Am I making a mistake?

[macdaddy]

I don't get the obsession with schools, personally. If the public schools aren't the greatest, but you aren't spending a mint on the house, you always have the option of private or parochial schools. The ~$14k less a year I spend on RE taxes than the house OP is contemplating would pay for an AWFULLY elite private school.

According to this site:

http://www.boardingschoolreview.com/school_ov/school_id/7

The average day student tuition at boarding (private) schools was $19,866. Religious schools might be a bit cheaper.

 

[Cadence]

Tax Shelter Check with your tax guy.

With your income you better be sure you're not in AMT as many of us in NJ are.

 

[runchman]

And as far as the whole 'tax shelter' aspect, make sure you aren't paying a sh*tload to save .3 times that sh*tload.

i.e., don't get blinded by the idea of spending an extra buck because it will save you less than a buck in taxes.

I'd forget about the 'deal' aspect of it, and just consider if you'd want that size house and mortgage irrespective of the 'investment' angle.

6 months in, when you are counting the days before your next payday or wondering if you can afford to go out to dinner, the fact that your house is worth 150k more than you paid for it isn't going to mean much to you.

- John (maybe I've just given up the McMansion dream now that I've gotten a bit older !)

 

[dumpster56]

What town in NJ is this in?

Forget Zillow. 9 months on the market, you know the place could be worth 650,000 in 2 years. I believe we are in the early stages of a totally screwed up world. What will happen if we really do end up dancing with Iran? Gasoline and heating that big house will cost a bundle. 21K Property taxes. Dude I left NJ as fast as I could after almost 50 years living playing and working there.

Be careful!

 

[brewer12345]

According to this site:

http://www.boardingschoolreview.com/school_ov/school_id/7

The average day student tuition at boarding (private) schools was $19,866. Religious schools might be a bit cheaper.

There are three excellent Catholic schools near me that gor for about $4 or $5k a year. I was thinking of a private school where you don't ship your kids away for good.

 

[firewhen]

Tax Shelter Check with your tax guy.
With your income you better be sure you're not in AMT as many of us in NJ are.

To comment on this, there is this feature in the tax code where you pay more if you have certain deductions. One of the deductions you have to add back into your taxable income when calculating the alternative minimum tax (AMT) is state/local income and property taxes. What this means for most folks in high tax areas, myself included, is that much of what we pay is not generating any tax savings on the federal level. As a small aside, NJ lets you deduct up to $10,000 on your state income taxes on your state return for property tax. So even the state feels that over half the taxes you would be paying are beyond what they let you deduct.

 

[al_bundy]

I don't get the obsession with schools, personally. If the public schools aren't the greatest, but you aren't spending a mint on the house, you always have the option of private or parochial schools. The ~$14k less a year I spend on RE taxes than the house OP is contemplating would pay for an AWFULLY elite private school.

paying higher RE taxes is better since private school tuition isn't deductible from your federal taxes. if you aren't an AMT target it's probably better to pay higher taxes than send kids to private school. And some of the districts around NYC are better than 90% of the private schools in the US.

 

[al_bundy]

Continue my house hunting story:

Last week, we lowballed a McMasion. Some numbers about this house:

Location, north Jersey, 3900SF, 1996 built. Lot 1.2 Acre. Very good shcool district. Easy commute to city. Owner bot at 2001 with 892K.
property tax: 21k.

House has been on market for about 9 months. Original asking was 1.2M, now 850k. We offered 750k. Last friday, they gave us counter offer 770k.


Question: to be or not?

Our financial number:
A couple with a three years old son.
Both work, base salary(two), 200k. Bonus 25k ~ 80k. Stable jobs.
150K cash at hand. Two cars. No debt. Good credit.

I played around the number, very streching. Especially the property tax part(although it may got adjusted for the sale price, but to be conservertive, we would like not to count this).

But on the other side, is this house undervalued? I think so. Zillow estimate is 950K. The house is in a millor dollar area. Similar house sold at middle of 2006 is around 950K.

Please comments.

i own an apartment in NYC and would wait until 2011 or so at the earliest to buy a home in the NYC suburbs. Reason is that a lot of the suburbs are losing people as the boomers sell and move to lower cost areas. the census says that nassau and suffolk counties lost a lot of people in the 1990's and it will probably be the same for this decade as well. I think NJ is also losing people.

The risk is that if you buy now then you may lose a lot of money even in 10 years or whenever you sell. for your budget check out the NYC neighborhoods around bayside or little neck. Good schools and property taxes are 1/2 or less of NJ

 

[brewer12345]

paying higher RE taxes is better since private school tuition isn't deductible from your federal taxes. if you aren't an AMT target it's probably better to pay higher taxes than send kids to private school. And some of the districts around NYC are better than 90% of the private schools in the US.

Just guessing, but I would imagine that most people in OP's position are AMT bait. I know I am.

 

[SecondCor521]

I think you would be making a mistake to buy the house.

My mortgage is about 2.2x my annual income, and my property tax and insurance is about $1.1k per year. You're looking at a multiplier of at least 3x your base salaries, because I'm guessing you wouldn't put down all of that $150K in cash on the house. Besides which you seem to have forgotten about purchasing/moving costs (loan fees, appraisal fees, transfer taxes if they have those in NJ, etc.). Also, most people who buy a big house want to fill it up with furniture and stuff that will add to your expenses.

There's a rule of thumb about houses -- don't know the source, sorry -- that says never get a mortgage more than twice your annual salary if you want to be rich. So in your case that would be maybe $500 or $550K range. Although I can sympathize if that doesn't buy you much in NJ now.

If you do decide to proceed with your mistake, though, you can probably get it for $750K if you stick to your guns. The sellers sound desperate to me.

What does your wife think?

2Cor521

 

[al_bundy]

Just guessing, but I would imagine that most people in OP's position are AMT bait. I know I am.

not really

homes in northern NJ went from around $250,000 in 1997 to around $750,000 or more now. Some towns like Ridgewood it can be over $1 million. a normal middle class person could have bought in the 1990's and ridden the wave up. my mom knew someone who bought a 2 family around 1994 in NJ and struggled for a few years. now with the rent money and pay increases she is sitting on a goldmine. This person was making a lot less than $100,000 in family income with her husband. my in-laws bought a home in NYC in 1994 and they make a lot less than the national average. a lot of homes in queens in NYC are owned by the remnants of The greatest generation and a bunch of boomers with paid off mortgages. property taxes are so low that a senior with $0 in retirement money can live on social security with no problems here. meanwhile the house can be worth around $700,000

read a book a few months back and they had a chart going to 2003. average house payment has always been around 25% of income. around 1981 there was a spike to 50%. around 2003 or 2004 it was close to 40%. i believe a reversion to the mean is coming to a lot of areas. the chart was made by The Milken Institute in some study they did a few years back

 

[brewer12345]

homes in northern NJ went from around $250,000 in 1997 to around $750,000 or more now. Some towns like Ridgewood it can be over $1 million. a normal middle class person could have bought in the 1990's and ridden the wave up. my mom knew someone who bought a 2 family around 1994 in NJ and struggled for a few years. now with the rent money and pay increases she is sitting on a goldmine. This person was making a lot less than $100,000 in family income with her husband. my in-laws bought a home in NYC in 1994 and they make a lot less than the national average. a lot of homes in queens in NYC are owned by the remnants of The greatest generation and a bunch of boomers with paid off mortgages. property taxes are so low that a senior with $0 in retirement money can live on social security with no problems here. meanwhile the house can be worth around $700,000

Yes, yes, I know all that. I was talking about people like OP, who are considering buying into one of these places at today's prices, not about people who have been there since dinosaurs roamed the earth.

 

[dumpster56]

Gimmie a break move out to warren county NJ if you must stay in NJ for a job, you can get a 10 YO centerhall colonial on almost an acre for around 440K right now in nice towns near the delaware river sure you will have a commute but hey you are living in NEW JERSEY! By the way 3000 square feet nice places, we sold ours last april at the top at 520K See what I mean prices now are down over 20% and they are still not selling.

 

[al_bundy]

Yes, yes, I know all that. I was talking about people like OP, who are considering buying into one of these places at today's prices, not about people who have been there since dinosaurs roamed the earth.

every year when i tell turbo tax to do the AMT test i shake with fear myself

 

[brewer12345]

every year when i tell turbo tax to do the AMT test i shake with fear myself

Heh, for 2006 I ended up with an AMT liability of something like $116. So I had just about the max amount of deductions I could manage and still get away with it. I suspect that AMT will be academic for me for 2007, since I won't have enough deductions to offset all the taxable income.

 

[lazygood4nothinbum]

while i don't understand finance a fraction as much as these good people what i did learn quickly & recently was how illiquid is a house. having just inherited a million plus dollar house, i'm not rich enough to own a million dollar house even though it is free & clear. frankly, i'm not even crazy about owning my own 1/2 million dollar house anymore and am looking foward to the market coming back so i can downsize to a halfsize of that.

 

[al_bundy]

Heh, for 2006 I ended up with an AMT liability of something like $116. So I had just about the max amount of deductions I could manage and still get away with it. I suspect that AMT will be academic for me for 2007, since I won't have enough deductions to offset all the taxable income.

wife and i are technically in the 28% bracket but end up paying no more than 12% or so of gross income of income tax, so a possible 16% extra liability makes me shake with fear

 

[tryan]

WOW 21k/year for TAXES and they NEVER go away (only go UP). I couldn't do it.

Just know if you do it, both of you will be working the entire time you're in the house.

 

[bright eyed]

2 adults and one kid and 3900 sq feet? sounds like way too much house, even if you have 3 more!

utilities, landscaping - whether you pay someone else or do it yourself it will be a drain.

didn't the seller lose money on the house?

what about childcare/preschool costs - those are huge, and generally more expensive in higher end areas...calc that too since you said both of you are working...especially if you are planning on having more - you may consider one of you staying at home for a while which will cut your income significantly... etc.

 

[semtex]

totally agree with you guys. 3900SF is too much. 21k tax is too much.

But IF, just if, the tax is 16k, is this a good deal? the owner spent 892k five years ago, now let's say 770k. if there is a crash ahead, the low will be lower than the price of 2001?

 

[semtex]

let me put it in another way.

Now you have a chance to buy a house at 2001 price, 892k, but you pay 770k, same time the difference 122k will pay in the 20 years, so 6k/year(just put it simple).

from this view, the deal is good or not?

 

[SecondCor521]

let me put it in another way.

Now you have a chance to buy a house at 2001 price, 892k, but you pay 770k, same time the difference 122k will pay in the 20 years, so 6k/year(just put it simple).

from this view, the deal is good or not?

It's not a good deal because you can't afford it. Lower property taxes are a red herring, the mortgage itself is too much.

JMHO.

2Cor521

 

[bpp]

Wow, 21k in property taxes alone. Even 16k sounds horrificly high to me. Divide those numbers by 10 and you're talking my language. Otherwise, you're paying a very high rent to the state just to keep your own home.

New Jersey must be heaven on earth to be able to command such sums...

 

[semtex]

One thing puzzled me is that small size houses are more expensive.

On Feb, we bid a older colonial(1980) with 2700SF, tax 14300. We offered 62, 65, 66k and gave up. It was sold 68.7K. Compare to the McMansion, which is more expensive?

size 3900SF 2700SF
year 1996 1980
lot 1.2 1.1
price 770k 68.7k
tax 21k 14k
location same area, bigger one is in the best spot.

from the compare, the tax is the killer. If tax is 16k, isnot the bigger one cheaper?

House price at good spot is not in a free fall. Yes, maybe 5, or 5+ years down trend ahead. But we could not wait for another five years.

 

[brewer12345]

The issue isn't whether prices are moving up, down, or sideways. The problem is the absolute amount of money you would have to part with every year to live in such a place. You can probabbly carry the costs of the house, but it will likely preclude ER.