Buying a home; Very HCOL Area

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BoggledHead2
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Buying a home; Very HCOL Area

Post by BoggledHead2 » Tue Jul 16, 2019 8:42 am

HCOL Area, property taxes well north of 10K annually (for not much property)
- Is there ever a break-even point where home ownership in these kinds of areas are actually "worth it" financially?

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic

At the age where people are getting married, buying homes, and popping out kids ... you know, the "American dream" cliche. I'm just having a really hard time justifying dropping half a million dollars, high property taxes, and tying myself to a 15-30 year mortgage for what amounts to a home I'm not in love with.

Basically, am I way off in thinking home ownership in these types of conditions is a terrible financial decision?

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dm200
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Re: Buying a home; Very HCOL Area

Post by dm200 » Tue Jul 16, 2019 8:48 am

BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am
HCOL Area, property taxes well north of 10K annually (for not much property)
- Is there ever a break-even point where home ownership in these kinds of areas are actually "worth it" financially?
Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic
At the age where people are getting married, buying homes, and popping out kids ... you know, the "American dream" cliche. I'm just having a really hard time justifying dropping half a million dollars, high property taxes, and tying myself to a 15-30 year mortgage for what amounts to a home I'm not in love with.
Basically, am I way off in thinking home ownership in these types of conditions is a terrible financial decision?
Who knows the future?

Back when we bought our single family home 41 years ago, we paid $75,000. many folks said that was too much. The previous owner had paid half that five years earlier.

Today, our house (mostly land value) has a market value of between $650,000 and $700,000 in a hot market. The house has had no improvements over the years. [Of course, the housing market is being fueled, in part, because Amazon is coming to our locality for its HQ2]

In addition to its primarily being a place for us to live over the decades, it has turned out to have been an excellent investment.

stoptothink
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Re: Buying a home; Very HCOL Area

Post by stoptothink » Tue Jul 16, 2019 8:56 am

BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic
That isn't VHCOL.

knowledge
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Re: Buying a home; Very HCOL Area

Post by knowledge » Tue Jul 16, 2019 9:07 am

I mean, you have to live somewhere. If you're set on location, you can either chose to rent or buy. I don't love paying the amount of money that I do for the home that I have, but I've actively chose to buy, because the alternatives are worse.

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HomerJ
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Re: Buying a home; Very HCOL Area

Post by HomerJ » Tue Jul 16, 2019 9:07 am

dm200 wrote:
Tue Jul 16, 2019 8:48 am
BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am
HCOL Area, property taxes well north of 10K annually (for not much property)
- Is there ever a break-even point where home ownership in these kinds of areas are actually "worth it" financially?
Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic
At the age where people are getting married, buying homes, and popping out kids ... you know, the "American dream" cliche. I'm just having a really hard time justifying dropping half a million dollars, high property taxes, and tying myself to a 15-30 year mortgage for what amounts to a home I'm not in love with.
Basically, am I way off in thinking home ownership in these types of conditions is a terrible financial decision?
Who knows the future?

Back when we bought our single family home 41 years ago, we paid $75,000. many folks said that was too much. The previous owner had paid half that five years earlier.

Today, our house (mostly land value) has a market value of between $650,000 and $700,000 in a hot market. The house has had no improvements over the years. [Of course, the housing market is being fueled, in part, because Amazon is coming to our locality for its HQ2]

In addition to its primarily being a place for us to live over the decades, it has turned out to have been an excellent investment.
Not to burst your bubble, but $75,000 invested in the S&P 500 41 years ago (1978) would be worth $6.5 million today... :)
The J stands for Jay

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dm200
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Re: Buying a home; Very HCOL Area

Post by dm200 » Tue Jul 16, 2019 9:09 am

HomerJ wrote:
Tue Jul 16, 2019 9:07 am
dm200 wrote:
Tue Jul 16, 2019 8:48 am
BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am
HCOL Area, property taxes well north of 10K annually (for not much property)
- Is there ever a break-even point where home ownership in these kinds of areas are actually "worth it" financially?
Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic
At the age where people are getting married, buying homes, and popping out kids ... you know, the "American dream" cliche. I'm just having a really hard time justifying dropping half a million dollars, high property taxes, and tying myself to a 15-30 year mortgage for what amounts to a home I'm not in love with.
Basically, am I way off in thinking home ownership in these types of conditions is a terrible financial decision?
Who knows the future?
Back when we bought our single family home 41 years ago, we paid $75,000. many folks said that was too much. The previous owner had paid half that five years earlier.
Today, our house (mostly land value) has a market value of between $650,000 and $700,000 in a hot market. The house has had no improvements over the years. [Of course, the housing market is being fueled, in part, because Amazon is coming to our locality for its HQ2]
In addition to its primarily being a place for us to live over the decades, it has turned out to have been an excellent investment.
Not to burst your bubble, but $75,000 invested in the S&P 500 41 years ago (1978) would be worth $6.7 million today... :)
True - but I would have had to pay for a place to live over the years. And I did not have $75,000 - I got a VA loan with a very low down payment.

CoastalWinds
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Re: Buying a home; Very HCOL Area

Post by CoastalWinds » Tue Jul 16, 2019 9:10 am

stoptothink wrote:
Tue Jul 16, 2019 8:56 am
BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic
That isn't VHCOL.
+1. I would consider that MCOL.
Last edited by CoastalWinds on Tue Jul 16, 2019 9:10 am, edited 1 time in total.

bluebolt
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Re: Buying a home; Very HCOL Area

Post by bluebolt » Tue Jul 16, 2019 9:10 am

dm200 wrote:
Tue Jul 16, 2019 8:48 am
In addition to its primarily being a place for us to live over the decades, it has turned out to have been an excellent investment.
About 5.5% CAGR. While that's nothing to sneeze at and higher than inflation (by about 2%), I'm not sure I'd classify it as an excellent investment. A good investment definitely.

wrongfunds
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Re: Buying a home; Very HCOL Area

Post by wrongfunds » Tue Jul 16, 2019 9:12 am

Not to burst your bubble, but $75,000 invested in the S&P 500 41 years ago (1978) would be worth $6.7 million today... :)
To be fair, you need compare, down payment and monthly mortgage payments for the rest of the term to do apples to apples comparison. It is highly likely that the person did not have $75K in hand and did not have a choice whether to purchase primary house or to invest in S&P500 with that money.

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Sandtrap
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Re: Buying a home; Very HCOL Area

Post by Sandtrap » Tue Jul 16, 2019 9:18 am

BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am
HCOL Area, property taxes well north of 10K annually (for not much property)
- Is there ever a break-even point where home ownership in these kinds of areas are actually "worth it" financially?

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic

At the age where people are getting married, buying homes, and popping out kids ... you know, the "American dream" cliche. I'm just having a really hard time justifying dropping half a million dollars, high property taxes, and tying myself to a 15-30 year mortgage for what amounts to a home I'm not in love with.

Basically, am I way off in thinking home ownership in these types of conditions is a terrible financial decision?
Yes. It is a marginal "financial decision" if you are "investing in a house".

But, it is a wonderful "life decision" if you "and your spouse" are buying a "home" for your family.
IMHO: that's when you "fall in love with a "home"" and its memories.

Contextually: UHCOL Hawaii. 1 million buys an empty lot in an upscale area. 2 million to put the home on it. (1 example). In "middle income areas", 1 million buys a fixer upper which will require more funds after purchase.

The alternative solution, where possible, is to relocate from a HCOL area to a LCOL area.

j
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Watty
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Re: Buying a home; Very HCOL Area

Post by Watty » Tue Jul 16, 2019 9:24 am

BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am
- Is there ever a break-even point where home ownership in these kinds of areas are actually "worth it" financially?
Areas like that are financially "worth it" when you get paid so much more for your job to live there than you could earn somewhere else that your income more than pays for the high cost of living.

For example someone making a high income working on Wall Street might find the high cost of living in New York City worth it. Likewise a top Software Engineer in Silicon Valley might be able to easily afford to live there.

A risk is that there are lots of finance people living in NYC and computer people in Silicon Valley get paid well compared to national averages but don't earn enough to be able to realistically afford to buy a nice place to live. There are lots of well paying ordinary finance jobs and computer jobs in any major city where they might earn less but be able to afford a very nice house because of the lower cost of living.
BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am
Basically, am I way off in thinking home ownership in these types of conditions is a terrible financial decision?
Compared to what?

Renting for the next 50 years in a high cost of living area might be worse. You could be in a "lesser of two evils" choice if you are unwilling or able to move.

Some people have strong family ties to an area that would make moving difficult which is understandable. Other people live in some place like Hawaii which is tradeoff that they are willing to make.

After college I moved from the midwest and worked for a while in Silicon Valley as a software developer which was a great experience but when I ready to buy my first house I moved to a much less expensive area where houses cost maybe a fifth of what they cost in Silicon Valley. That worked out very well for me and I was able to retire when I was in my 50s.

It surprises me that more people don't move to lower cost of living areas. The median single family home(not a condo) price is only $254,800 so there are lots of nice areas where you can still buy a nice house for less than $300K

https://www.nar.realtor/research-and-st ... #!%2Flogin
Last edited by Watty on Tue Jul 16, 2019 9:26 am, edited 1 time in total.

Sam1
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Re: Buying a home; Very HCOL Area

Post by Sam1 » Tue Jul 16, 2019 9:25 am

CoastalWinds wrote:
Tue Jul 16, 2019 9:10 am
stoptothink wrote:
Tue Jul 16, 2019 8:56 am
BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic
That isn't VHCOL.
+1. I would consider that MCOL.
Yeah this definitely is NOT VHCOL!

ohai
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Re: Buying a home; Very HCOL Area

Post by ohai » Tue Jul 16, 2019 9:26 am

stoptothink wrote:
Tue Jul 16, 2019 8:56 am
BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic
That isn't VHCOL.
Indeed. Very High Cost to me, means $1 million or more for a 1000 sf 2br house at least. $2 million for anything that would be reasonable for a family of four. If you go even higher, $1 million gets you a 1br or studio apartment, and 3br apartment will be $3 million to $5 million. An empty lot in Vancouver might cost you a few million depending on location...

To OP's question on whether buying makes sense, it depends on what it costs to rent in the area, how long you intend to stay in the house, and other variables. In general, if you stay there for a short time, renting makes more sense due to transaction cost when buying. If you plan to stay there a long time, then buying starts to make more sense. The breakeven time is somewhere from 2y to 8y usually, depending on location. There are some online calculators I think, where you can do some rough calculations.

Nowizard
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Re: Buying a home; Very HCOL Area

Post by Nowizard » Tue Jul 16, 2019 9:37 am

Homes are more and more becoming a lifestyle choice over an investment. Articles discuss the hot areas where homes appreciate, but a recent article, more broadly based, stated that 30% of homes will be worth less in five years than today. We live in an area where we had a very large home, purchased new, eleven years ago. When selling, our Realtor said it was in pristine condition, and we had numerous comments that it looked like a new home. Though there was an issue unrelated to our home itself that may have had some effect, it sold for approximately 5% less than we paid after remaining on the market for quite awhile. Purchasing another home in a hot area resulted in paying 1% over asking price. These results are very common in our area.

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Re: Buying a home; Very HCOL Area

Post by bloom2708 » Tue Jul 16, 2019 9:40 am

It is almost always a stretch to buy the house you want.

If you have 20% down + money for closing costs, can afford the monthly payment and still meet your financial goals, can save and pay for your property taxes and insurance and still meet your financial goals, then buy the house.

25 years into home ownership, I am quite certain we would have more savings/investments if we would have rented. That isn't the full picture and we chose to do the updates, upgrades, fixes, re-models, maintenance and all the other work on the houses.

Where it becomes fuzzier is when you don't have 20% down, the payment stretches the budget, you can no longer save for retirement and property taxes and insurance become a true burden. When these are in play, you should not consider a house yet. Many buy with less than ideal conditions and hope it works out. Sometimes it does. Sometimes it doesn't. I would rather do it right than risk not meeting our financial goals.
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babapanda
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Re: Buying a home; Very HCOL Area

Post by babapanda » Tue Jul 16, 2019 10:30 am

The risk of buying a home in a VHCOL area vs. a LCOL area is somewhat mitigated by the ability to sell the property in a timely manner and usually at a profit. Over buying is riskier if you need to sell your home fast in a LCOL area due to lack of buyers.

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beyou
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Re: Buying a home; Very HCOL Area

Post by beyou » Tue Jul 16, 2019 11:16 am

To me seems risky, depending on the REASON it's HCOL.

As said above, SV and NYC are HCOL due to concentration of high paying jobs in 2 industries.
Not sure what the risks are in SV (maybe gov regulations) but for NYC there is no doubt many of the jobs are leaving NYC in the financial industry.
This can't help the value of houses/condos within easy commute of Wall Street and midtown NYC.

OTOH, a place like Hawaii where people go for natural beauty more than a specific industry, maybe the home values are sustainable.
But in places like Texas where home values have collapsed when oil collapsed, this is a risk in a town dominated by an industry.

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Watty
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Re: Buying a home; Very HCOL Area

Post by Watty » Tue Jul 16, 2019 11:20 am

babapanda wrote:
Tue Jul 16, 2019 10:30 am
The risk of buying a home in a VHCOL area vs. a LCOL area is somewhat mitigated by the ability to sell the property in a timely manner and usually at a profit. Over buying is riskier if you need to sell your home fast in a LCOL area due to lack of buyers.
I would be cautious about using that sort of logic.

Assuming that in a VHCOL area you will be able to sell a house quickly and at a good price can get you into trouble.

https://www.investopedia.com/terms/g/gr ... theory.asp

Rus In Urbe
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Re: Buying a home; Very HCOL Area

Post by Rus In Urbe » Tue Jul 16, 2019 11:23 am

dm200 wrote:
Back when we bought our single family home 41 years ago, we paid $75,000. many folks said that was too much. The previous owner had paid half that five years earlier.
Today, our house (mostly land value) has a market value of between $650,000 and $700,000 in a hot market. The house has had no improvements over the years. [Of course, the housing market is being fueled, in part, because Amazon is coming to our locality for its HQ2]
In addition to its primarily being a place for us to live over the decades, it has turned out to have been an excellent investment.

HomerJ wrote:
Not to burst your bubble, but $75,000 invested in the S&P 500 41 years ago (1978) would be worth $6.5 million today... :)
This is just such a classic exchange on why one should never think of the home as a financial investment (as dm200 later posted too). It's a place to live, which is necessary and for some (me and mine) a great investment in time and money. But your house is not usually an investment that pays off in strict financial terms. Yes, I once made a nice bit selling a Manhattan apartment, but it was such a unicorn event; over a lifetime, my other real estate transactions have been a bit of a wash when all those expenses (so easily overlooked by sellers) were counted in. This is not an argument for not buying a house, nor for buying a house; only that most home buyers are not totally clear on the cost/benefit involved, but see that appreciating real estate values mean one has made money on the deal; :oops: ....usually not so much.
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dm200
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Re: Buying a home; Very HCOL Area

Post by dm200 » Tue Jul 16, 2019 11:36 am

Rus In Urbe wrote:
Tue Jul 16, 2019 11:23 am
dm200 wrote:
Back when we bought our single family home 41 years ago, we paid $75,000. many folks said that was too much. The previous owner had paid half that five years earlier.
Today, our house (mostly land value) has a market value of between $650,000 and $700,000 in a hot market. The house has had no improvements over the years. [Of course, the housing market is being fueled, in part, because Amazon is coming to our locality for its HQ2]
In addition to its primarily being a place for us to live over the decades, it has turned out to have been an excellent investment.

HomerJ wrote:
Not to burst your bubble, but $75,000 invested in the S&P 500 41 years ago (1978) would be worth $6.5 million today... :)
This is just such a classic exchange on why one should never think of the home as a financial investment (as dm200 later posted too). It's a place to live, which is necessary and for some (me and mine) a great investment in time and money. But your house is not usually an investment that pays off in strict financial terms. Yes, I once made a nice bit selling a Manhattan apartment, but it was such a unicorn event; over a lifetime, my other real estate transactions have been a bit of a wash when all those expenses (so easily overlooked by sellers) were counted in. This is not an argument for not buying a house, nor for buying a house; only that most home buyers are not totally clear on the cost/benefit involved, but see that appreciating real estate values mean one has made money on the deal; :oops: ....usually not so much.
While you may be very wise or very lucky, I believe a home purchase is primarily for a suitable place to live. Financially, you probably benefit from your housing costs being closer to being fixed because your mortgage payment would stay the same for decades - although real estate taxes and insurance will go up.

I am not sure whether we were "wise" or "lucky" - or perhaps a bit of both.

In our locality, while home prices did drop a bit during the big recession, they did not drop nearly as much as some other areas.

While this is a HCOL or VHCOL, our "cost of living" is quite modest for several reasons:

1. As Seniors with modest income and other assets, we qualify for the very generous real estate tax exemption or deferral (depending on each year's details). This is about $6,500 per year.

2. Being in semi-retirement, we drive fewer miles than before. We still have two older cars, so driving costs are moderate.

3. We do not live an "expensive" lifestyle.

JoeRetire
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Re: Buying a home; Very HCOL Area

Post by JoeRetire » Tue Jul 16, 2019 11:40 am

BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am
Is there ever a break-even point where home ownership in these kinds of areas are actually "worth it" financially?
First you would have to define with "worth it financially" means to you. Everyone is different.

But if you are looking for a magic number above which it's not "worth it", I don't think that approach makes sense. Too many variables.
I'm just having a really hard time justifying dropping half a million dollars, high property taxes, and tying myself to a 15-30 year mortgage for what amounts to a home I'm not in love with.
I'm guessing that being in love with a home probably has more to do with "worth it" for you than the price you are quoting. Some place a lot of value owning their own home. Others don't.
Basically, am I way off in thinking home ownership in these types of conditions is a terrible financial decision?
Yes, that generalization is way off. As are many generalization.

Some folks make a terrible financial decision, others do not. HCOL or LCOL isn't the determining factor.

I have friends that purchased a McMansion in a LCOL area many years ago. They were both working at good jobs and so purchased a home at the top of their overly-generous budget.

She got pregnant and stopped working, he got laid off. They went bankrupt. They got divorced. So it goes.

ohai
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Re: Buying a home; Very HCOL Area

Post by ohai » Tue Jul 16, 2019 11:42 am

Watty wrote:
Tue Jul 16, 2019 11:20 am
babapanda wrote:
Tue Jul 16, 2019 10:30 am
The risk of buying a home in a VHCOL area vs. a LCOL area is somewhat mitigated by the ability to sell the property in a timely manner and usually at a profit. Over buying is riskier if you need to sell your home fast in a LCOL area due to lack of buyers.
I would be cautious about using that sort of logic.

Assuming that in a VHCOL area you will be able to sell a house quickly and at a good price can get you into trouble.

https://www.investopedia.com/terms/g/gr ... theory.asp
Yes. That logic is a bit broken, if you ask me. VHCOL areas are like that because prices have appreciated. Not the other way around. Continued demand for housing is contingent on continuation of the underlying causes of appreciation - usually strong job growth is #1. Things can change quickly. Look at all the decaying $5 million houses in NY area suburbs.

In fact VHCOL probably means more risk, especially if it is associated with high house price appreciation. 1) High appreciation means high volatility, and 2) the house will probably be a higher proportion of your net worth than in a cheaper area.

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Re: Buying a home; Very HCOL Area

Post by JoeRetire » Tue Jul 16, 2019 11:46 am

HomerJ wrote:
Tue Jul 16, 2019 9:07 am
Not to burst your bubble, but $75,000 invested in the S&P 500 41 years ago (1978) would be worth $6.5 million today... :)
Unless you are imagining that someone paid $75k cash for the home 41 years ago, that's not relevant.

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Re: Buying a home; Very HCOL Area

Post by Momus » Tue Jul 16, 2019 11:46 am

Sam1 wrote:
Tue Jul 16, 2019 9:25 am
CoastalWinds wrote:
Tue Jul 16, 2019 9:10 am
stoptothink wrote:
Tue Jul 16, 2019 8:56 am
BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic
That isn't VHCOL.
+1. I would consider that MCOL.
Yeah this definitely is NOT VHCOL!
Not HCOL. 800-900k and up will be HCOL. SF/NYC is VHCOL 1.5M+ for 3 BR. Yours is just a normal house in CA boonies/ not metro area.

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beyou
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Re: Buying a home; Very HCOL Area

Post by beyou » Tue Jul 16, 2019 11:50 am

Boston is there too. A friend has a smallish 1 BR condo downtown he says is worth 800K.
I wouldn't even say it's in the most desirable area. Not terrible but not the most expensive in Boston either.

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dm200
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Re: Buying a home; Very HCOL Area

Post by dm200 » Tue Jul 16, 2019 12:28 pm

Just my opinion and observation - in many housing markets today, I think it makes sense - if you can possible do it financially - to get a somewhat bigger house than you need/want immediately - and plan on keeping that house for a very long time.

At least in our area, there do not seem to be the "starter", less expensive, homes that there once were.

Selling one house and buying another involves a considerable cost.

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Re: Buying a home; Very HCOL Area

Post by jharkin » Tue Jul 16, 2019 12:42 pm

stoptothink wrote:
Tue Jul 16, 2019 8:56 am
BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic
That isn't VHCOL.
+1. Thats HCOL. VHCOL is Silicon Valley or Manhattan where 2MM buys you an 800sqft studio and it comes with 30k property tax.

alaskantraveler
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Re: Buying a home; Very HCOL Area

Post by alaskantraveler » Tue Jul 16, 2019 4:57 pm

New York times has the most comperhensive buy vs rent calculator.

Code: Select all

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
One of the biggest questions is how long do you plan to live in the area.

SovereignInvestor
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Re: Buying a home; Very HCOL Area

Post by SovereignInvestor » Tue Jul 16, 2019 5:02 pm

Yeah NY times calculator is great. Comparing S&P total return to only the appreciation of a house is not like to like.

The house provides reduced cash flows when owning it versus having to pay rent of a EQUIVALENT house. That cash flow is a sort of yield that needs to be accounted for.

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Re: Buying a home; Very HCOL Area

Post by michaeljc70 » Tue Jul 16, 2019 5:56 pm

stoptothink wrote:
Tue Jul 16, 2019 8:56 am
BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic
That isn't VHCOL.
+1

It pays off when you see the appreciation like they have in the Bay area. Of course, who knows if it will continue or for how long. Sometimes buying an "overpriced" "stock" pays off. I've thought Amazon was overvalued forever and it has gone up by many multiples since I thought that.

If you get caught renting in an area with skyrocketing home prices, you most likely will get caught up in skyrocketing rents.

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aspirit
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Re: Buying a home; Very HCOL Area

Post by aspirit » Tue Jul 16, 2019 7:27 pm

From the tone of your OP, not directly addressing your inquiry,
I'd suggest that you read the free sample of writing in this book w/its AMZN kindle sample offering,.... or more if you like its tone.

Book: "How I Found Freedom in an Unfree World" : A Handbook for Personal Liberty by Harry Browne.

Conforming to an artifical "American Dream" as you describe can be costly :moneybag .
Good Luck....

Best2U...
Time & tides wait for no one. A man has to know his limitations. | "Give me control of a nation's money and I care not who makes it's laws" | — Mayer Amschel Bauer Rothschild ~

phxjcc
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Re: Buying a home; Very HCOL Area

Post by phxjcc » Tue Jul 16, 2019 9:00 pm

SovereignInvestor wrote:
Tue Jul 16, 2019 5:02 pm
Yeah NY times calculator is great. Comparing S&P total return to only the appreciation of a house is not like to like.

The house provides reduced cash flows when owning it versus having to pay rent of a EQUIVALENT house. That cash flow is a sort of yield that needs to be accounted for.
This...a million times this.

Ok, so 500k, 20% down, 10k prop tax, your PITI is 3 k per month, fixed for 30 years.

Say rents now are 2500, a good guess.

So, with a CAGI of 5% in 15 years, your rent is 5000, in 30 years it is 10,000.
Yeah, yeah, I know but but rough figures are good enough.

So, now...plot the point where the lines cross, integrate the area under the curve and find it out if the purchase was a positive or negative experience.

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Re: Buying a home; Very HCOL Area

Post by Jackson12 » Tue Jul 16, 2019 9:48 pm

BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am
HCOL Area, property taxes well north of 10K annually (for not much property)
- Is there ever a break-even point where home ownership in these kinds of areas are actually "worth it" financially?

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic

At the age where people are getting married, buying homes, and popping out kids ... you know, the "American dream" cliche. I'm just having a really hard time justifying dropping half a million dollars, high property taxes, and tying myself to a 15-30 year mortgage for what amounts to a home I'm not in love with.

Basically, am I way off in thinking home ownership in these types of conditions is a terrible financial decision?
This may be your key sentence: I'm just having a really hard time justifying dropping half a million dollars, high property taxes, and tying myself to a 15-30 year mortgage for what amounts to a home I'm not in love with.

Would you love ...or even like .the house if you had a crystal ball and knew it was a good financial decision? Apart from financial profit or loss, how much do you want to be a homeowner? How much time are you willing to spend maintaining your home ( or finding competent people to handle maintenance) l You’ll need to stay on top of maintenance issues such as aging windows, water heaters roofs, etc).
I love being a homeowner but there are also days I miss being a renter ...usually on a day when there’s a major maintenance issue. When we rented, we had a good landlord so some of my nostalgia is based on that. If something broke, he fixed it quickly. It wasn’t our headache.,

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Re: Buying a home; Very HCOL Area

Post by sf_tech_saver » Tue Jul 16, 2019 10:30 pm

When I bought a condo in VHCOL SF I thought of it primarily as a way of controlling the long term costs and making them fixed vs. a 'great investment' per se.

I certainly don't think of the cash I put into the home to be part of my portfolio--but I take great comfort in knowing I've controlled the variability of my housing costs for the rest of my life if I so choose.

Housing for most is the single largest variable expense they have. What value is there in controlling that and hopefully beating inflation a bit if you are lucky.

For me...a lot.

The metaphor of an AA is appealing for me here -- how much variance in your housing cost/quality can you tolerate? The less you can tolerate the higher your housing ownership allocation needs to be?
VTI is a modern marvel

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Re: Buying a home; Very HCOL Area

Post by dm200 » Wed Jul 17, 2019 9:43 am

With 20/20 hindsight, I wonder what folks in this kind of environment, say, 10-15 years ago might conclude?

In my County locality, I believe that over a 10-20 year period - just about all home (single family or townhome) purchases at market levels in the past 50 years have had, at least modest, growth in market value. The only significant losses were in shorter periods.

Of course, past results are no guarantee of future results.

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sunny_socal
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Re: Buying a home; Very HCOL Area

Post by sunny_socal » Wed Jul 17, 2019 9:58 am

You're over-thinking this.
- Your area is not HCOL let alone "Very HCOL." IMO it's pretty normal these days unless you're in flyover country.
- You're not stuck with the house for life. Sell it if you want a change in lifestyle.
- The value of your house is likely to go up over time due to inflation

We bought a home for the following reasons:
- We don't want people above us, below us or next to us
- Barking dogs and crying babies can also be annoying so we want as much "elbow room" as possible
- I do much of my home/auto maintenance, a garage is very handy
- It's nice to have part of our monthly payment go toward principal rather than just rent

I'm familiar with property tax as well - it's just part of the cost of living. Buy less house if you want a lower tax.

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Watty
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Re: Buying a home; Very HCOL Area

Post by Watty » Wed Jul 17, 2019 10:12 am

sunny_socal wrote:
Wed Jul 17, 2019 9:58 am
- Your area is not HCOL let alone "Very HCOL." IMO it's pretty normal these days unless you're in flyover country.
See my post above where I said;
Watty wrote:
Tue Jul 16, 2019 9:24 am
The median single family home(not a condo) price is only $254,800 so there are lots of nice areas where you can still buy a nice house for less than $300K

https://www.nar.realtor/research-and-st ... #!%2Flogin
$600K for a starter house in good condition is getting up there.

It really does not matter where you would draw the line between medium, high, very high, and ultra high cost of living areas. The OP is living in an area where the median home price is several times the national median home price.

The reasonably priced homes are not all in "Flyover" country. Here is an example of the type of home you could get in the suburbs here in Atlanta for around the median home price of $255K, and it has good schools. (Houses downtown or in some prime areas would cost a lot more, in some less desirable areas they would cost even less.)

https://www.realtor.com/realestateandho ... 88&view=qv

For $600K you can get a 7,000 sq ft behemoth like this.

https://www.realtor.com/realestateandho ... 41&view=qv

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Re: Buying a home; Very HCOL Area

Post by tennisplyr » Wed Jul 17, 2019 6:05 pm

I did this exact thing 35 years ago and it has helped me find my retirement as I now live in a LCOL. Make sure you can carry your monthly expenses, it's in a good location and of course you like the home. Good luck.
Those who move forward with a happy spirit will find that things always work out.

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Re: Buying a home; Very HCOL Area

Post by Artsdoctor » Wed Jul 17, 2019 6:26 pm

BoggledHead2 wrote:
Tue Jul 16, 2019 8:42 am
HCOL Area, property taxes well north of 10K annually (for not much property)
- Is there ever a break-even point where home ownership in these kinds of areas are actually "worth it" financially?

Perspective: In my area, you are spending 400K for a "fixer upper". For half a million, you're buying something you'll need to do work on. 600K is where "move in ready" becomes somewhat realistic

At the age where people are getting married, buying homes, and popping out kids ... you know, the "American dream" cliche. I'm just having a really hard time justifying dropping half a million dollars, high property taxes, and tying myself to a 15-30 year mortgage for what amounts to a home I'm not in love with.

Basically, am I way off in thinking home ownership in these types of conditions is a terrible financial decision?
You will get dozens of opinions here. You'll never find a "right" answer because we don't know your preferences. The first question will always be: How long do you anticipate living there? If it's only a few years, you're probably not going to benefit from home ownership and you'll probably resent it because being "stuck" in a house is a horrible feeling (having to sell when you're "under water").

Renting gives you freedom but you have no control. If you're going to buy at $600,000, you'll probably want to muster up $120,000 in a down payment and your 30-year mortgage will probably cost you $2,250 monthly. You'll have to add property taxes and maintenance. However, your rates won't change if the mortgage is fixed and it's a great inflation hedge ($2,250 monthly 10 years from now is "less expensive" then now). Rent will increase beyond your control although some localities have incredibly strict rent control.

If it fits your personality and you can realistically anticipating staying in your house for several years (say, 7-10 years), you'll probably benefit from home ownership. But there are many variables that we all have to consider.

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Re: Buying a home; Very HCOL Area

Post by KyleAAA » Thu Jul 18, 2019 12:08 am

$600k for a move in ready house doesn’t sound VHCOL at all. Even cities like Atlanta are higher than that in desirable neighborhoods. Where I live $600k won’t even get you a tear down, much less a fixer upper. If your income supports it, go for it.

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Re: Buying a home; Very HCOL Area

Post by ohai » Thu Jul 18, 2019 1:09 am

I recommend to set the tax rate low on the NY Times calculator though, as I think they are still assuming full deduction of real estate taxes.

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