes $220k and maybe took off to care for the kids or maybe their incomes recently went up a lot. Regardless, NW is definitely something I would factor into a large home purchase.

As a side note, building a house can be risky with regard to the housing market. Most people before 2008 (and not in CA or FL) didn't think about it because prices always were going up. What if in Sept of 2019 the $1.2M house is only worth $1M? They lost $200k before even moving in.
Sorry I just jumped on the thread and didn't really read all the responses! :oops:

But yes, I am with you on all of those points. But OP cannot go back and undo decisions already made. Only try to make up for those going forward!

alfaspider
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Re: Are we in trouble?

Post by alfaspider » Wed Nov 07, 2018 12:08 pm

We live in Texas with a higher income than that, and I can't fathom paying $1.2M for a house. Not because we couldn't afford it per-se, but because I don't see the value in living such an expensive house when a more reasonably priced one still gives you a very nice house in a good neighborhood. I also hate the idea of needing two incomes to pay the mortgage. The chance of one of two spouses losing a job is much higher than a single person losing a job, especially when one spouse works for a start-up. There's no guarantee similar employment could be found- especially if the job loss occurs during a recession.

I'd echo another poster and think about testing the waters on selling the new-build house as well as the Chicago house. That gives you the ability to re-evaluate and perhaps go with something that isn't causing financial stress. You aren't in immediate trouble, but you have certainly significantly increased your risk of getting into it.

vested1
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Re: Are we in trouble?

Post by vested1 » Wed Nov 07, 2018 4:42 pm

TimeRunner wrote:
Tue Nov 06, 2018 8:19 pm
vested1 wrote:
Tue Nov 06, 2018 6:12 pm
Property taxes $652 a year. Gotta love that prop 13....
Just to be clear, that prop tax is what the current owner paid. The new owners will pay around 1.2% of the new assessed value. Prop 13 also allows a 2% increase/year for inflation, etc, and new bonds and other local taxes can also be added on with few restrictions. No free ride in California. :wink:
Still pretty good. :wink: The $652 was my MIL's carryover property tax basis that she transferred twice when she sold and bought the next home, which is also allowed for seniors over a certain age. In fact, if she would have moved in with us, as we offered, her property tax base could have been transferred to our house.

Our home which we bought in 1994 for 185k is appraised for around 650k now, and we pay around $2,700 a year property taxes currently. If/when we sell we will be moving out of State because we won't be able to afford a similar house here without a mortgage and huge property tax increases. The property tax bite for the new owner of my MIL's condo went into his decision to buy. This condo will go from having a property tax liability of $652 in 2018 to one of $6,273 in 2019.

For long term owners, it's pretty close to a free ride.

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TimeRunner
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Re: Are we in trouble?

Post by TimeRunner » Wed Nov 07, 2018 5:12 pm

vested1 wrote:
Wed Nov 07, 2018 4:42 pm
Still pretty good. :wink: The $652 was my MIL's carryover property tax basis that she transferred twice when she sold and bought the next home, which is also allowed for seniors over a certain age. In fact, if she would have moved in with us, as we offered, her property tax base could have been transferred to our house.
I don't want to derail the thread. Here's the gov link about Calif prop tax transfers for seniors for anyone who wants to dig deeper: http://boe.ca.gov/proptaxes/prop60-90_55over.htm It says "transfer twice" is limited to person forced to do second transfer due to a disability, inter-County transfer is only permitted between 8 counties, and I guess a parent could transfer her prop tax to your house if you are in the same County or one of the 8 named counties and you sell it to her? Interesting subject, but I digress, sorry! (Maybe I'll start a thread as I'd love to know more.)
Man assumes more intelligence than dolphins because he achieves so much, while dolphins just have a good time. Dolphins believe they're more intelligent than man - for precisely the same reason. (HGG)

hightower
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Re: Are we in trouble?

Post by hightower » Wed Dec 19, 2018 7:18 pm

international001 wrote:
Tue Nov 06, 2018 7:12 pm
hightower wrote:
Tue Nov 06, 2018 11:20 am
This post is a great example of why the 2X mortgage size rule exists. At 370k/year you really shouldn't have more than a 700-800k mortgage. That would require a 400k downpayment on a house that expensive. Also, never buy a home in a new location without first renting for a year and making sure your job is stable. I totally understand why you're stressed.
With that being said, things will probably work out fine and you need to just relax and be patient. Lesson learned.
Aren't down payments 20% standard?
I don't understand the 2X rule. I have seen 2.7X, 3.0X around... Doesn't everything depend on the interest rates? 30% of your gross income on mortgage seems a better rule, what OP is doing
The 2X rule is the size of your mortgage should be ideally no more than 2X your annual salary. Some people living in VHCOL areas allow for higher ratios like 3X, but for me, I think that's a sign you shouldn't be buying in that kind of market personally.
The problem with the 30% gross income is that it was a rule created by lenders and realtors to keep people buying. That's my take on it anyway.
I think I'm more conservative these days because of the student loan debt I've had to manage. As a physician, I live WAY below my means. I have a 275k mortgage at the moment. With my income I could easily go up to 700k. But, I don't want to. I know what it feels like to see my hard earned cash going towards a 250k student loan balance and it sucks. I'd rather have the excess cash going into retirement accounts. I dream of the day I don't have any debt at all, including a mortgage and that keeps me from wanting a more expensive house.

WanderingDoc
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Re: Are we in trouble?

Post by WanderingDoc » Thu Dec 20, 2018 2:49 am

hightower wrote:
Wed Dec 19, 2018 7:18 pm
international001 wrote:
Tue Nov 06, 2018 7:12 pm
hightower wrote:
Tue Nov 06, 2018 11:20 am
This post is a great example of why the 2X mortgage size rule exists. At 370k/year you really shouldn't have more than a 700-800k mortgage. That would require a 400k downpayment on a house that expensive. Also, never buy a home in a new location without first renting for a year and making sure your job is stable. I totally understand why you're stressed.
With that being said, things will probably work out fine and you need to just relax and be patient. Lesson learned.
Aren't down payments 20% standard?
I don't understand the 2X rule. I have seen 2.7X, 3.0X around... Doesn't everything depend on the interest rates? 30% of your gross income on mortgage seems a better rule, what OP is doing
The 2X rule is the size of your mortgage should be ideally no more than 2X your annual salary. Some people living in VHCOL areas allow for higher ratios like 3X, but for me, I think that's a sign you shouldn't be buying in that kind of market personally.
The problem with the 30% gross income is that it was a rule created by lenders and realtors to keep people buying. That's my take on it anyway.
I think I'm more conservative these days because of the student loan debt I've had to manage. As a physician, I live WAY below my means. I have a 275k mortgage at the moment. With my income I could easily go up to 700k. But, I don't want to. I know what it feels like to see my hard earned cash going towards a 250k student loan balance and it sucks. I'd rather have the excess cash going into retirement accounts. I dream of the day I don't have any debt at all, including a mortgage and that keeps me from wanting a more expensive house.
Dave Ramsey is insanely conservative and he still says house price 4-5X annual income is fine. That said, I would never tell anyone that a house is a good investment, unless others live in it and pay your mortgage and expenses for you.

A rule that I personally adhere to.. car (1 or 2) value or price has to be one months salary or less at any time during your employment. You can buy a $30K car but that better be what you earn in one month gross ;)
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

international001
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Re: Are we in trouble?

Post by international001 » Thu Dec 20, 2018 7:21 pm

Nobody answered my question.
Is this rule independent on interest rates? I don't see how

jstatton
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Re: Are we in trouble?

Post by jstatton » Thu Dec 20, 2018 8:29 pm

You guys screwed up BIG time. 1.2M is absolutely overkill for texas. Its also silly to be going into that much debt at 47... You are at the tail end of your prime earning years... You will likely start declining in earning potential once you hit early 50s.. most people do. I couldn't tell you how many people in my field (technology) who let their skills grow stale and were laid off around this time and BANG they are out of the industry for good. This is the time to clean up the balance sheet, cut down debt, etc. This is the time to start thinking about paying the mortgage off entirely and being debt free... The time to pay the mortgage off is IN your prime not when you are 60+.

Realistically you guys have about 10 years left in the workforce before age discrimination will kick in and one or both of you might need to retire. You are at the tail end of your prime.

The time to buy a fancy house like that is in your 30s (the start of your prime earning years) because then you can ride the next 20 years of prime earning years, inflation, appreciation, etc and be in a position to pay the mortgage by the time you exit your prime (early 50s).

You guys are loading up on debt at a turning point in the market just as you are both exiting your prime earning years... This might not end well...

Sam1
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Re: Are we in trouble?

Post by Sam1 » Fri Dec 21, 2018 8:49 am

I’d do everything I could to get out of the Texas new build. It may even be worth losing the $200k deposit. I can’t imagine what a $1.2 mm house in Texas is like. My coworker recently bought a home in Texas for $400k and it’s huge. Her kitchen is larger than the first floor of my house. There are plenty of nice homes in Texas in good neighborhoods for less than a million. I understand you still have to pay more for a good neighborhood/commute but $1.2 is too much. Where I live, $1.2mm will get me a second full bath I really need with two kids.

I also agree with posters about the cost to maintain this home. People in Texas spend a lot. There’s a lot of conspicuous consumption. You’re going to have a huge home to furnish, cool and I assume you need two cars in Texas. This really adds up.

This sounds extreme but I’d rent closer to work and try and only have one car. I’d plan on spending 2-3 years there and save every penny I can. Then I’d get the heck out of Texas. When I think of Texas I think of urban sprawl, people who drive everywhere and people earning only $100k driving luxury cars. No thanks. Only positive thing about the entire state is the earning potential and cheap housing. You won’t even benefit from that if you buy a $1.2 million house!

A-Commoner
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Re: Are we in trouble?

Post by A-Commoner » Fri Dec 21, 2018 9:58 am

Goal33 wrote:
Mon Nov 05, 2018 10:40 pm
Wow. for 1.2 million you could live in CA. Obviously not the same house, but still.
True. We moved from a 250K house in Illinois to a $1 million house in Los Angeles last year. For several months the IL house didn't sell so we were technically holding $1.25 million of real estate. Our combined property taxes were $20k (8k on the IL house,12K on the LA one). Finally sold the IL house so taxes are down to 12K. I didn't like the idea of holding $1.25 million in real estate. We are a couple of years older than the OP with higher income (2 physician household), but we also have a liquid net worth 4X the house value, so that provides buffer. If I were in the OP's shoes, I'd be very uncomfortable.

Luke Duke
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Location: Texas

Re: Are we in trouble?

Post by Luke Duke » Fri Dec 21, 2018 10:32 am

Fm2018 wrote:
Mon Nov 05, 2018 8:08 pm
On a separate note.....

Is that only I who thinks $900K in savings at a $370K income at the age of 47 is on the low side? Plus $1.2m house in Texas? That is one biggggg house. Overall, I think, since you make a good money, you have a lot of room to turn things around fast. You just need to work out the numbers and stick to a plan.
No you are not.

Grt2bOutdoors
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Re: Are we in trouble?

Post by Grt2bOutdoors » Fri Dec 21, 2018 10:49 am

cusetownusa wrote:
Fri Dec 21, 2018 10:47 am
Silas wrote:
Fri Dec 21, 2018 10:06 am
I live in Chicago as well (in one of the suburbs). We have the highest property taxes in the country: I pay close to $10,000 a year on a 300k home.

I have you beat...I pay $11,000 on a 300k home. I also live in a high income tax state (NY).

what do I win?
Good school system?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

jstatton
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Re: Are we in trouble?

Post by jstatton » Fri Dec 21, 2018 10:56 am

I pay 11,000 on a 1M home

Its not really a 1M home... Its a 500k home on a 500k lot.. Which is a good thing. The 500k home depreciates slowly but the 500k lot appreciates. Higher lot % of value = better investment.

Independent George
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Re: Are we in trouble?

Post by Independent George » Fri Dec 21, 2018 11:31 am

There's too much piling on in this thread, and not enough solutions.

Unloading that house in Chicago has to be priority #1. I know it hurts to drop a price on a home you have loved for years, but the fact is a house is only worth exactly as much as somebody is willing to pay for it, not what you think it's worth. You've already lost tens of thousands by carrying it for months now; is it worth spending another $50k carrying to avoid dropping the price by another $25k? Add to that the stress of the uncertainty, I think you are much better off cutting your losses now and settling in at your new place. Find another broker, drop the price by at least $25k, and get out.

As to the new home... I would agree with others that you probably bought more than was wise, the decision has already been made, and can't be unmade without tremendous costs. The only thing left is to enjoy the house for all its worth. Take it from a guy who bought his condo in 2007: obsessing over past decisions won't help matters; learn from it and make better decisions going forward.

Olemiss540
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Re: Are we in trouble?

Post by Olemiss540 » Fri Dec 21, 2018 2:08 pm

WanderingDoc wrote:
Thu Dec 20, 2018 2:49 am

Dave Ramsey is insanely conservative and he still says house price 4-5X annual income is fine. That said, I would never tell anyone that a house is a good investment, unless others live in it and pay your mortgage and expenses for you.

A rule that I personally adhere to.. car (1 or 2) value or price has to be one months salary or less at any time during your employment. You can buy a $30K car but that better be what you earn in one month gross ;)
Nope. Dave Ramsey's Rule of thumb is 25% of TAKE HOME pay on a 15 year mortgage. That is MUCH less than 4X annual income, and in my case ends up being around 1.8X annual income. Even less once you take into account Taxes and Insurance.

https://www.daveramsey.com/blog/how-muc ... n-i-afford
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

WanderingDoc
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Re: Are we in trouble?

Post by WanderingDoc » Fri Dec 21, 2018 2:37 pm

Olemiss540 wrote:
Fri Dec 21, 2018 2:08 pm
WanderingDoc wrote:
Thu Dec 20, 2018 2:49 am

Dave Ramsey is insanely conservative and he still says house price 4-5X annual income is fine. That said, I would never tell anyone that a house is a good investment, unless others live in it and pay your mortgage and expenses for you.

A rule that I personally adhere to.. car (1 or 2) value or price has to be one months salary or less at any time during your employment. You can buy a $30K car but that better be what you earn in one month gross ;)
Nope. Dave Ramsey's Rule of thumb is 25% of TAKE HOME pay on a 15 year mortgage. That is MUCH less than 4X annual income, and in my case ends up being around 1.8X annual income. Even less once you take into account Taxes and Insurance.

https://www.daveramsey.com/blog/how-muc ... n-i-afford
Depends how much you put down, of course.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

international001
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Re: Are we in trouble?

Post by international001 » Fri Dec 21, 2018 3:21 pm

I have also heard 30% of gross income, depends who you ask. I think this may work for many families, but it depends a lot on your personal situation and your other expenses (do you have many children are you are saving for college?)

I still don't get the value of the house as xR your salary. It depends a lot of interest rates. It would make more sense to look at the equivalent rate.

Olemiss540
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Re: Are we in trouble?

Post by Olemiss540 » Fri Dec 21, 2018 3:44 pm

WanderingDoc wrote:
Fri Dec 21, 2018 2:37 pm
Olemiss540 wrote:
Fri Dec 21, 2018 2:08 pm
WanderingDoc wrote:
Thu Dec 20, 2018 2:49 am

Dave Ramsey is insanely conservative and he still says house price 4-5X annual income is fine. That said, I would never tell anyone that a house is a good investment, unless others live in it and pay your mortgage and expenses for you.

A rule that I personally adhere to.. car (1 or 2) value or price has to be one months salary or less at any time during your employment. You can buy a $30K car but that better be what you earn in one month gross ;)
Nope. Dave Ramsey's Rule of thumb is 25% of TAKE HOME pay on a 15 year mortgage. That is MUCH less than 4X annual income, and in my case ends up being around 1.8X annual income. Even less once you take into account Taxes and Insurance.

https://www.daveramsey.com/blog/how-muc ... n-i-afford
Depends how much you put down, of course.
I think everyone (DR included) is taking downpayment into account when talking multiples of income on a MORTGAGE. What you posted above was a misquote regarding DR's housing guidelines, just wanted to point that out for the OP's consideration.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

cusetownusa
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Re: Are we in trouble?

Post by cusetownusa » Fri Dec 21, 2018 5:01 pm

Grt2bOutdoors wrote:
Fri Dec 21, 2018 10:49 am
cusetownusa wrote:
Fri Dec 21, 2018 10:47 am
Silas wrote:
Fri Dec 21, 2018 10:06 am
I live in Chicago as well (in one of the suburbs). We have the highest property taxes in the country: I pay close to $10,000 a year on a 300k home.

I have you beat...I pay $11,000 on a 300k home. I also live in a high income tax state (NY).

what do I win?
Good school system?
Pretty good I suppose. Most schools in NY state are good but it wouldn’t be considered one of the top ones. The more affluent areas tend to have the highest rated schools.

malabargold
Posts: 556
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Re: Are we in trouble?

Post by malabargold » Fri Dec 21, 2018 7:27 pm

I’d sell both houses and live a little lower on the hog.

Nothing like the feeling of living well below one’s means, investing consistently, and the freedom from worry it provides.

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