first house- 1 bedroom vs. 2 bedroom

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bayview
Posts: 1844
Joined: Thu Aug 02, 2012 7:05 pm
Location: WNC

Re: first house- 1 bedroom vs. 2 bedroom

Post by bayview » Thu Sep 26, 2019 6:20 pm

Rent; save the difference between the rent and what you'd pay for a mortgage (double bonus: you get used to not having that money plus you have more cash); at the next significant price dip, buy if you want.

One thing I haven't seen mentioned - or at least, I haven't seen it stressed - is what happens if one buys now, gets laid off in the next recession, eventually can't afford the monthly payments, has to move away to get another job, renting the place out doesn't come close to covering the mortgage payments, all that fun.

I remember this happening to a LOT of people, not just in the Bay Area. Remember the phrase "jingle mail"? That's when you mailed the keys to your home to the bank and walked away.

If I were in OP's position and decided to buy now, I'd want to have at least 18 months' worth of emergency funds on hand, ideally 24 months. It's bad enough sweating to make an $800 mortgage payment. I don't know the monthly PITI on an $800k mortgage, and I'm pretty sure that I don't want to know.

Owning a home is volunteering to take on an anchor. There are great things about it, but you have to be aware down to the cellular level of all the risks involved.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

rustyjim
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Joined: Wed Mar 11, 2009 12:59 am

Re: first house- 1 bedroom vs. 2 bedroom

Post by rustyjim » Thu Sep 26, 2019 6:25 pm

I would think of the rent vs. buy decision as follows based on the rents and purchase prices used in this thread.

1. You can rent an apartment/condo from a landlord for $3000 to $3500 a month. Close commute a real plus. More flexibility if a change in life or job situation. Down payment money can continue to be invested. Repairs are the landlords cost, not yours.

2. You can buy a $1 million property. Twenty percent down is 200k. A 30 year 800k mortgage @ 4% is $3819 per month. Add to that property tax, insurance and maintenance. If commute time is more, a big negative. Much less flexibility if a job change or life change happens and you need to move.

I view a mortgage as just "renting" money from the bank vs renting an apartment from a landlord.

I get that paying the high rents in your area leaves a bad taste in one's mouth each month. But given the prices in your area and the other things to consider, I would rent.

Good luck with your decision.

rustyjim

shans2000
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Joined: Thu Aug 30, 2018 3:16 pm

Re: first house- 1 bedroom vs. 2 bedroom

Post by shans2000 » Thu Sep 26, 2019 6:33 pm

A Boglehead wrote:
Wed Sep 25, 2019 7:15 pm
Hector wrote:
Tue Sep 24, 2019 7:18 pm
What if housing market crashes and wont recover for a decade or two or more?
Would your first house become your forever house then?
Yes, I'm fine with my first house being my forever house. I'm thinking of moving to senior housing when I'm eligible, which should be more affordable.
If you are planning to be in this house for a long time, 2 bedroom is the only choice. You will grow out of the 1BD in no time.

z3r0c00l
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Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: first house- 1 bedroom vs. 2 bedroom

Post by z3r0c00l » Thu Sep 26, 2019 6:36 pm

DanMahowny wrote:
Sat Sep 21, 2019 2:34 pm
real estate in SF is textbook example of the "Greater Fool Theory".

People will laugh about this someday.
Like those outrageous Tribeca prices in the 1990's.

CnC
Posts: 840
Joined: Thu May 11, 2017 12:41 pm

Re: first house- 1 bedroom vs. 2 bedroom

Post by CnC » Fri Sep 27, 2019 2:07 pm

Starfish wrote:
Thu Sep 26, 2019 5:19 pm
CnC wrote:
Thu Sep 26, 2019 10:01 am
Starfish wrote:
Thu Sep 26, 2019 2:11 am
CnC wrote:
Wed Sep 25, 2019 7:25 pm
Wow 1 million for a 1 bed 1 bath condo.


Where I live you can buy a 5500 sf home on 10 acres with a few out buildings for that amount.
How much does a job pay within walking distance from that house?
Well considering that house would be in the country being on 10 acres you can't walk to many jobs from it.

But my wife me and I make over 200k combined within 30 min of our house.
Then that house has much less value than a condo in a walkable area next to 3-500k jobs.
For now perhaps. Just wait for the next recession where these wildly over paid jobs vanish and a glorified apartment selling for 25x it's real value will drop like a rock.


I could of course be wrong and the there may be no ceiling and wages and home values may continue forever into the sky, but why do you need to walk to work? What makes you think offices will even be a thing for these quality of jobs in the future?

Starfish
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Re: first house- 1 bedroom vs. 2 bedroom

Post by Starfish » Mon Sep 30, 2019 5:00 pm

CnC wrote:
Fri Sep 27, 2019 2:07 pm
Starfish wrote:
Thu Sep 26, 2019 5:19 pm
CnC wrote:
Thu Sep 26, 2019 10:01 am
Starfish wrote:
Thu Sep 26, 2019 2:11 am
CnC wrote:
Wed Sep 25, 2019 7:25 pm
Wow 1 million for a 1 bed 1 bath condo.


Where I live you can buy a 5500 sf home on 10 acres with a few out buildings for that amount.
How much does a job pay within walking distance from that house?
Well considering that house would be in the country being on 10 acres you can't walk to many jobs from it.

But my wife me and I make over 200k combined within 30 min of our house.
Then that house has much less value than a condo in a walkable area next to 3-500k jobs.
For now perhaps. Just wait for the next recession where these wildly over paid jobs vanish and a glorified apartment selling for 25x it's real value will drop like a rock.
Yeah, "real value" and "widly overpaid" sounds like timing the market.
What do you mean by "its real value"? Real value in RE is just location.
There are better built houses with larger plots for less money in Mongolia than the house in your example. Should we line up to buy a house there?
1bdr in London, Paris, Manhattan or Shanghai costs more, is that not its real value?

These houses and jobs and stocks were always "overevaluated", "widly overpaid" etc. Meanwhile some people still wait for the "next recession".

Topic Author
A Boglehead
Posts: 52
Joined: Sat Dec 13, 2014 12:25 pm

Re: first house- 1 bedroom vs. 2 bedroom

Post by A Boglehead » Wed Oct 02, 2019 5:30 pm

Thank you all! I really appreciate it.

A lender recommended buying property in order to build equity and maximize my tax deductions. He recommended a $750K rather than $700K loan, to maximize my tax deduction. He said property taxes and interest on a mortgage are deductible. For a $900K property, property tax will be about $11,250; I can write off $10K of property tax. He said I can write off interest on a $750K loan, so my tax bill will go down a lot, given my income.

Last year I hit the $10,000 max deduction for "Taxes You Paid" on Schedule A even w/out owning property, so I think the only benefit to my taxes will be the interest on the mortgage.

Do you think buying property to build equity and lower my taxes is worth it?

Thanks!

almostretired1965
Posts: 122
Joined: Mon Nov 13, 2017 2:02 pm

Re: first house- 1 bedroom vs. 2 bedroom

Post by almostretired1965 » Wed Oct 02, 2019 5:51 pm

A Boglehead wrote:
Wed Oct 02, 2019 5:30 pm
Thank you all! I really appreciate it.

A lender recommended buying property in order to build equity and maximize my tax deductions. He recommended a $750K rather than $700K loan, to maximize my tax deduction. He said property taxes and interest on a mortgage are deductible. For a $900K property, property tax will be about $11,250; I can write off $10K of property tax. He said I can write off interest on a $750K loan, so my tax bill will go down a lot, given my income.

Last year I hit the $10,000 max deduction for "Taxes You Paid" on Schedule A even w/out owning property, so I think the only benefit to my taxes will be the interest on the mortgage.

Do you think buying property to build equity and lower my taxes is worth it?

Thanks!
I'm actually renting a 4 BR house in the Seattle area (Bellevue) for roughly the same parameters (~ $1Mil property and a bit over $3K monthly rent). To me it is a no brainer, and my wife and I could pay cash tomorrow if we wanted to buy the house. Owning a house is over rated, in my opinion. I'm hoping the landlady will let us continue to enjoy this property for awhile ......

bloom2708
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Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: first house- 1 bedroom vs. 2 bedroom

Post by bloom2708 » Wed Oct 02, 2019 5:55 pm

A Boglehead wrote:
Wed Oct 02, 2019 5:30 pm
Thank you all! I really appreciate it.

A lender recommended buying property in order to build equity and maximize my tax deductions. He recommended a $750K rather than $700K loan, to maximize my tax deduction. He said property taxes and interest on a mortgage are deductible. For a $900K property, property tax will be about $11,250; I can write off $10K of property tax. He said I can write off interest on a $750K loan, so my tax bill will go down a lot, given my income.

Last year I hit the $10,000 max deduction for "Taxes You Paid" on Schedule A even w/out owning property, so I think the only benefit to my taxes will be the interest on the mortgage.

Do you think buying property to build equity and lower my taxes is worth it?

Thanks!
Interest only above the standard deduction. Just make sure you are thinking about the interest deduction correctly. Everyone gets the standard deduction for free (single or married).

I think the lender wants to sell you a big loan.
Four words that will save your life at any age. Whole food, plant based. Google it.

Topic Author
A Boglehead
Posts: 52
Joined: Sat Dec 13, 2014 12:25 pm

Re: first house- 1 bedroom vs. 2 bedroom

Post by A Boglehead » Wed Oct 09, 2019 6:48 pm

Thank you all! I really appreciate it!

I'm trying to estimate how much tax I'll save if I buy. Does the following sound correct?

If I put 20% down on a $900K property, the mortgage will be $720K. Assuming a 3.75% interest rate 30 year mortgage, I’ll pay $27K ($720K x 0.375) interest per year. With a 24% marginal tax bracket, I could save < $6,480 (0.24 x $27K) per year in tax. I realize a tax deduction is less valuable than a credit, and the interest on the mortgage will decrease my taxable income, rather than actual tax.

Therefore, I’d spend $900K to save < $6,480 per year in tax!

Thank you!

BogleMelon
Posts: 2067
Joined: Mon Feb 01, 2016 11:49 am

Re: first house- 1 bedroom vs. 2 bedroom

Post by BogleMelon » Wed Oct 09, 2019 7:06 pm

A Boglehead wrote:
Wed Oct 09, 2019 6:48 pm
Thank you all! I really appreciate it!

I'm trying to estimate how much tax I'll save if I buy. Does the following sound correct?

If I put 20% down on a $900K property, the mortgage will be $720K. Assuming a 3.75% interest rate 30 year mortgage, I’ll pay $27K ($720K x 0.375) interest per year. With a 24% marginal tax bracket, I could save < $6,480 (0.24 x $27K) per year in tax. I realize a tax deduction is less valuable than a credit, and the interest on the mortgage will decrease my taxable income, rather than actual tax.

Therefore, I’d spend $900K to save < $6,480 per year in tax!

Thank you!
If you didn't buy and take the standard deduction, how much tax is saved in this case?
The difference between the answer to that question and your above number is the real income tax saved due to buying
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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