Best way to be a first-time home buyer if I intend to move in three years?

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mesaverde
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by mesaverde »

The "Best way to be a first-time home buyer if I intend to move in three years" is to rent for the next three years so that you can save even more for a down payment when you buy your 1st home in three years.
"Learn from the past, live in the present, plan for the future"
alfaspider
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by alfaspider »

As others have said, rent. But the main reason why needs to be explained: transaction costs.

When a home changes hands, over 6% of its value typically goes out the window in the form of transaction costs (it doesn't matter if the seller "pays" the realtors, it's coming out of the economics of the transaction one way or another). In addition to the 6% commissions, the buyer of a hose will also pay various closing costs (and in some jurisdictions real estate transaction taxes). Since homes usually appreciate, these costs tend to be recouped in the long term, but you will almost always lose money if you buy a house and then sell shortly thereafter.

Another thing worth considering: it's harder to buy a new house when you already own one because have to either 1) be able to qualify to pay both mortgages simultaneously, 2) sell the old house first (obligates you to find a new house on a short timeline), or 3) arrange bridge financing (often expensive). Rather than a bridge to your dream house, a starter house could actually impede your ability to buy it.
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JustGotScammed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

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JustGotScammed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

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Okoboji
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Okoboji »

We’ve moved a few times, 13 to be exact.

If you’re planning on moving in 3 years and your next move will be self funded not paid by corporate. My advice would be to hold. Property Tax, insurance, maintenance, the market is still pretty hot right now too. When you exit you’ll be responsible for 3-6% of the realtor fees.

So emotionally nice to own, financially you really have to put a pencil to it.
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JustGotScammed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

If the area is likely to appreciate 6% per year, could a turnaround make sense or at least not be too bad.
DoubleComma
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by DoubleComma »

JustGotScammed wrote: Fri Mar 22, 2024 2:57 pm If the area is likely to appreciate 6% per year, could a turnaround make sense or at least not be too bad.
If you buy a home with a deadline on which you plan to sell and buy a different home you introduce risk. If you buy the home with the understanding its your starter home and when the opportunity and environment lines up you upgrade you will be just fine. This challenge is putting a 3 year clock on these transactions. If there was no clock, meaning the upgrade could happen in 2, 3, 5, 7 years or possibly never, then the risk is mitigated because you don't have to sell.

Personally we bought our first home in SF Bay area in 2003 and were just ecstatic to be able to afford it. We knew it wasn't the dream home, but we didn't have a plan to sell and upgrade in any specific time frame just at some point. Well, I guess, subconsciously we expected to upgrade within 7 years since we bought that home with a 7 and 1 ARM @6.5%. Turned out we sold it in month 26 with a 43% gain after costs.

The second home we purchased in 2005, outside the SF Bay Area, was much bigger but not the dream home. After our first experience we expected we would stay there 3-4 years and upgrade. 2008 happened, market tanked and buyers were scarce, we stay 8 years in that house and sold it at a 15% loss. Even though the loss was real, I still think I mitigated the risk because I was able to buy the next home at a reduction in value that it was pre-2008.

4 primary homes and 3 vacation homes later we now realize that for us there is no dream home/forever home. We've loved every house we owned till we didn't...then we moved on.

Can't predict the market.
madbrain
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by madbrain »

JustGotScammed wrote: Fri Mar 22, 2024 2:57 pm If the area is likely to appreciate 6% per year, could a turnaround make sense or at least not be too bad.
How can you know this ahead of time ?

Even if you could know this exactly, you don't know what the cost of carrying the house will be over the next 3 years.

Home maintenance expenses can be very lumpy. If you have to replace the HVAC, sewer line, roof, water heater, some appliances, gas line, that can add up very quickly. Some years we have little maintenance. But others, it's actually mid 5 figures.

Looking at my Quicken data over the last 14 years, we spent a total of $727k on the house, excluding the principal (purchase price).

Top expenses were :
$181k in property taxes
$160k in interest (when rates were much lower, and we paid it off 5 years ago)
$143k in home improvements
$100k in maintenance
$41k in insurance
$31k in furniture
$20k in gardener
$15k in appliances

To put things in perspective, the purchase price was $800k. So, we have spent close to the same carrying it than we did purchasing it.
We got a very low purchase price, to be fair, as it was a foreclosure, so that skews things a bit. Price would have been a lot more if we didn't buy right at the low during the GFC when almost nobody else could get mortgages. It's a massive mansion in the hills in a VHCOL area.

It did appreciate and is worth at least $2M now. But there was no way to know at what rate ahead of time.
If we sold it, we could only exclude the home improvements from the basis, and $500k capital gains exclusion. Tax would be due on about $500k. And probably realtor commissions on $2M.

We did not buy it for investment purposes. We bought it to live in it, for the size, views and unique features the home has. I have not computed the CAGR, but I don't really want to. I'm sure it's quite low despite the appreciation.

I just checked on Morningstar. $800k in the S&P500 as of our home purchase date would be worth $3,768,000.
The difference is $1.76M. And the S&P500 fund has a lower tax cost, and much lower transaction costs as well.

Don't buy a home as an investment. Especially not for 3 years. It's a place to live.

Rental properties are different. I would not touch them personally.
anoop
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by anoop »

DoubleComma wrote: Fri Mar 22, 2024 3:09 pm 4 primary homes and 3 vacation homes later we now realize that for us there is no dream home/forever home. We've loved every house we owned till we didn't...then we moved on.
So true. Just like with anything else, once the novelty has worn off, it becomes more of deciding whether to accept it or try the next cool thing. The only difference with houses is instead of moving one can spend a ton of money renovating, remodeling, refurnishing, etc. to feed the desire for "new", assuming one is happy with the location.

One of my neighbors said this was their forever house and they sold and moved out-of-state about 2 years ago.
Last edited by anoop on Fri Mar 22, 2024 4:39 pm, edited 1 time in total.
anoop
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by anoop »

madbrain wrote: Fri Mar 22, 2024 3:29 pm I just checked on Morningstar. $800k in the S&P500 as of our home purchase date would be worth $3,768,000.
The difference is $1.76M. And the S&P500 fund has a lower tax cost, and much lower transaction costs as well.

Don't buy a home as an investment. Especially not for 3 years. It's a place to live.
I don't disagree with your punchline, but to be a fair comparison you would have to reduce the above returns by the cost of rent + renters insurance for a similar house for 14 years.
madbrain
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by madbrain »

anoop wrote: Fri Mar 22, 2024 4:38 pm I don't disagree with your punchline, but to be a fair comparison you would have to reduce the above returns by the cost of rent + renters insurance for a similar house for 14 years.
Yes, that is absolutely true. Or I could have used the cost of staying in my previous home, which was 1/4 of the size. Costs were far lower.
I would have come out ahead financially by not buying the bigger home. Of course, I enjoyed a great lifestyle upgrade the last 14 years, but I definitely paid a cost for it.

I thought this would be my forever home. Hope it can still be. Climate change is making it more expensive to insure with the insurance crisis in CA. So I'm not sure anymore.
anoop
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by anoop »

madbrain wrote: Fri Mar 22, 2024 4:46 pm I thought this would be my forever home. Hope it can still be. Climate change is making it more expensive to insure with the insurance crisis in CA. So I'm not sure anymore.
I'm in CA too and seeing big bumps in insurance, although from what I hear, it's still lower than in many other states. Also maintenance costs are going up a lot.
madbrain
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by madbrain »

anoop wrote: Fri Mar 22, 2024 4:50 pm I'm in CA too and seeing big bumps in insurance, although from what I hear, it's still lower than in many other states. Also maintenance costs are going up a lot.
The insurance cost is very local. In different neighborhoods it varies greatly. Being near vast open spaces raises the rates. A number of new homes are being built, though, which will fill that space. Maybe lowering my cost, or limiting the increase. Who knows.

And yes, maintenance costs are through the roof. And I haven't replaced the roof yet ;) It will be fun taking down the 70 solar panels when I do. But the panels actually protect the roof somewhat, so that helps.

I had someone fix one of my garage doors earlier today.
Cost was $300.
Apparently that is well within the expected range of $150 - $350.
https://www.angi.com/articles/how-much- ... t-cost.htm

I had to wait one week for him. In the meantime my husband charged his car with Chargepoint once. And we alternated cars to use the other garage spot with 2nd EV charger.

Repair guy told me the garage opener motor is from 1998. Now I finally know when the home was added onto exactly :) So the roof is also from 1998. And the built-in fridge as well.
Last edited by madbrain on Fri Mar 22, 2024 5:05 pm, edited 1 time in total.
mikejuss
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by mikejuss »

One word: don't (unless you really want to live up to your username). Just rent a nicer apartment.
Last edited by mikejuss on Fri Mar 22, 2024 5:16 pm, edited 3 times in total.
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mikejuss
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by mikejuss »

WhitePuma wrote: Tue Jan 16, 2024 8:48 pm
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm
My wife decided she wants a house, as all of our friends have one except for us.
This has to be one of the most ridiculous reasons I’ve ever heard for wanting to get a house. You really should try to focus on whether a house makes sense for your lifestyle, needs, budget, career plans, etc.
+1.
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DoubleClick
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by DoubleClick »

spth wrote: Tue Jan 16, 2024 9:33 pm
LakesandRivers wrote: Tue Jan 16, 2024 8:53 pm Not a great reason to buy a house, and given your short timeline, renting is the best option.
I don’t know, seems like a reasonable non-financial reason to want a house. And buying a starter home, creating equity, and then using the equity to buy a nicer house seems like a typical path.
The math of this was always suspect to me. Crunching the actual numbers shows this doesn't bear out in many cases. I imagine this might be a standard argument used by people who want to somehow justify buying a house for non financial reasons. I'm not sure people do a solid evaluation of the rent vs buy scenario and instead simply believe in the argument with no basis.

Especially with the current interest rates, it's actually cheaper in many cases to rent, invest, and buy later. Houses generally appreciate far less than the stock market. In a 1.8% interest rate environment, the leverage helps push up the effective appreciation. The current interest rates do the opposite.
barcharcraz
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by barcharcraz »

You won't be building much equity over three years so it's purely speculative.

You would be vastly better off just renting, and many landlords would probably be quite happy to write you a three year lease, if you want to stabilize costs.

If you really feel the need to "own something" you can rent from a public landlord and buy equity in them over time.

You could also buy an investment property, or, if you know where you'll be moving to you could buy the house you actually want now and rent it out. I live in an apartment building and a ton of the other tenants have vacation or investment properties elsewhere.

The idea of a starter home is nuts, imo. The time horizons required for home ownership to pay off (15-30 years) just don't support it over investing your money and buying the home you actually want.
madbrain
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by madbrain »

barcharcraz wrote: Fri Mar 22, 2024 6:35 pm The idea of a starter home is nuts, imo. The time horizons required for home ownership to pay off (15-30 years) just don't support it over investing your money and buying the home you actually want.
I don't think it is nuts. 15-30 years are not required to pay off. At least not in my local market.

But planning for just 3 years ownership is nuts and asking for trouble.
barcharcraz
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by barcharcraz »

madbrain wrote: Fri Mar 22, 2024 6:56 pm
barcharcraz wrote: Fri Mar 22, 2024 6:35 pm The idea of a starter home is nuts, imo. The time horizons required for home ownership to pay off (15-30 years) just don't support it over investing your money and buying the home you actually want.
I don't think it is nuts. 15-30 years are not required to pay off. At least not in my local market.

But planning for just 3 years ownership is nuts and asking for trouble.
With a "starter" home the "starter" has to pay off then the home you actually want has to pay off too! And you could probably buy the home you actually want sooner if you rented while saving for it directly (you'll be more liquid too, which will help in purchasing the home you actually want).

It does depend on the market. And also if your willing to live in a smaller place and share walls instead of the starter home. (Renting an apartment style place has a lot of benefits over a condo or coop, and below a certain sq footage it's hard to find non-rentals that are appealing at all financially)
madbrain
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by madbrain »

barcharcraz wrote: Fri Mar 22, 2024 7:02 pm With a "starter" home the "starter" has to pay off then the home you actually want has to pay off too! And you could probably buy the home you actually want sooner if you rented while saving for it directly (you'll be more liquid too, which will help in purchasing the home you actually want).
There are no guarantees about the direction of the market. Renting and waiting to buy the dream home could be a very good thing if the rent is modest and there is a recession or another financial crisis.

Liquidity will be an issue when buying the dream home. If one already owns a home with a sizeable mortgage, then it will be an impediment in qualifying for a mortgage on the dream home. The debt to income ratio may prevent one from having mortgages on both homes at the same time.
If the first home's mortgage has been paid off, it is much less of an issue, but that's very unlikely to be the case after just 3 years of ownership.

In my situation, I bought a $230k home in 1997. In 2010, I had a remaining mortgage balance of $100k, and about $20k in the bank.
I refinanced the mortgage with an interest-only 7/1 HELOC for $250k, cashing out $150k. I then used the proceeds as my 20% deposit on the dream home, with a fixed 30 year mortgage. I closed on both the HELOC and mortgage just a few days apart :) This was a pretty risky thing to do, because I now had 2 loans to pay - a mortgage and a HELOC. We moved into the new house. I then put the old house on the market. There multiple buyers interested, but they kept getting denied for mortgages right before closing, and I believe I couldn't have sold the home at any reasonable price at that time. After about a year on the market, I rented it out. The rent more than covered all the home expenses and loan payment. One year later, I talked to my realtor who said the market was hot. 80 people came to the open house. I gave notice to the tenants, and it was sold soon after for $450k at about the 15 year mark. That's a 4.58% CAGR, so it beat average inflation by a fair bit. I did not keep track of all the expenses over that period, though. 5 years later, in 2017, the next owner listed it for $800k. There was apparently a serious bidding war, and it sold for $400k over asking, at $1.2M. And now in 2024, it is still worth the same $1.2M :-) You just can't predict the rate of growth for any property over short periods of time especially.

It still worked out for me in 2010 because I had a ton of equity, and rates were low. An interest-only HELOC has a very low payment.
But if you own for just 3 years, there is probably not much equity. If prices go down, there may even be negative equity. The interest rates may or may not go down. And if you were unlucky, you may have spent a lot on lumpy expenses during the 3 years. The 3-year tenant doesn't have those problems.
It does depend on the market. And also if your willing to live in a smaller place and share walls instead of the starter home. (Renting an apartment style place has a lot of benefits over a condo or coop, and below a certain sq footage it's hard to find non-rentals that are appealing at all financially)
Yes, my starter home was a townhome, with shared walls. It had fewer lumpy expenses, since the HOA budgeted for exterior things like the roof, dwelling insurance, etc. It is a bit closer to renting in that way.
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JustGotScammed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

If American home prices functioned solely on economics, I would agree they wouldn't always go up. But they function on "culture" - namely, zoning boards nearly everywhere are filled with people who are property owners that have enjoyed the recent price increases in the value of their homes and want them to keep going up. Hence, "building more" and obvious solutions to improve affordability are not pursued. So I stand by the 6% prediction.
madbrain
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by madbrain »

JustGotScammed wrote: Sun Mar 24, 2024 5:54 pm If American home prices functioned solely on economics, I would agree they wouldn't always go up. But they function on "culture" - namely, zoning boards nearly everywhere are filled with people who are property owners that have enjoyed the recent price increases in the value of their homes and want them to keep going up. Hence, "building more" and obvious solutions to improve affordability are not pursued. So I stand by the 6% prediction.
Even if you turn out to be correct about the 6% annual increase, it still doesn't make sense. Cash currently earns 5% ! Over 3 years we are talking about a very small difference.

There will be a 5-6% realtor commission on both the purchase and the sale. That alone cancels a good chunk of the potential appreciation.

You have to figure out the extra cost and inconvenience of moving twice.

Unless the home is of very recent construction, you may have some significant lumpy maintenance expenses during the next 3 years, which you may
not be able to recoup through a price increase.

There is almost no upside to buying and living in the home for such a short time, then selling.
There is a lot of potential downside.

Just don't do this. You will regret it.
smartinvestor2020
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by smartinvestor2020 »

I’ve been a renter my whole life.

I am on pace to retire early because I rented cheaply and invested in stocks.

My stock returns minus rent expenses did better than the net return if I bought a house minus the expenses of owning a house.

I intend to rent for another 3 to 5 years at most before moving to a cheap location to buy a cheap house in cash.

I choose not to buy where I live because it’s very high cost and over the short term I’m not likely to benefit after housing costs are taken into account.

If you are going to move in 3 years, do not gamble with a house.

Save up the cash and buy a forever home.
goldendad
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by goldendad »

Be a first time home buyer in 3 years
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JustGotScammed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

goldendad wrote: Sun Mar 24, 2024 6:58 pm Be a first time home buyer in 3 years
Yes, but I was saying this in 2021. At some point, a decision has to get made.
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cosmos
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by cosmos »

WhitePuma wrote: Tue Jan 16, 2024 8:48 pm
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm
My wife decided she wants a house, as all of our friends have one except for us.
This has to be one of the most ridiculous reasons I’ve ever heard for wanting to get a house. You really should try to focus on whether a house makes sense for your lifestyle, needs, budget, career plans, etc.

Lol but a great reason to avoid having a wife... :)
It's 106 miles to Chicago, we've got a full tank of gas, half a pack of cigarettes, it's dark... and we're wearing sunglasses. Hit it.
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by madbrain »

goldendad wrote: Sun Mar 24, 2024 6:58 pm Be a first time home buyer in 3 years
+1
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by madbrain »

JustGotScammed wrote: Sat Mar 30, 2024 4:20 pm Yes, but I was saying this in 2021. At some point, a decision has to get made.
In 2021, you would have been 6 years away from moving, assuming you knew it then. It would have been a slightly different conversation.

You can make an informed decision not to buy, given the risks that everyone in this thread has been warning you about.

Or you can buy despite all these warnings. Maybe things will turn out well for you. But the odds are very much against you.
DDGD432
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by DDGD432 »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.

We bought a house on 2015, with the plan of moving again in about 3 or 4 years. Couldn't rent easily because we live in a small low COL area where the rentals are just not very safe as far as crime. Turns out, it'll probably just be our long term house- we've made it work since.
If you do buy a "starter home" - it just might be your forever home, so be mindful of school districts and square footage.
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by mikejuss »

cosmos wrote: Sat Mar 30, 2024 4:24 pm
WhitePuma wrote: Tue Jan 16, 2024 8:48 pm
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm
My wife decided she wants a house, as all of our friends have one except for us.
This has to be one of the most ridiculous reasons I’ve ever heard for wanting to get a house. You really should try to focus on whether a house makes sense for your lifestyle, needs, budget, career plans, etc.

Lol but a great reason to avoid having a wife... :)
Harsh... :o
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exodusNH
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by exodusNH »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
You're in a tough situation.

I had a friend group in my late 20s to early 30s. They were all about houses and cars. I never tried to compete on lifestyle with them. I eventually drifted away from them and have, in my late 40s, found a much more grounded group of friends. My new group includes two physicians, one of whom is the medical director for their hospital, three lawyers, and two entrepreneurs, both of whom have more money than I ever will. Not one of us ever has lifestyle jealousy.

Buying a house to keep up with your friends is a terrible idea.

BUT, if you're going to do it, don't buy a starter home. Three years is too short of a period of time.

I'd say stretch to something you can keep for 10 years.

My actual advice would be to find a better friend group. Avoid people who measure each other by possessions, but I know that's a tough path to choose.
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JustGotScammed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

exodusNH wrote: Sun Mar 31, 2024 1:37 am
JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
You're in a tough situation.

I had a friend group in my late 20s to early 30s. They were all about houses and cars. I never tried to compete on lifestyle with them. I eventually drifted away from them and have, in my late 40s, found a much more grounded group of friends. My new group includes two physicians, one of whom is the medical director for their hospital, three lawyers, and two entrepreneurs, both of whom have more money than I ever will. Not one of us ever has lifestyle jealousy.

Buying a house to keep up with your friends is a terrible idea.

BUT, if you're going to do it, don't buy a starter home. Three years is too short of a period of time.

I'd say stretch to something you can keep for 10 years.

My actual advice would be to find a better friend group. Avoid people who measure each other by possessions, but I know that's a tough path to choose.
I don't think it's a friend group issue. A lot of people own homes. It's reasonable to want to own property because we live in a society wherein people own property.
mikejuss
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by mikejuss »

JustGotScammed wrote: Tue Apr 02, 2024 12:03 pm It's reasonable to want to own property because we live in a society wherein people own property.
If you still think that your idea is reasonable, then see it through.
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exodusNH
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by exodusNH »

JustGotScammed wrote: Tue Apr 02, 2024 12:03 pm I don't think it's a friend group issue. A lot of people own homes. It's reasonable to want to own property because we live in a society wherein people own property.
I was replying to your own words:
My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home.
If you want a house, buy a house. It isn't any better to own versus rent. Most people around the world rent. Home ownership is a weird, American fetish.

It's likely a terrible idea to buy a house and sell it in a couple of years. There are a lot of transaction costs.

If you have stable jobs, it's probably better to stretch for a home you can see yourself living in for 7+ years.
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bertilak
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by bertilak »

JustGotScammed wrote: Tue Jan 16, 2024 8:21 pm Hello. I have tried saving for a down payment the past four years while homes in my area have increased 80%. My wife decided she wants a house, as all of our friends have one except for us, even if it's a starter home. It will probably take us another 3-4 years to be able to afford "a nice house" and we've already been renting for 7 years and don't want to do it for 3-4 more years.

My question: What is the most cost effective way to be a first-time home buyer now for a starter home with the understanding I'll be looking to buy a larger home in 2027 or 2028. Thank you.
Perhaps renting its your best option.

Sorry if I'm repeating, but I didn't read the whole thread.
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by unwitting_gulag »

While it's almost axiomatic that "renting is probably better" given the conditions stipulated by the OP, one can't help wondering...

1. What if in three years, the OP finds himself in the same area, with essentially the same timeframe... that being, 3 more years of holding pattern? What if this keeps repeating? When will finally come the self-release to buy?

2. What if the OP moves in 3 years, then moves in another 3 years, then something else comes up. 3 years, 6, 9, 12, 15... youth becomes middle-age, and middle-age, advanced age. At what point does short-termism ossify into perpetual delay? If not now, when?

3. Markets move in spurts. Yes, market timing <==> bad. We know that. But you know what else? Now we know, that had the OP gone through his gyrations 5 years ago, and decided then to buy, he'd have been in a vastly different position. Regret in hindsight? Yes. But tomorrow's future is the after-tomorrow hindsight, is it not?

Renting is the less fussy choice, the more risk-tolerant choice. But I'm not prepared to stipulate that it's the wisest choice, even in merely financial terms.
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JustGotScammed
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by JustGotScammed »

unwitting_gulag wrote: Tue Apr 02, 2024 4:02 pm While it's almost axiomatic that "renting is probably better" given the conditions stipulated by the OP, one can't help wondering...

1. What if in three years, the OP finds himself in the same area, with essentially the same timeframe... that being, 3 more years of holding pattern? What if this keeps repeating? When will finally come the self-release to buy?
That is my concern.
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by madbrain »

JustGotScammed wrote: Sun Apr 07, 2024 1:19 am That is my concern.
Then buy the large house you actually want to live in. See if you can qualify for a lower downpayment loan with PMI. Or an interest only mortgage. Or an ARM. Or a 40 or even 50 year mortgage.
If you still can't qualify to buy the house you want, sell part of your portfolio to increase the downpayment. Or take a 401k loan.
Just don't buy a house you don't want to live in and plan to sell in 3 years. That makes absolutely no sense.
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by Xrayman69 »

Won’t repeat but will reiterate to OP - rent if you know or are confident moving to larger space in 3 years. Don’t let FOmO lead you to make a decision or keeping up with friends.

Now onto strategies that may be plausible:
1. Buy home that needs lots of work that YOU can do yourself and thus minimize risk on not getting investment costs returned.
2. Be prepared to know how to minimize costs of transactions when selling (“customary 6% for sellers and buyers agent” -perhaps FSBO or cap sales commission to 3%)
3. Perhaps be prepared or able to keep the home and rent it out of the sales environment is not advantageous at time of your next move.
4. Be prepared or able to just stay in the home. Not sure what your situation may be that allows certainty that you will be wanting/needing to upsize or move inn3 years. We bought our first hime in 2000 knowing full well that we would likely be moving in 4 years upon completion of graduate educations. We also bought a starter home that we worked on ourselves and sold FSBO and was able to sell home for 50% higher than purchase price but in actuality only garnered 20% “profit” after costs of additions. (Very low cost of living university city in the south)


It’s going to likely be the largest financial decision you make to this point (other than getting married - sorry it does have financial ramifications as suggested by yiur background post of spouse “wanting to buy home”. It apparently will then lead to the next biggest financial decision you will need to make with buying a bigger home in 3 years. I personally would not stack a big unnecessary decision upon another large financial decision that you may not be able to get out of in the first place.


There are 5 possible outcomes to buying a home now (and or whenever).
1 it is net neutral
2. Net small positive profit after costs and expenses
3. Net large positive profit from escalation of property values in the short term (3 years)
4 net small loss after costs and expenses
5 net large negative net loss due to multiple factors.

Just rent or better define you need/wants/ tolerance
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by tashnewbie »

If you want to buy now, buy. But don’t buy with the expectation or plan to sell in 3-4 years. Buy a house that you could live in indefinitely. That would mean finding a house in a good school district if you have or plan to have kids.

Others have already discussed the fact that renting may be financially optimal. This is probably especially true over short periods, but over the long term, renting and buying are probably about equal financially.
the_wiki
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Re: Best way to be a first-time home buyer if I intend to move in three years?

Post by the_wiki »

Just rent the kind of house you would want to buy and you can have the same lifestyle.

You are going to pay tons of interest, closing and selling costs. You won’t own anything, because you won’t have made much of a dent in principal.
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