Any tips for when you're saving for a house

[Markola]

Quote:

Originally Posted by Texas Proud It is not an investment.... My first house cost me $66K.... lived there for 25 years and sold for about $115... not a great 'return'.... Current house bought during the RE crash, so cost $160K and is probably worth in the $230ish range... been here 7 years... most of that is due to the recovery of RE, so I guess you could put some of that gain on the old house...

That's how I think of it too: What is my total real estate "investment" gain over 20 years of owning houses compared to the opportunity cost had I instead rented at a stable rate and invested in the markets all of the down payments, commissions, mortgage fees/interest and capital costs of owning those houses. I am sure I would be much wealthier today had we rented. Yet, there were benefits to "owning", or more properly, paying a bank rather than a landlord for shelter. I never had to deal with someone demanding to come in the house for maintenance of their property; when we sold our first house the proceeds paid off DW's student loans; we have had the greater satisfaction of living in stable neighborhoods and forming long-term friendships with neighbors rather than transient apartment complexes or blocks; and it is nice to have the flexibility to remake the homes and yards to function for us without getting anyone's permission. Purely financially, though, in hindsight we shoulda rented.

[athena53]

Going back to the savings question: it's all about priorities. Take a close look at all your expenses and see where money is going on things that you don't find all that useful or enjoyable. Monthly fees are especially fertile ground. Can you cut back on your cable or cell phone plans if you have them? Are there software subscriptions you don't use and can cancel? Can you search for discounts and deals on things? Do you have too many fee-carrying credit cards? They're all small amounts but over time they add up.

On another Board where I post frequently, the advice would be to try and find ways to increase your income, but that's not always possible.

Finally, don't give up all the good stuff. It sounds like you have a healthy perspective. It might be good to go into starving college student mode if you're trying to pay off $50K worth of credit card debt, but figure out what you REALLY enjoy and find a way to keep it in the budget. Home ownership is great, but not always a fantastic investment.

DH and I are definitely millionaire-next-door types-I clean my own house and paint my own walls, my cell phone bill is usually $17/month (thanks, Ting!), we shop art Costco, and we drive very mediocre but reliable cars, bought used. We're also going to Iceland in August. In Business Class. Priorities!

[Markola]

Thanks for that Ting tip, Athena53. I just looked at their site and was impressed.

[Big_Hitter]

After you max our your 401k, I'd suggest investing in mutual funds via payroll deduction. That way you never see the $$$ in your checking account.

[Texas Proud]

Quote:

Originally Posted by Markola That's how I think of it too: What is my total real estate "investment" gain over 20 years of owning houses compared to the opportunity cost had I instead rented at a stable rate and invested in the markets all of the down payments, commissions, mortgage fees/interest and capital costs of owning those houses. I am sure I would be much wealthier today had we rented. Yet, there were benefits to "owning", or more properly, paying a bank rather than a landlord for shelter. I never had to deal with someone demanding to come in the house for maintenance of their property; when we sold our first house the proceeds paid off DW's student loans; we have had the greater satisfaction of living in stable neighborhoods and forming long-term friendships with neighbors rather than transient apartment complexes or blocks; and it is nice to have the flexibility to remake the homes and yards to function for us without getting anyone's permission. Purely financially, though, in hindsight we shoulda rented.

Not even close here.... renting is much more expensive than buying if you plan on staying awhile...

My all in cost for a house is maybe 60%.... I just looked and the RE site does not show any houses for rent in my neighborhood, so I looked at a similar one a few miles away.... AND, that is not counting the pay down on the mortgage, just cash flow...

[Markola]

Quote:

Originally Posted by Texas Proud Not even close here.... renting is much more expensive than buying if you plan on staying awhile.....

That's just it. Who knows the future? We planned to stay a while each time we bought but have instead ended up buying 4 houses in 20 years. I know there are fierce arguments on both sides of this unsolvable question, so my comments were about my experience. YMMV.

[Bamaman]

I was thinking how nice it is to live in one of the cheaper housing markets in the U.S. I see HGTV shows from Toronto and Southern California with people spending $600K for a house that'd cost $80K here. Most of those houses are sub-standard until completely rebuilt--another $300K.

I bought a really nice 2800 square foot house for my daughter last year. The living room/dining room is 14' x 34'. The den/kitchen combo is 16' x 40'. And it has a 24' x 25' play room on top of 3 bedrooms and 2 baths. $105K

Low priced locations mean you don't have to save very long in order to be a buyer.

[Marita40]

My experience is very similar to Texas Proud's. When I bought my first house at age 28 in the town I had moved to for my academic job, I opted for a neighborhood that was stable but not high class: small, neat houses with a mix of older folk and young professionals. I felt I could not afford a house in the more desirable neighborhoods closer to my work. I bought my house for $50,000; those in the more desirable neighborhood were about $75,000-80,000. Although I remained in that house for nearly 20 years the neighborhood slowly declined around me until I was lucky to finally bail out for a not-so-bad price (just before the recession hit). I'm now in the desirable neighborhood and sometimes think about how if I had had the foresight to just spring for it at the time--despite what seemed to be a HUGE mortgage--I'd have spared myself some moving grief and expense. Anyway, I'm trying to apply the lesson learned to some related things today. For example, I'm contemplating a kitchen remodel. My new place needs one and it will certainly be a capital improvement but I'm balking at the $25,000-30,000 price tag. It seems HUGE. Yet I'm fairly confident that in the long view of things it will be worth it and even seem relatively inexpensive.
Anyway, if I could get a do-over of that first house situation, I'd urge a first time homebuyer to buy a house with potential to grow in in the best location--and then plan to stay put.

[Texas Proud]

Quote:

Originally Posted by Markola That's just it. Who knows the future? We planned to stay a while each time we bought but have instead ended up buying 4 houses in 20 years. I know there are fierce arguments on both sides of this unsolvable question, so my comments were about my experience. YMMV.

Completely agree.... I was just giving my info to show that it make a difference where you live and your circumstances... some places renting makes sense and some places owning make sense.... you just have to take a good look and see where you are in the mix....

[Greencheese]

A lot to take in from everyone. I perused some of the other financial sites and it seems the general consensus here and almost everywhere is smaller but the best location one can spring for, even if it is a bit of a financial stretch initially. Obviously watching the housing collapse has had an impact on me, although I luckily grew up in a household where buying far too much house was not a lifestyle. Unfortunently I also grew up in a smaller town where $100k got you a very nice house, around the larger cities... not so much

A little additional information about me...

I'm currently a 26 y/o CPA with a salary of $75k and ~$5-$6k annual bonus. No debts and I have the budget to comfortably save $500+/month after setting my payroll deductions to max my 401k, HSA, and Roth IRA annually without trying to deprive myself monthly. Could trim some fat but I'm naturally pretty frugal. Was lucky enough to land a new job in 2015 which allowed me to ditch the leased car (was out of necessity at the time) and bank that money as well while utilizing public transit. Fiance is 27 with a salary of $35k and current student loans of $58k. At the current payoff schedule I expect the debt load to be ~$45k by the time we tie the knot mid next year, at which point I'll shift my budgeting towards debt extinguishment 100%. Prediction is end of 2018 to be entirely rid of the debt.

Cashflow wise we're in great shape, and I've been tracking our expenses for 4 years now so I know all income vs expenses for that time frame. Honestly a mortgage for 3x our current earnings would be easily doable while still maxing retirement accounts if there was not any student loan debt, and that doesn't factor in wage growth for the 2 of us + an expected promotion within the next 2-3 years for myself either. With some possible medical concerns we're likely going to need to look at children sooner than later as well once married. However with the current student loans we're going to be short on time to get 20% down, especially since houses around major population centers seem to be much more expensive than those smaller towns.

I didn't realize there were still a few programs out there for less than 20% down, and potentially even a way to either avoid PMI or hit 20% and be rid of it. If that's the case, we're likely to shoot for one of those while pay excess amounts to get the mortgage to a more reasonable amount as soon as possible.

I'm enjoying reading other's experiences with buyings houses as well, so additional perspectives are always appreciated. And with 5 years to go at least, I'll know for sure if Illinois get it's s**t together or if its time to bail before setting down some more permanent roots . Because once those roots are down the goal is to stay put until the kids out of the house, of course life could change but ideally there won't be any moving.

[papadad111]

Quote:

Originally Posted by Bamaman I was thinking how nice it is to live in one of the cheaper housing markets in the U.S. I see HGTV shows from Toronto and Southern California with people spending $600K for a house that'd cost $80K here. Most of those houses are sub-standard until completely rebuilt--another $300K. I bought a really nice 2800 square foot house for my daughter last year. The living room/dining room is 14' x 34'. The den/kitchen combo is 16' x 40'. And it has a 24' x 25' play room on top of 3 bedrooms and 2 baths. $105K Low priced locations mean you don't have to save very long in order to be a buyer.

Is buying a home for your adult children a common thing now days? My folks couldn't afford to buy me an old beater car... Let alone a house.

My kids can live in a tent and learn to work really hard before I buy them a house

But it does seem that I'm hearing more and more people doing that for their kids ... Good or bad... I dunno

[meierlde]

Quote:

Originally Posted by Texas Proud It is not an investment.... My first house cost me $66K.... lived there for 25 years and sold for about $115... not a great 'return'.... Current house bought during the RE crash, so cost $160K and is probably worth in the $230ish range... been here 7 years... most of that is due to the recovery of RE, so I guess you could put some of that gain on the old house...

I bought a house in Houston in 1978 for 55k and sold it in 2005 for 98k or so after spending 26k on fixup things (new roof, fix sheet rock, paint....) The sort of things one can live with but can't sell the house with. Once again not a really good return on investment over the 27 year period.

[athena53]

Quote:

Originally Posted by papadad111 Is buying a home for your adult children a common thing now days? My folks couldn't afford to buy me an old beater car... Let alone a house.

A friend who lives in a HCOLA area (Bergen County, NJ) just reported that her son was engaged; he and his brother (ages 28 and 31) had been living with parents because a decent home in their town runs about $500K. The nice little 3 BR postwar Cape Cod I owned there sold for $550K in 2003. OK, so it had a swimming pool.

I was really curious about how the son and his fiancée were going to find reasonable housing- she told me they'd held onto their first house in the town and used it as a rental; now the son and fiancée would occupy it. Not sure what the second son is going to do if he ever wants out!

In some markets, it's impossible to get a foothold in the market without help from somewhere. I guess parents help if they have the mans. I am SO glad we moved to a LCOL area and DS bought a nice little house in Des Moines on his own, 3 years out of college.

[Senator]

My advice would be to rent. Max out your 401K, HSA, IRA, Roth etc.

Rent only what you need. If there is only two of you, rent a 1 BR or studio.

• Rent it close to where you work. You will save money on yard tools, and home maintenance.
• If the neighborhood gets bad, you can move.
• Use the extra time that you are not using for commuting to pick up a side hustle and make extra money.
• Work longer and get promotions. Your door to door time will be the same as someone who lives further away in a home.
• If you get a new job, move closer to it.

Home ownership is not cheaper than renting when you factor in the extra costs of maintaining the larger space than you need.

[Markola]

+1 Senator. http://jlcollinsnh.com/2013/05/29/wh...le-investment/

[Totoro]

+1 There too, if there is enough supply where you want to live (rural renting can be troublesome).

Also, choose your landlord wisely. I've had many and some are very cool, others are a tad neurotic.

Yes, it is your house, but I live here!

[Bamaman]

Quote:

Originally Posted by papadad111 Is buying a home for your adult children a common thing now days? My folks couldn't afford to buy me an old beater car... Let alone a house. My kids can live in a tent and learn to work really hard before I buy them a house But it does seem that I'm hearing more and more people doing that for their kids ... Good or bad... I dunno

Our daughter came to spend the night with her 4 year old and 8 year old kids. She was still here 10 months later--in spite of having a place 1 mile away she didn't feel safe in.

We had to get her out so we could have our life back--and so we could get a good night's rest. My wife has health problems that require more than average rest.

We've lived frugally over the years and had plenty enough money to pay cash for the house without getting into any retirement funds. But the house is essentially her inheritance. We all may as well enjoy the money while you can, and her living here was not enjoyable for anyone.

[DrRoy]

Quote:

Originally Posted by heeyy_joe Buy the cheapest house in the best neighborhood you can afford that has a superior school district.

+1 Great advice for holding value. Also though, buy the smallest house that will meet your needs while you are there. Do not buy as much as you are told you "can afford". Lower housing costs will help you get to FI.

[Dash man]

Don't forget to consider the expenses after the purchase of your home. Build an emergency fund for the things that break or wear out. New roof or roof repairs, HVAC maintenance, repairs and eventual replacement, plumbing issues like hot water heaters and leaky faucets. And those remodeling jobs you'll eventually want to tackle. It helps to learn some basic skills to fix things around the house, but some things you'll need a pro for. Homes are money pits, so keep some money put away for those surprises.


Sent from my iPhone using Early Retirement Forum

[Greencheese]

Quote:

Originally Posted by Markola +1 Senator. Why your house is a terrible investment

I hadn't thought about how essentially during my entire memory of housing prices interest rates have been on a slow and stead decline which in turn propped up the market.

Being stuck in an area that declined would certainly not be exciting. I guess if I was renting in a place like Flint MI, if the s**t hit the fan I could always move quickly... Wasn't Milwaukee the place to be at one point in time? If so... it's certainly fallen a long way since then.