Am I making a mistake?

[tryan]

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?

Don't count on the town re-assessing your house DOWN upon the sale. The town is only required to reassess every few years (3 or 5 years typically). And the nieghbors (paying 21k too) would storm town hall demanding the same treatment. The town would have to reassess EVERYONE ... then the tax rate increases and you're right back where you started.

As far as a price drop - if the past in any indication - the high end will drop some then go FLAT for about a decade. The low end will be in a death spiral (as every other house is in some phase of foreclosure). Wouldn't expect the high end to drop too far below 2001 prices ... BUT who really knows.

 

[brewer12345]

Don't count on the town re-assessing your house DOWN upon the sale. The town is only required to reassess every few years (3 or 5 years typically).

Every 10 years in my county of NJ, and my town is a year or two late.

 

[al_bundy]

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.

smaller house you are probably paying a larger cost to live at that location.

and about tax assessing, i heard a lot of towns in NJ went on a reassesment rampage last year because of all the bubble talk

 

[semtex]

But issue is I want to buy a house.

The kind house I want (2500SF, 12K, 50mins to city, nice school) is around 650k to 700k. They are not even the first wave down.

The worst senario, the McMansion down to 600k from 760k I paied. Then the mid end house down to 500k. I could sell the Mc and buy the mid end, rit? The big house I lost 160k, the mid I save 150k. It is even.

The point is the mid end not down yet and I could not wait for another two years. The Mc already down 33%( 1.1M to 760k).

By the way, this morning, I called the township officer, he confirmed with me the property tax of this house will down to 17k.

 

[tryan]

... sounds like you're gonna do it ... what are you listening to us for?

 

[semtex]

No, not decide yet. It is a big decision and I trust your guys wisdom.
I truely believe there is more down trend going. Just want to figure out which way have less loss.

Let's not considering renting and watch side way.

Still use the two sample below, which to pick?

size 3900SF 2700SF
year 1996 1980
lot 1.2 1.1
price 770k 68.7k
tax 17k 14k
location same area, bigger one is in the best spot.

 

[brewer12345]

I wouldn't pick either (and I didn't in real life either). The financial obligation wouldn't leave me enough wiggle room , cash-flow wise. I also think you will be pulled more into consumerism if you live in such a place. But that is for you to decide.

 

[semtex]

Cash flow analysis. Did I do it correctly?

Mc Mid end
House Purchase Price $760,000 $680,000
Down Payment $100,000 $100,000
Down Payment Requirement 20% 20%
Primary Mortgage Amount ($608,000) ($544,000)
Property Tax ($16,500) ($14,500)
Interest Rate 6.13% 6.13%
Second Mortgage Amount ($52,000) ($36,000)
Second Mortgage Rate 8.50% 8.50%
Term 30 30
Base Pay $200,000 $200,000
Paid Bonus $0 $0
Self Employment Income $0 $0
Mortgage Interest ($41,660) ($36,380)
Total Income $200,000 $200,000
State Tax Rate 6.000% 6.000%
State Tax ($6,350) ($6,787)
Bonus State Tax Paid ($1) ($1)
401k Contributions ($30,000) ($30,000)
Payroll Deductions ($6,000) ($6,000)
Itemlized Deductions ($64,510) ($57,667)
Adjusted Itemlized Deductions ($63,640) ($56,797)
Exemptions ($9,900) ($9,900)
Total Deductions ($109,540) ($102,697)
Taxable Income $90,460 $97,303
Federal Tax Due ($15,462) ($17,173)
Bonus Federal Tax Paid $0 $0
Average Federal Tax Rate 17.09% 17.65%
Implied Federal Tax Rate 9.43% 10.47%
Social Security Tax ($6,045) ($6,045)
Bonus Social Security Tax Paid $0 $0
Medicare Tax ($2,378.00) ($2,378.00)
Bonus Medicare Tax Paid $0.00 $0.00
SDI ($31) ($31)
Total Tax ($30,267) ($32,415)
Monthly Net Pay $11,144 $10,965
Effective Tax Rate 18.46% 19.77%
Monthly Mortgage Payment ($4,112.99) ($3,595.28)
Monthly Association Fee ($110.00) ($110.00)
Monthly Mortgage + Tax+other ($5,597.99) ($4,913.62)
Child Care ($1,000.00) ($1,000.00)
Commute ($0.10) ($0.10)
Monthly Allowance $4,546 $5,052

 

[BarbaraAnne]

Some thoughts based on our experience:

I think you really want this home and are trying to justify it. It looks good on paper and you are imagining the lifestyle that you will have.

We did the same thing when our kids were young and bought the mcmansion. It is spacious and the schools are exemplary.

However, there are downsides:
We have over 4,000 square feet to heat, a/c and maintain. It gets really old to replace water heaters, a/c units, paint etc and is expensive. It seems like something is always breaking and frankly I hate cleaning it! Our taxes are very high and we would rather use that money for travel. In addition, we have to pour a lot of money into our home to keep it "updated" so that we can sell it. I would rather use the money for experiences for our family.

When you live in an expensive area (the homes in neighborhoods around ours are 2 to 10 times the value of our home/neighborhood) the kids your kids grow up with tend to be spoiled and indulged. There is a lot of materialistic peer pressure and you don't want your kid to feel deprived. The neighbors tend to be very materialistic also.

We are glad we live here because the schools are good. However, if I were to do it over, I would have moved to a smaller home in a less expensive area that still had very good schools, but I would have wanted my kids to grow up with other kids that were more appreciative and didn't feel "entitled". Believe me, it rubs off on your kid! It takes a lot to keep them "grounded".

In addition, if you want your child to be successful in school it is hard to stand out in a school where there is so much wealth that almost all the kids have tutors and private coaches that work with them from before they enter kindergarden. Where we live, it is almost impossible to make sports teams, unless you are a super athelete at a young age. I think my kids would have been much happier with less pressure. They did well in school, but they would have been outstanding in a less-pressured environment.

 

[tryan]

wow ... thanx for sharing. Might explain why the McMansions seem to turn over so often.

Some friends live on a McMansion circle ... they're the only ones who have been in their house longer than 5 years. Small sample ... I know ... but an observation none the less. AND the OP's McMansion ... built in 1996 and is selling for a third time in 11 years!

 

[semtex]

sigh, the true story is my wife in love with mid end house. I refused to bid higher and lost it. She really mad at me.

That's why I tried to figure whether the Mc is a better deal comparing to the mid end one.

 

[brewer12345]

Heh, then you are screwed no matter what you do.

 

[semtex]

My wife is reading this thread too. I got to speak nice.

In fact, we have another choice, another house at same area.
A 3600SF tudor, build 1932, 10k tax. Current owner replaced tons of stuff, roof, furnace, floor, kithen, bath...
The asking is 690k, very possible we will get it at 670k.

One thing special about this house, it has a seperated apt in the house, 800SF, which is not legal. But current owner rents it out in the past years. It kicks in rent 1k/month.

My agent said the renting is illegal, but people do it anyway. Not sure about it.

 

[semtex]

Mc Mid end Tudor
House Purchase Price $760,000 $680,000 $670,000
Down Payment $100,000 $100,000 $100,000
Down Payment Requirement 20% 20% 20%
Primary Mortgage Amount ($608,000) ($544,000) ($536,000)
Property Tax ($16,500) ($14,500) ($10,000)
Interest Rate 6.13% 6.13% 6.13%
Second Mortgage Amount ($52,000) ($36,000) ($34,000)
Second Mortgage Rate 8.50% 8.50% 8.50%
Term 30 30 30
Base Pay $200,000 $200,000 $200,000
Paid Bonus $0 $0 $0
Self Employment Income $0 $0 $12,000
Mortgage Interest ($41,660) ($36,380) ($35,720)
Total Income $200,000 $200,000 $212,000
State Tax Rate 6.000% 6.000% 6.000%
State Tax ($6,350) ($6,787) ($7,817)
Bonus State Tax Paid ($1) ($1) ($1)
401k Contributions ($30,000) ($30,000) ($30,000)
Payroll Deductions ($6,000) ($6,000) ($6,000)
Itemlized Deductions ($64,510) ($57,667) ($53,537)
Adjusted Itemlized Deductions ($63,640) ($56,797) ($52,427)
Exemptions ($9,900) ($9,900) ($9,900)
Total Deductions ($109,540) ($102,697) ($98,327)
Taxable Income $90,460 $97,303 $113,673
Federal Tax Due ($15,462) ($17,173) ($21,266)
Bonus Federal Tax Paid $0 $0 $0
Average Federal Tax Rate 17.09% 17.65% 18.71%
Implied Federal Tax Rate 9.43% 10.47% 12.08%
Social Security Tax ($6,045) ($6,045) ($6,045)
Bonus Social Security Tax Paid $0 $0 $0
Medicare Tax ($2,378.00) ($2,378.00) ($2,552.00)
Bonus Medicare Tax Paid $0.00 $0.00 $0.00
SDI ($31) ($31) ($31)
Total Tax ($30,267) ($32,415) ($37,711)
Monthly Net Pay $11,144 $10,965 $11,524
Effective Tax Rate 18.46% 19.77% 21.43%
Monthly Mortgage Payment ($4,112.99) ($3,595.28) ($3,530.57)
Monthly Association Fee ($110.00) ($110.00) ($110.00)
Monthly Mortgage + Tax+other ($5,597.99) ($4,913.62) ($4,473.90)
Child Care ($1,000.00) ($1,000.00) ($1,000.00)
Commute ($0.10) ($0.10) ($0.10)
Monthly Allowance $4,546 $5,052 $6,050

 

[Achiever51]

Some thoughts based on our experience:

I think you really want this home and are trying to justify it. It looks good on paper and you are imagining the lifestyle that you will have.

We did the same thing when our kids were young and bought the mcmansion. It is spacious and the schools are exemplary.

However, there are downsides:
We have over 4,000 square feet to heat, a/c and maintain. It gets really old to replace water heaters, a/c units, paint etc and is expensive. It seems like something is always breaking and frankly I hate cleaning it! Our taxes are very high and we would rather use that money for travel. In addition, we have to pour a lot of money into our home to keep it "updated" so that we can sell it. I would rather use the money for experiences for our family.

When you live in an expensive area (the homes in neighborhoods around ours are 2 to 10 times the value of our home/neighborhood) the kids your kids grow up with tend to be spoiled and indulged. There is a lot of materialistic peer pressure and you don't want your kid to feel deprived. The neighbors tend to be very materialistic also.

We are glad we live here because the schools are good. However, if I were to do it over, I would have moved to a smaller home in a less expensive area that still had very good schools, but I would have wanted my kids to grow up with other kids that were more appreciative and didn't feel "entitled". Believe me, it rubs off on your kid! It takes a lot to keep them "grounded".

In addition, if you want your child to be successful in school it is hard to stand out in a school where there is so much wealth that almost all the kids have tutors and private coaches that work with them from before they enter kindergarden. Where we live, it is almost impossible to make sports teams, unless you are a super athelete at a young age. I think my kids would have been much happier with less pressure. They did well in school, but they would have been outstanding in a less-pressured environment.

We must live in the same neighborhood! I concur 100% with BarbaraAnne. We bought our house in 1998 when I must admit that I was caught up in the "gotta have it" phase of my life. We wanted the house because we love to entertain. OK, we had some great parties -- but what were we thinking?

In retrospect, I wish we had bought a much smaller home. At the time, we convinced ourselves that the costs were worth it because the schools were so much better, etc., -- and they are -- but it was quite a challenge to raise a grounded child when all his/her friends are driving the latest cars, going on incredibly elaborate vacations, etc. Fortunately, like BarbaraAnne, our children did fine in school -- but the pressures were huge!

Now, as we enter retirement, my DH and I -- plus the two dogs and cat -- are rambling around in a home that is much, much too much to care for. I hate the upkeep and look forward to regaining my sanity once we sell this house and do a major downsizing. In the meantime, I got to figure out what to do with all the furniture and other "stuff" that we "had" to have to fill this place!

My vote: YES, you are making a mistake!

 

[tryan]

My wife is reading this thread too

No need for analysis paralysis ... Which one does she want?

 

[semtex]

Answer is obvious. Sigh.

More about my love, the tudor. It is big enough(2800SF + 800SF). The apt is on the other side of the building with its own entry and parking. I like it very much, the big dard beam, unique structure. It is very solid, even after 75 years, amazing. If the rent will cover the property tax, only thing left is the morgage.

But it is on a main road, location not attractive. Very limited appreciation room. The Mc is on a very quite st.

How you guys view the apt, could I view it as a stable income? What will happen when I got caught?

 

[chinaco]

It is tough when spouses do not see eye to eye on financial priorities.

If you are OK with spending the money... that is a personal decision.

The main risk that I see If one of you lose a job, you may be in a crisis financially and have to sell the house at a reduced amount to move it quick. I did not see your age. And I do not know how much you have for a down payment or how long you will be paying the Mortgage. But... You stated that you have stable jobs. You never can tell when a health problem might occur or one of you loses one of those stable jobs. If the mortgage is for 20+ years, that is a long time for stuff to happen.

 

[semtex]

Guess I have to pass the tudor, since no one likes the renting idea.

We are all good citizens.

 

[donheff]

My wife is reading this thread too. I got to speak nice.

Bummer. You must be getting a mega-dose of "I told you so." I hope DW has a good sense of humor.

 

[tryan]

How you guys view the apt,

It'ld be a head ache having the tenants right outside your door ... sharing the yard ... couldn't do it.

 

[Brat]

In my old neighborhood informal 'mother-in-law' units were common. The homes were older and very large, their original owners probably had live-in staff. They weren't sanctioned by zoning. I am not aware of any issues because home owners were VERY careful about tenant selection. Ultimately the city made such uses legal because they wanted to increase density.

What you need to be wary of are safety issues. If the city zoning permitted the use would the spaces meet the fire/safety code (exits, stairs, venting and the like).

 

[kcowan]

We were in a 5000 sqft place on 1 acre, overlooking a river valley with a 25 mile view to downtown skyline, with a pool, enclosed Jacuzzi room overlooking pool and forest off the MBR. 3-car garage, 180 trees, games room, den, large office, 3BR, laundry upstairs. And the kids were bussed to a rural school where there were great family values.

I loved that phase and after 14 years was pleased to downsize. There is a time and place for everything. Would we have been better off financially to have lived more modestly? Absolutely. Do we regret doing it? Not for a moment!

Fortunately, we made it to FIRE anyway. Actually, RE but not quite FI by my standards. Although after 4 years RE, we are closing the gap quickly. I am aiming for 3.5% and not counting the pensions. We rent now to maximize our liquidity and returns.

(The 17% windfall equity gains YTD have helped immensely)

 

[tiredofwork]

Guess I have to pass the tudor, since no one likes the renting idea.

We are all good citizens.

In the late 80's, early 90's, I had a 1500 sq ft 3/2 home (built in 1926) that had a 600 sq ft cottage in the back yard (converted from gargage). The city was very "code conscious" and renting the cottage was against code. Howver, people did it anyway and there were absolutely no problems and wouldn't be unless one of the neighbors complained. I had the cottage rented for about $600/month for almost (included electricity/water, since only had one meter) the entire five years I lived there.

I'd go for the tudor, if the wife likes it. Never underestimate the value of pleasing DW.

 

[semtex]

In fact, if add the renting cash flow, the tudor is very attractive.

Comparing to my current renting, the cash flow is negative $1230/month. But instead of a two bed room, I got 3 Bed room/2bath/very big kiten, 1.5 acre lot, ...