clifp
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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You have weird bedtime reading habits, but it beats a sleeping pill.
Do you want to pay for the Sub-Prime freeze?
- Thread starter jimhcom
- Start date
You have weird bedtime reading habits, but it beats a sleeping pill.
Money magazine, January 2008, pages 60 - 61, "Retirement Plan Interrupted":
Single person, age 21, makes $77,000 a year as a school psychologist (southern California), purchases a $600,000 duplex.
7.8x her current salary.
For 3% down.
With a 40 year fixed 5.1% loan.
With the first 10 years being interest only.
Her payment now is $3,000 / month. It will go up to $4,000 / month after the interest only portion expires.
Math follows:
With the interest only, her monthy payment is 46.8% of her gross income.
When she starts paying principal (how old-fashioned!
), her monthly payment will be 62.3% of her current gross income! (hmmm, no heart attack emoticon...) Granted, that is ten years in the future.
She is renting out the second unit for $1,100 / month, which changes the percentages to 29.6% and 45.2%. Still not something I'd recommend.
Of course, ten years ago, the general perception (not here, general American society) would have been that she's a freakin' genius. Now, with prices down 3% (oops, equity gone!) and expected to drop 9% next year (oops, NW just went from $83,000 to $29,000!), not so much...
Single person, age 21, makes $77,000 a year as a school psychologist (southern California), purchases a $600,000 duplex.
7.8x her current salary.
For 3% down.
With a 40 year fixed 5.1% loan.
With the first 10 years being interest only.
Her payment now is $3,000 / month. It will go up to $4,000 / month after the interest only portion expires.
Math follows:
With the interest only, her monthy payment is 46.8% of her gross income.
When she starts paying principal (how old-fashioned!
), her monthly payment will be 62.3% of her current gross income! (hmmm, no heart attack emoticon...) Granted, that is ten years in the future.She is renting out the second unit for $1,100 / month, which changes the percentages to 29.6% and 45.2%. Still not something I'd recommend.
Of course, ten years ago, the general perception (not here, general American society) would have been that she's a freakin' genius. Now, with prices down 3% (oops, equity gone!) and expected to drop 9% next year (oops, NW just went from $83,000 to $29,000!), not so much...
honobob
Thinks s/he gets paid by the post
- Joined
- May 8, 2006
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- 1,036
That's one sweet mortgage. I'd buy all day long if I was genius enough to get that kind of financing! So in ten years she should have slightly less than $1,000,000 equity(10% appreciation) and rents will be up over $6,000 a year (4%) and if she'd waited 10 years to buy she'd be shelling out and extra $9,000 each and every year to property taxes(thank you Prop 13)!
Yeah, she's a genius now to get that great of a financing deal. In ten years she'll just be rich. In twenty years she'll be freaking annoying at cocktail parties talking about how she has 20 years left on her 5.1% fixed mortgage when 9,10,11% has been market for the last ten years.
That loan has to be a school deal?!
Loan was financed in 2006. No details in the article on the loan other than what I already mentioned.
The rate is good, and it's fixed, which is good - it's the first ten years of interest-only and the percent of her income that I think are insane.
10% annualized appreciation? Maybe. Maybe not.
Rent increase of 4% / year. I have no idea how realistic that is.
Maybe she will be a RE millionaire in ten years. But if her roommate moves out and she loses her job, she'll lose the house at loss in a couple of months. Even if she doesn't lose her job but can't rent out the other unit, she's sunk. Too much risk. Leverage is a double-edged sword.
And I have no interest in a tax-payer funded buyout for her.
The rate is good, and it's fixed, which is good - it's the first ten years of interest-only and the percent of her income that I think are insane.
10% annualized appreciation? Maybe. Maybe not.
Rent increase of 4% / year. I have no idea how realistic that is.
Maybe she will be a RE millionaire in ten years. But if her roommate moves out and she loses her job, she'll lose the house at loss in a couple of months. Even if she doesn't lose her job but can't rent out the other unit, she's sunk. Too much risk. Leverage is a double-edged sword.
And I have no interest in a tax-payer funded buyout for her.
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