First time home buying advice

[UNSTUCK]

Realistically, we wouldn't go into a rental. I'm sure that would cost us more in rent each month. IF we were to move (and stay here in Utah) we would head way north where houses don't seem to be in the race as much and prices are more realistic. But I just can't bring myself to drive much of a distance to work each day. I'm in a lose lose right now. Or just stay put and be 90% happy where I'm at.

 

[comingdown]

Man, I just stumbled on this thread. I kept waiting to see what house you bought only to see your recent post. We bought in early 2013, a 4 bed, 2 bath old house, about 1400 sq ft in Orem for a steal. Lived there almost 2 years, rented it out and bought a duplex, lived in the top and rented out the basement part of it and we were able to live and pay utilities only. We then rented the top out a little over a year later and bought a house in Lindon. It's 3300 sq ft, but that includes a 1000 sq ft basement rental. It costs us a few hundred dollars a month to live here after deducting rents collected but it is going good. We are thinking of selling our first place and then we'd be able to wipe out all of me and my wife's student loans and a car and some credit card debt and then we'd be able to save a ton more money each month. I hope you are able to find something. We lucked out and bought a hud home and did some work to it. Paid 86k, and put 13k down. They are now selling for over 200k. Crazy.

 

[smartass_kid]

I fully believe that. I really think Utah has the "bay area effect" in full swing right now. Home prices are probably 10-20% over-valued right now but even with an economic crash I just don't see them dropping like they did in 08'.

i think the homes in established neighborhoods won't feel much of a bust at all, it will mostly be the ever-expanding southwest side of the valley and saratoga springs area that will feel it. unfortunately new home sales are what is measured to determine real estate pulse, but someone who is adamant about a particular area will soon realize supply is what is keeping the prices up.

 

[DAA]

I'm not near as gloomy as some of you on Utah home prices falling, or coming down, anytime soon.

Currently, the local SLC metro market is "hot", for sure, and that is always cyclical and never lasts. But the cycle coming back around, does not always equal prices actually coming down (values falling). I think it will more likely look more like slowing increases or flattening out. Not falling. And even then, only when the current hot cycle cools. Which, going by the fundamentals, could be awhile.

The Case Shiller historical data for the SLC metro looks pretty solid to me. We didn't have nearly the turn down most of the country had in '08, because we didn't have nearly the run up in the early 2000's. The current run up looks pretty sane and orderly to me. Not spikey or bubbly.

Right now, supply simply is not keeping up with demand. Hence the current run up in prices/values. It's not fueled by speculation or easy credit. I don't see overvalued, where demand is this high. Eventually, supply will catch up. But I don't think that's going to do anything but slow the rise of prices or flatten it out. I'm just not seeing the supply and demand in this market turning prices around and bringing them down. It will take something else, like another recession, to actually reverse the situation and have supply greater than demand to the point it's driving prices down.

Right now, lenders are making only A+ mortgage loans. That does nothing but limit potential demand. And all but eliminates the possibility of huge foreclosure rates in the future on mortgages being made now (if foreclosure rates on mortgages being made now ever skyrocket, we are in a WORLD of hurt...). Rates are low, but so have they been for years now. Considering how high the bar is to get a mortgage these days, and that despite that, demand is still outpacing supply, to me, the fundamentals look pretty darn good well into the medium term. I really think we're in good shape, unless/until the next recession and big round of job losses reduce demand.

So... If I were trying to time the market, which, by the way, I would never do - to me a home is a place to live, not an investment, but if I were, I'd try and buy as soon as I could. I don't see waiting being very fruitful.

- DAA

 

[comingdown]

A house or property is absolutely an investment. No one expects their house to continually decrease in value over the years like a car. They buy it and expect to hopefully make money or the very least break even on it. My great grandma and my grandparents became extremely wealthy because of real estate. Buy anything and everything they could like monopoly and the 70s inflation made them multi millionaires. They had other investments but nothing nearly as successful as their real estate, including Disney shares from when it first went public.

 

[DAA]

<shrug> I bought a house to live in. I see it as a purchase. Absolutely is not an investment to me. I think looking at my primary residence as an "investment" would be silly. I know most people do though. I know that didn't work out too well for millions of them not too long ago too.

- DAA

 

[comingdown]

<shrug> I bought a house to live in. I see it as a purchase. Absolutely is not an investment to me. I think looking at my primary residence as an "investment" would be silly. I know most people do though. I know that didn't work out too well for millions of them not too long ago too.

- DAA

Not all investments are good. They would've been fine if they had set interest rates, but interest only loans on variable interest rates is a ticking time bomb. You don't have to view your home as an investment but that doesn't change what it is. If everyone in 2008 didnt use their house like an atm we would not have had nearly the problems we had. And just lien any investment, it takes time to grow and mature, like a house. If you buy stocks, they may rise and fall with the market, you don't sell the second it dips at all, you stay in and the vast majority of the time it recovers and grows. A house should be treated the same way. The only time you ever loose money on a house is when you sell it. On the long run you will come out ahead of you keep it.

 

[comingdown]

Here's why most people/studies consider owning a home (long term), that is the one you live in... not properties bringing in cash, monthly... a bad investment:

If you had to mortgage it, even at these great rates we've had for years, it's not a good investment. Period. It's not an investment just because it appreciates.

Example:

• Average home price in the United States ≈ $355,000
• Required 20% down-payment = $71,000 (most don't have that... so factor in at least 5 years of PMI)
• Loan balance = $284,000 (will be higher if you don't meet the 20%)
• Current interest rate for a 30-year fixed mortgage = 3.5%
• Monthly payment ≈ $1,700
• Total principal and interest paid by the end of the mortgage: $612,000 (or $257,000 more than the original amount)
• Average property tax rate is 1.15% ≈ $122,500 over 30 years
• Maintenance (for upkeep, maintenance, repairs, etc.) at 1% per year = $3,550 a year or $106,500 over 30 years

Total out-of-pocket costs over 30 years = $841,000 (this total will be higher, too... if you don't have 20% down)


Then there's something called "opportunity costs." That's what you would do with the money (like the 257K) if you didn't have to pay it because, say, you rented a home of similar value. Say you invested that same amount over 30 years. You'd likely have well over 355K... well over. What about the 122K property tax amount? Imagine investing that, as well, and so on. This is what the "rent is better than buying" crowd loves.

The above is just the tip of the iceberg to why folks disagree with a home being an investment.

The primary purpose of a home is for shelter. If you're planning on it being a residence and you consider it because of what school your children can go to and yada yada yada it likely effects your control of timing your ownership. Even that disruption in ownership, the closing and moving costs and other resulting costs and fees, they all cut into perceived profits.

There's also "Carrying Costs" that are the costs beyond the what you carry in the "investment," i.e., the mortgage, taxes, PMI, home owner's insurance, etc. The carry costs are expenses to maintain and repair the property. I'm personally looking at 3, a roof, windows, and a driveway. There are many others from the water heater to something like remodeling a kitchen, bathroom, or basement. It's the carrying costs that could really work against you because (and I've seen this in construction, for years) all homes need a roof, a driveway, windows and sure upgrades are great but hardly ever are they value adders.

If you don't look at the numbers, selling a home for 100k more than you paid for it could look like a great deal. But if you stayed 10 years and over that time you spent 3,000 annually on routine maintenance and if you dug into some more serious but common major jobs like roof, kitchen, bathroom remodel, etc., Now you're into the 30-50k territory beyond the 3k that you're already paying.

Then, go back to the interest, PMI, taxes and you're at 15k in a decade (at the least).

Over ten years you could have (many do) spent more than the 100k so called profit. And then you have to pay 6% commission for selling your home...

Lot of numbers there. Rent will or should increase 10% every year (possibly more, you have no control over it after your initial lease is up unless you enjoy moving every 12 months) and it doesn't seem to be calculated into your equation. A roof is good for 25 years so that is basically the life of most mortgages. Windows on a rental may or may not ever be upgraded so your lookin at potentially higher utility bills over your lifetime of renting. A water heater is 400-500 bucks. Not a deal breaker, and they last typically around 10 years, so 2,000 over your 30 year mortgage we'll say. Your not obligated to sink a bunch of money into renovations and if your renting your chances of having anything renovated ever are slim to none. They just want your money each month. I'm still not seeing the appeal to renting but I'm glad some people like it, it is good for the land lord business.

 

[comingdown]

Let's say your lucky enough to rent for 1200 a month for 30 years. You still have spent over 400k. So if you have a house at least to sell you don't need to sell it for a million dollars, you could sell your 355k house for 500-600k (extremely likely) and you walk away ahead since then you are only out the 200-300k of the total amount spent on the mortgage, insurance, pmi etc over the 30 years. We could also add renters insurance in here and the lack of tax write offs for renting that makes home ownership even more desirable. If you add the rental increases it quickly becomes as much as renting. $1200 doesn't get you much house either these days. And you don't own it. My father has a lady that has rented from him for over 30 years. Her rent has gone from 400 to 1600 a month. If she had bought something, she would've been better off then renting and continually paying the increasing market prices. You have no control over that, except to move but then you'd be paying the same for less or you pay the going market rates at the new place. And who wants to move? It is a pain.

 

[Pike2350]

If you had to mortgage it, even at these great rates we've had for years, it's not a good investment. Period. It's not an investment just because it appreciates.

Example:

• Average home price in the United States ≈ $355,000
• Required 20% down-payment = $71,000 (most don't have that... so factor in at least 5 years of PMI)
• Loan balance = $284,000 (will be higher if you don't meet the 20%)
• Current interest rate for a 30-year fixed mortgage = 3.5%
• Monthly payment ≈ $1,700
• Total principal and interest paid by the end of the mortgage: $612,000 (or $257,000 more than the original amount)
• Average property tax rate is 1.15% ≈ $122,500 over 30 years
• Maintenance (for upkeep, maintenance, repairs, etc.) at 1% per year = $3,550 a year or $106,500 over 30 years

Total out-of-pocket costs over 30 years = $841,000 (this total will be higher, too... if you don't have 20% down)

I see both of your guys points, and think it's really somewhere in the middle. I own rentals, and can see how most people want out of them and prefer to own.....and I own/have owned a few properties and can see the expenses that aren't taken into consideration.

The main point of difference that UT410 doesn't seem to take into account is that with a mortgage, your mortgage is fixed, and while you mentioned opportunity costs,you don't mention future value of money. Being able in 10-15 years to have a mortgage payment of $1700 when, between inflation and everything else, rent may have risen to $2400 is a something to consider. There is the ability to then begin to invest the extra $700/month into investments to counteract the extra expenses. When you rent, you don't have control over that at all.

An example, my parents bought their house in 1961, they had a mortgage payment of $260 or so/month. I'm sure back in 1961 that was a pretty big deal. Fast forward to 1981 and $260/month wasn't that much. Then, fast forward again to 1991 when they paid it off.....and $260 was a new car payment. Sure, they put money into the house, but you say it "doesn't add value" but in many cases it does. It may not add as much value as it cost to do the update/remodel, but it will usually increase the value of the house. My parents added on, and, honestly, other then a kitchen remodel at the time of the add-on (1980 or so) and a bathroom update 15 years ago, they haven't done much "improvements" to the house. It's now worth probably around $600k. They paid $78k for their house over their 30 years....and it's worth $600k. It's not a bad "investment"

Granted, as you pointed out, if they were to sell it, they'd have to move into something that has also appreciated in price....but, most of the time, you sell and down size, therefore hopefully, you are able to pay cash for the new house and have money left over to pay for part of retirement. My parents aren't moving at all, but given that they were able to continue to pay $260/month when rents and their wages increased (meaning the mortgage took a smaller and smaller portion of their income over time) still allows them to save although with maybe a little later start.

 

[comingdown]

That's exact what I was trying to articulate. Rising, uncapped rental rates are not factored in to owning vs renting.

 

[comingdown]

I don't think your being a dick. I'm trying to understand your logic but just can't wrap my head around your point of view. To me it is an investment to at least leave something of value to your kids. I don't see it as my only and best retirement account. But it will hold its value and grow consistently over the years. Renting is money you will not get back ever. It is gone. It made someone else wealthy and payed for their retirement. Obviously everyone should he diversified and have as many options as possible to ensure they can retire and live with dignity.

 

[comingdown]

Said woman is definitely not sitting on millions. I was just talking to my brother who lives in Georgia and you can buy a house for 50k, rent it for 900. Buy 10 of those, you have a 500k mortgage and a 9k profit each month. It is something to think about. Not a lot of investments can offer those returns.