House buying dilemma

[Diogenes]

I'm considering selling some intermediate-term bonds (funds) that have been going nowhere fast, for years... and buying a house. Trouble is, that (1) such a purchase is a "want", not a "need"; and (2) it feels wantonly risky, given what portends in our local real estate market and the vast disparity between costs of owning and of buying. That is, if one uses the New York Times calculator for rent vs. buy, then "rent" comes ahead, unless one assumes basically 0% rate of return on investments.

Also, I have no family and basically no possessions, no community footprint... and so, expect no housewarming guests, so to speak. But, a house would allow me to indulge in the first step towards the sports car dreams (there's a thread on the subject), in the sense of building a large garage and acquiring equipment. Complicating matters is that this is a VHCOL area, where I like living, but would struggle justifying paying the taxes, once my Barista-FIRE job ends (might not be soon).

What say you, ladies and gentlemen of the Forum? What ought one to do?

 

[Dtail]

Sounds like you will continue to work.

 

[Pointby2]

Another option you may want to consider if you continue to rent.

 

[Koolau]

I'm considering selling some intermediate-term bonds (funds) that have been going nowhere fast, for years... and buying a house. Trouble is, that (1) such a purchase is a "want", not a "need"; and (2) it feels wantonly risky, given what portends in our local real estate market and the vast disparity between costs of owning and of buying. That is, if one uses the New York Times calculator for rent vs. buy, then "rent" comes ahead, unless one assumes basically 0% rate of return on investments.

Also, I have no family and basically no possessions, no community footprint... and so, expect no housewarming guests, so to speak. But, a house would allow me to indulge in the first step towards the sports car dreams (there's a thread on the subject), in the sense of building a large garage and acquiring equipment. Complicating matters is that this is a VHCOL area, where I like living, but would struggle justifying paying the taxes, once my Barista-FIRE job ends (might not be soon).

What say you, ladies and gentlemen of the Forum? What ought one to do?

If I may ask, approximately what would your proposed house represent in % of your total "stash?" I ask because if it's a relatively small % (like maybe 10%) it will have little effect on your overall financial growth. With a house that's 25% of your total stash, it might lower your growth rate (you never know what your house might appreciate - but if you're living there, it doesn't matter - unless you sell it for the "profit").

Just thinking out loud.

 

[RetiredHappy]

There are two parts of this: emotional and financial. Having your own home and garage maybe an important piece in satisfying your emotional "want". The financial piece is more important in my opinion. If you can afford it, say less than 20% of your net worth for the purchase, then it is a no brainer. For me, I would do it in a heartbeat, especially that you have no heirs.

 

[Slim11]

What gets me is it's more then a house. Its the house , a spiffy nice garage, 2 or 3 cars? And a sports car. Probably need a regular car also. If thats doable, and you still have enough edge saved for retirement, fixing things and living. Then go for it. If you would be cutting it close, maybe not. But buying a home in itself usally becomes profitable over time.

 

[Koolau]

What gets me is it's more then a house. Its the house , a spiffy nice garage, 2 or 3 cars? And a sports car. Probably need a regular car also. If thats doable, and you still have enough edge saved for retirement, fixing things and living. Then go for it. If you would be cutting it close, maybe not. But buying a home in itself usally becomes profitable over time.

We debate this here occasionally. Some see a rising house price as "profit." Others suggest the rising price simply means you would have to pay a rising price at some OTHER house if you sold your house to get the profit. OR, of course, you could sell and then rent and keep the profit. BUT all the time your house has been going up in price, so have all the rents.

I take no stand on the argument. I own a house (condo, actually) and I rent a "summer home." Best (or worst) of both worlds.

 

[COcheesehead]

Houses are homes. Rentals are a place to sleep.
I am about to move into my 11th home of my adult life. They’re not risky. Staying in a place with rising rents is.
Make yourself a home.

 

[Slim11]

We debate this here occasionally. Some see a rising house price as "profit." Others suggest the rising price simply means you would have to pay a rising price at some OTHER house if you sold your house to get the profit. OR, of course, you could sell and then rent and keep the profit. BUT all the time your house has been going up in price, so have all the rents.

I take no stand on the argument. I own a house (condo, actually) and I rent a "summer home." Best (or worst) of both worlds.

Unless you sell in a higher market then you buy in and then that market takes off. It happens. The idea is like stocks , buy low sell high. The best layed plans and all that! Lol.

 

[Diogenes]

Houses are homes. Rentals are a place to sleep.
I am about to move into my 11th home of my adult life. They’re not risky. Staying in a place with rising rents is.
Make yourself a home.

I lost my proverbial posterior on the only house that I've owned in my life. Owned it for 20 years. Paid off the mortgage after 2 years. Property taxes and insurance were by today's standards whimsically low. But the house was improperly built. I sold it at a loss, and was lucky at that. Financially it was an abject disaster. Thus I'm gunshy about a potential Round 2.

In terms of budget, the prospective house would be well under 20% of net worth. But this time I'm more leery of taxes and running-costs, vs. likely long-term appreciation. If it's financially irresponsible, I'm not doing it, even if the desire burns intensely.

 

[COcheesehead]

I lost my proverbial posterior on the only house that I've owned in my life. Owned it for 20 years. Paid off the mortgage after 2 years. Property taxes and insurance were by today's standards whimsically low. But the house was improperly built. I sold it at a loss, and was lucky at that. Financially it was an abject disaster. Thus I'm gunshy about a potential Round 2.

In terms of budget, the prospective house would be well under 20% of net worth. But this time I'm more leery of taxes and running-costs, vs. likely long-term appreciation. If it's financially irresponsible, I'm not doing it, even if the desire burns intensely.

Get back on the horse. The first one was sick.

Now why you stayed 20 years in a bad product AND paid it off is fodder for another discussion.

 

[COcheesehead]

Unless you sell in a higher market then you buy in and then that market takes off. It happens. The idea is like stocks , buy low sell high. The best layed plans and all that! Lol.

There layers to the sell same market, buy same market.
You can move to other markets. You can downsize. You can buy a fixer upper. Lots of ways to parlay profits from the sale of one into being better off in another.

What is often overlooked is if you have a mortgage, your property grows at market rate, but you equity grows at a leveraged rate.

So if you put $100k down on a $500k house and the house appreciates 10% to $550k. You really made 50% less transaction costs of course, on your equity.

 

[Diogenes]

Now why you stayed 20 years in a bad product AND paid it off is fodder for another discussion.

It is, but the short answer is that while that house was a foolish investment, after a decade or so, the low running costs kept me anchored. And with the decline of the house's market-value relative to financial markets, it felt like a small opportunity cost, to keep going in that house, vs. risking some novelty.

A prospective new purchase would be much more expensive, both in the purchase and in the running-costs. If the Fairy Godmother were to drop an absolutely free house in my lap tomorrow, then assuming that my knees weren't crushed, well, just the operating costs would be large, compared to what I currently pay for rent.

Also, having a small mind, and with consistency being the well-noted hobgoblin of small minds, I've taken refuge in consistency.

 

[COcheesehead]

It is, but the short answer is that while that house was a foolish investment, after a decade or so, the low running costs kept me anchored. And with the decline of the house's market-value relative to financial markets, it felt like a small opportunity cost, to keep going in that house, vs. risking some novelty.

A prospective new purchase would be much more expensive, both in the purchase and in the running-costs. If the Fairy Godmother were to drop an absolutely free house in my lap tomorrow, then assuming that my knees weren't crushed, well, just the operating costs would be large, compared to what I currently pay for rent.

Also, having a small mind, and with consistency being the well-noted hobgoblin of small minds, I've taken refuge in consistency.

If you feel comfortable in your decisions, you are probably much more emotionally mature than a lot of people and I commend you for that.

 

[Slim11]

There layers to the sell same market, buy same market.
You can move to other markets. You can downsize. You can buy a fixer upper. Lots of ways to parlay profits from the sale of one into being better off in another.

What is often overlooked is if you have a mortgage, your property grows at market rate, but you equity grows at a leveraged rate.

So if you put $100k down on a $500k house and the house appreciates 10% to $550k. You really made 50% less transaction costs of course, on your equity.

Also depends on the morgage rates. Lots to consider. And markets if done right, at least by me, a 50k appreciation is basically loosing money. Unless its yearly. And thats about right by me.

 

[Out-to-Lunch]

Also, having a small mind, and with consistency being the well-noted hobgoblin of small minds, I've taken refuge in consistency.

Only foolish consistencies are reputed to be hobgoblins of little minds. Is your consistency foolish?

 

[COcheesehead]

Also depends on the morgage rates. Lots to consider. And markets if done right, at least by me, a 50k appreciation is basically loosing money. Unless its yearly. And thats about right by me.

Of the 10 houses I’ve owned so far, I’ve made money on 9. The one I didn’t, I lost about 10%, but was happy to do so since we were moving closer to my business - shorter commute.

House we are leaving in just a few weeks appreciated almost $500k in 5 years. So things even out over time, just like most most markets do.

 

[RetiredHappy]

We made money on all my homes except for the huge home which we bought and added an indoor pool in our last home in California and our current home. If we had kept it for even a couple of years after we left California, we could have gotten back what we paid into it and more. But we were not going to reside in California anymore and sold it as a result. With our current home that we bought in early 2021, we have put in another $200K in renovation and we will probably not be able to recover what we have put in if we sell it now. However if we keep this for another 5 to 10 years, I am quite sure that we will be able to recover what we have put into the home plus some. Timing is everything.

 

[floss187]

Just because you like living there doesn't mean you won't like living somewhere else.

You have nothing holding you there.

You can get a nice house with a 2 car garage elsewhere for pennies on the dollar, still have a downtown, experience car life, etc without being in so-cal.

Look around.

 

[Texas Proud]

IMO it is just what you want...

Some people want to own a home... others do not... I have a brother who has rented almost his whole life... he owned a house once but sold in a few years.. he just does not want the 'hassle'...

You can rent apts with garages.. well, at least around here you can... Same with codos if you do not want a house...

 

[livingalmostlarge]

Die with zero. Is the house going to give you something now you can't get later? Is the dollar later going to be worth more then than now?

Only you can answer but if you consider the question the answer will reveal itself

 

[Diogenes]

Die with zero. Is the house going to give you something now you can't get later? Is the dollar later going to be worth more then than now?

Only you can answer but if you consider the question the answer will reveal itself

"Die with zero" precisely encapsulates the exact opposite of my philosophy. A candidate endeavor is rarely decent, let alone good, unless it's also profitable. Values aren't universal. But it's hard to be true to one's own values, if they're unorthodox and widely panned. I lack the true courage of a contrarian.

We should ask, not whether a dollar will be worth more in the future than presently, but what an invested dollar will be worth. A dollar not-invested is a dollar headed for loss.

And yet, in truth I wonder what it's all about, what matters and what less-so. Cogitation leads to no insights... only muddling and self-contortion. Reveal itself? It only self-obscures.

 

[Al18]

Most on this forum are living in a house they bought while working, and probably paid it off before they retired. Your only house is not an investment, it's a place to live. House 2, 3, 4, etc are likely viewed as investments. Choose wisely.

 

[Koolau]

Houses are homes. Rentals are a place to sleep.
I am about to move into my 11th home of my adult life. They’re not risky. Staying in a place with rising rents is.
Make yourself a home.

My mainland rental IS my home and has been, on and off, for 78 years. I even owned it (well a portion of it) for a while.

 

[freedomatlast]

From your past posts, you're not just looking for a home with a nice garage, you're looking for an improved lifestyle, and yes that will cost you. If you're not comfortable inspecting the house before purchase on your own so you don't end up like last time, hire the best inspector in the area and go through it with him.

You're always going to be able to come up with reasons, financially and otherwise, why you put off living your dreams.

If you keep this up long enough, you'll probably have lots of regrets later in life.

Time to stop dreaming, take a chance and start doing. Move past the analysis paralysis. BTD.

This is coming from someone who closed on a house in mid March 2020, the day the Dow dropped 2997 points (12.9%), at the very beginning of COVID. No one knew how far down the market would go and for how long, and no one knew how bad COVID was going to be or how many people would die. Lots of uncertainty everywhere. This was after I retired, no more big check coming in and the house was over twice as expensive as our old house with RE taxes 4X more than the old house. Turned out to be one of the best decisions ever. Fast forward 5+ years and the house has appreciated nearly $400,000 over what we paid, and we couldn't be happier here.

The point is, some of the best things in life happen when we take a calculated risk, and not just live the status quo every day.

Maybe another way to look at it to help alleviate your anxiety, is that you're not really just spending money. You're just moving money from a low performing asset class (intermediate-term bonds funds) to real estate.
You'll have a much better lifestyle with the money in a home and garage you enjoy every day than if you left the money in bond funds.