Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 07-12-2007, 07:43 PM   #41
Dryer sheet aficionado
 
Join Date: Feb 2005
Posts: 39
Quote:
Originally Posted by kaudrey View Post
Brewer what were annual living expenses? The last 5 years I've averaged $19,623.

-----

If this is the case - why don't you have 20% for the downpayment? You'd have it in a year! Although you are probably not counting taxes in your expenses, I'm guessing. Just curious.

BTW - when I bought my place 7 years ago, I made about what you do and had a $240K mortgage. With property taxes and everything, I wouldn't have felt comfortable getting a mortgage above about $275K. I could have paid it, but it would have been a drain on my FIRE goals.
I do have 20% - I just think that 20% will do more for me in the market than the incremental $'s I pay against a mortgage. i.e. I'd sell in 2-3 years with a minimum 5% gain---right?
__________________

__________________
Mary_From_Georgia is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-12-2007, 07:53 PM   #42
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,017
Quote:
Originally Posted by Mary_From_Georgia View Post
I do have 20% - I just think that 20% will do more for me in the market than the incremental $'s I pay against a mortgage. i.e. I'd sell in 2-3 years with a minimum 5% gain---right?
Assuming 5% gain, subtract the interest rate on the mortgage and the closing and moving costs. NET gain = ?

Leverage is great if your investment goes up in value. If it goes down you lose bigtime.

2-3 years in the market is too short a time horizon. We could be in the middle of the next bear market in 2010. Think 15-20 years out....
__________________

__________________
Meadbh is offline   Reply With Quote
Old 07-12-2007, 08:31 PM   #43
Full time employment: Posting here.
Darryl's Avatar
 
Join Date: Mar 2007
Posts: 577
If you are thinking of selling in 2-3 years. It's very unlikely you will come out ahead unless your company is picking up all the realtor, banking and moving costs for you in a relocation package.
__________________
I highjacked a rainbow and crashed into a pot of gold - Bon Jovi
Darryl is offline   Reply With Quote
Old 07-12-2007, 09:18 PM   #44
gone traveling
 
Join Date: May 2006
Posts: 1,036
Quote:
Originally Posted by Meadbh View Post

Leverage is great if your investment goes up in value. If it goes down you lose bigtime.
Can you please explain how the loss would be any different depending on your down payment? Am I missing something?
__________________
honobob is offline   Reply With Quote
Old 07-12-2007, 09:52 PM   #45
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Bigger down payment, more real money committed.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 07-12-2007, 09:58 PM   #46
Recycles dryer sheets
 
Join Date: Apr 2007
Posts: 113
Quote:
Originally Posted by honobob View Post
Can you please explain how the loss would be any different depending on your down payment? Am I missing something?
It's merely a comment on the risks of margin or leverage.

There is nothing quite like losing more than 100% of money that you have "invested". This isn't an impossible scenario with a 2-3 year sales window.
__________________
cho oyu is offline   Reply With Quote
Old 07-12-2007, 11:20 PM   #47
Full time employment: Posting here.
 
Join Date: Jun 2007
Posts: 567
Quote:
Originally Posted by Mary_From_Georgia View Post
I do have 20% - I just think that 20% will do more for me in the market than the incremental $'s I pay against a mortgage. i.e. I'd sell in 2-3 years with a minimum 5% gain---right?
I don't think you should ever think of your primary residence as an investment. You can get lucky and get a house that goes up a substantial amount. You could also get a house that goes down a substantial amount.

Here's one more thing to think about... you could get a duplex and rent out one side of it. Owner-occupied rentals are extremely easy to get financing for. And, after you've lived there for a short period of time (two years I think), you can move on and convert the other side of the duplex to a rental without refinancing (rentals are technically supposed to be financed with higher-interest investment rates).

Look at the numbers, consider property taxes, home repairs, general happiness (intrinsic value in getting your own house), etc. If the house is bigger than your apartment, it's probably going to cost more to heat. If it's old, you need to budget more for repairs. If it's further from your job, you're going to pay more for gas. You're going to have a homeowners policy instead of a condo rider (assuming that's what you're carrying right now with the apartment). Your car insurance may go down (safer zipcode, multi-policy discount, etc).

If your house value does go up, will you sell with a broker or real estate agent? A broker will typically charge at least 5% and a real estate agent will charge 6-8% (they need to pay the broker).

There are closing costs when you buy. This is sunk money... There's also closing costs when you sell. Again, sunk money. In my neck of the woods, closing costs are, I believe, about 1.5%.

Go in with both eyes open, that's all. Know why you're buying the house. "Because I want it" is a perfectly good reason.
__________________
Webzter is offline   Reply With Quote
Old 07-12-2007, 11:26 PM   #48
gone traveling
 
Join Date: May 2006
Posts: 1,036
Quote:
Originally Posted by cho oyu View Post
It's merely a comment on the risks of margin or leverage.

There is nothing quite like losing more than 100% of money that you have "invested". This isn't an impossible scenario with a 2-3 year sales window.
My question was to Meadbh. I don't understand your response. Are you saying psychological dollars lost are different than actual cash? I'm looking at this from a mathmatical perspective. cho oyu, can you elaborate?
__________________
honobob is offline   Reply With Quote
Old 07-13-2007, 01:37 AM   #49
Recycles dryer sheets
 
Join Date: Apr 2007
Posts: 113
Quote:
Originally Posted by honobob View Post
My question was to Meadbh. I don't understand your response. Are you saying psychological dollars lost are different than actual cash? I'm looking at this from a mathmatical perspective. cho oyu, can you elaborate?
Although this certainly isn't always the case, many times people use significant leverage to obtain a home because they don't have enough funds available for outright purchase or a large down-payment.

Let's assume you put 5% down on a house. Let's then assume that the value of the house decreases by 10% and you have to sell (potential scenario for 2-3 residency). You have just lost twice your initial investment. For someone who required significant leverage in the first place, this is a huge deficit to repay in order to sell the home.


Dollar loss is the same if you had put down 20% at closing, but the real-life implications can be different if other funds are not available to cover the leveraged loss.

I think this is what Meadbh was getting at - if not, I will happily stand corrected
__________________
cho oyu is offline   Reply With Quote
Old 07-13-2007, 07:27 AM   #50
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by Mary_From_Georgia View Post
I do have 20% - I just think that 20% will do more for me in the market than the incremental $'s I pay against a mortgage. i.e. I'd sell in 2-3 years with a minimum 5% gain---right?
The best and safest way to do this is to make sure you would be OK even if the house did not go up in value. It might, and if you stay there long enough it probably will, but you are really buying a place to live, not a speculative, highly leveraged investment.

The last 20% you borrow will be very expensive money, especially now that a lot of lenders have black eyes from high LTV loans. Put down the 20% and you will earn a guaranteed 9 or 10% simply by not having to pay up for the loan.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 07-13-2007, 01:27 PM   #51
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Quote:
Originally Posted by brewer12345 View Post
Put down the 20% and you will earn a guaranteed 9 or 10% simply by not having to pay up for the loan.
I think that's one of the best explanations I've ever read of the justification of a 20% down payment.

To say nothing of the PMI premiums.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 12-26-2007, 02:10 PM   #52
Dryer sheet aficionado
 
Join Date: Feb 2005
Posts: 39
Quote:
Originally Posted by brewer12345 View Post
Since I consider mortgage brokers to vy for last place in the ethical sweepstakes with used car salesmen, annuity hucksters, televangelists, and former Intel middle managers, I will assume you meant taht as a compliment...

Really, it is just my experience of having been at about the same income level and carrying a $240k mortgage.
Brewer, out of curiosity---what was your other expense load @ the time. I am not married or have kids....yet.
__________________
Mary_From_Georgia is offline   Reply With Quote
Old 12-26-2007, 02:47 PM   #53
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,356
I think the most important question you need to ask is:

"Why do I want to own a home?"

I'm 35, and I didn't buy a house until Feb 2005. I shared an apartment with various friends and co-workers over the years (1996-2005), and my share of the rent started at about $400 and ended at about $600.

I could have bought a house at anytime, but it would have increased my expenses (and chores) dramatically. I didn't buy a house, funnelled my excess money into the stock market, and did very well financially.

In 2005, though, I purchased a house, because I wanted to live in a house. I now had a SO that I was serious about (now we're married), and I had developed hobbies that require a house (gardening and fish breeding).

My house is not going to be a great investment, IMO. I paid a little too much, it needed more work than I realized, etc. However, I didn't buy the house as an investment, I bought it as a place to live. I have 10 fish tanks in my basement and a decent sized (and growing) garden. We are able to afford the extra costs associated with owning a home and still live well below our means.

Buying a house has an investment component to it, but it is much more important to enjoy living there. I don't think of my home as an investment-- if I wanted to invest in real estate I would buy REITs. They pay nice dividends and I never have to mow a lawn for a REIT I own

I bought my home because I wanted to live in it.
__________________
Hamlet is offline   Reply With Quote
financial leverage
Old 12-26-2007, 03:00 PM   #54
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,017
financial leverage

Quote:
Originally Posted by honobob View Post
Can you please explain how the loss would be any different depending on your down payment? Am I missing something?
Leverage (finance - Wikipedia, the free encyclopedia)

Financial leverage (FL)takes the form of a loan or other borrowings (debt), the proceeds of which are reinvested with the intent to earn a greater rate of return than the cost of interest. If the firm's return on assets (ROA) is higher than the interest on the loan, then its return on equity (ROE) will be higher than if it did not borrow. On the other hand, if the firm's ROA is lower than the interest rate, then its ROE will be lower than if it did not borrow. Leverage allows greater potential return to the investor than otherwise would have been available. The potential for loss is also greater, because if the investment becomes worthless, the loan principal and all accrued interest on the loan still need to be repaid.

Also, check out the link to The Retail Investor : How to Use Leverage and Measure Its Effect
__________________
Meadbh is offline   Reply With Quote
Old 12-26-2007, 07:10 PM   #55
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Quote:
Originally Posted by brewer12345 View Post
Since I consider mortgage brokers to vy for last place in the ethical sweepstakes with used car salesmen, annuity hucksters, televangelists, and former Intel middle managers, I will assume you meant taht as a compliment...
I'd trust a mortgage broker over a guy who pumps an investment, subsequently dumps his holdings just before it drops like a rock and then waits a week to tell anyone he got out.

Or, you could just look at my avatar...
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 12-27-2007, 03:01 PM   #56
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by brewer12345 View Post
Since I consider mortgage brokers to vy for last place in the ethical sweepstakes with used car salesmen, annuity hucksters, televangelists, and former Intel middle managers, I will assume you meant taht as a compliment...
Tell us how you really feel, brewer...........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Mary, I would like to know....
Old 12-27-2007, 05:39 PM   #57
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,017
Mary, I would like to know....

If you are now earning $112K and spending $19K, what are you doing with the other $93K minus taxes? Basically, if you want to live in a house, you will have to spend some of it on the house. Up to you.
__________________
Meadbh is offline   Reply With Quote
Old 12-27-2007, 09:24 PM   #58
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
Quote:
Originally Posted by Mary_From_Georgia View Post
I make slightly over $100,000/yr excluding bonuses and am now interested in purchasing a home.

While beginning to explore the market, I'm noticing that my tastes gravitate to homes in the $280,000 to $400,000 range. The lower end being foreclosures.

I have no other debt obligations and given that this is a buyer's market:

1) Would I be over-extending myself purchasing in this range? *I hate owing someone money, so the fact that this would be "good debt" still doesn't appease me psychologically*

2) Get the most I can afford (guidance), and wait for the housing wave to pick back up.

I live in East Atlanta, am single, and 42.

Thanks,
Mary
A $950 mortgage payment suggests a value of around 100k on the mortgage at 6% creates a payment of close to $1000. These are aproximates at best.

I think single and age is the factor vs square footage of property.

Did you look at condo's? Do a condo at low end (1200 sq ft, $200k?) then trade up 5 years later after you have some equity.

If the 400k houses are 2000+ sq ft, I would ask how you intend to use all that room, then consider smaller places (like 1200 sq ft condos or houses). Wife and I have 3400 sq ft, with twins on the way, we are 34 and 33 yo. We have space for family to grow in without moving. Every situation is different, and moving is a pain. That being said, se did buy a condo, then move out 5 years later with close to 40k in equity when we only put $8000 down.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Old 12-27-2007, 09:33 PM   #59
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
dex's Avatar
 
Join Date: Oct 2003
Posts: 5,105
Don't go with an condo (apt.) in Atlanta. It is overbuilt and you will not get your money back for many years.
Townhomes do OK but will not appreciate well as a single family home in the Atlanta area. I would not recommend a townhome outside of the Atl. Metro area.
__________________

__________________
Sometimes death is not as tragic as not knowing how to live. This man knew how to live--and how to make others glad they were living. - Jack Benny at Nat King Cole's funeral
dex is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 07:10 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.