Author Topic: Should we buy a 600k house?...  (Read 469 times)

Jimbo

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Should we buy a 600k house?...
« on: July 11, 2019, 02:43:15 PM »
Argh. HCOL and what not... but also crazy real estate prices in Canada. Somehow I can't imagine ever recouping this amount, especially as interest rates normalize over the next decades. And our super sweet cash flow will take a hit by being homeowners... Maybe I just need to come to terms with this, since we need more space for the family. But oh boy does it feel like buying peak house!

What do you smart people think?

Abe

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Re: Should we buy a 600k house?...
« Reply #1 on: July 11, 2019, 09:26:27 PM »
Your house shouldn't be an investment strategy, so I wouldn't worry much about the cost 10 years down the road. That'll be very hard to predict. If you can't afford a ~20% hit to the value, probably shouldn't buy at this point.

Jimbo

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Re: Should we buy a 600k house?...
« Reply #2 on: July 12, 2019, 07:43:05 AM »
Thanks for your thoughts. I agree the future is unpredictable. It just seems so logical, with everyone tapped out, incomes lagging and interest rates bound to go up at SOME point, that prices will decrease. I can 'afford' to lose 6 figures of money, I suppose, but it does sound quite unpleasant. And it will increase my required career time, both due to the debt repayment and the reduced cash flow through the process...

So the negatives are quite obvious...

The positives as well, I suppose.

Just can't seem to take the leap, mentally.

caleb

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Re: Should we buy a 600k house?...
« Reply #3 on: July 12, 2019, 08:13:16 AM »
But oh boy does it feel like buying peak house!

If only we could take today's cash with us into a time machine back to 2010.  If only.

If you buy a house with 20% down today, it's possible that you could be underwater a year from now or even five years from now.  However it's unlikely that you'll be underwater in ten or fifteen years.

SeattleCPA

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Re: Should we buy a 600k house?...
« Reply #4 on: July 12, 2019, 08:33:39 AM »
Argh. HCOL and what not... but also crazy real estate prices in Canada. Somehow I can't imagine ever recouping this amount, especially as interest rates normalize over the next decades. And our super sweet cash flow will take a hit by being homeowners... Maybe I just need to come to terms with this, since we need more space for the family. But oh boy does it feel like buying peak house!

What do you smart people think?

I think it's okay to think about this and after careful analysis to maybe pull the trigger.

I get all the negative comments folks make about real estate and about buying a house...

But I think the critics miss a couple of things in some cases. First, with a house in a HCOL area, you're not just paying for housing, you're paying for access to high-wage jobs. Maybe that access makes the higher prices worth it. (Example from Seattle: A university computer science professor told me starting software engineering jobs for the same companies can pay $30K more a year in Seattle than they do in Chicago. That $30K differential makes Seattle's higher housing prices look different, at least to me.)

Second, the data wasn't really fully fleshed out for Canada, but I think an investment in real estate (like a home) can do good things to the rest of your portfolio. That "Rate of Return of Everything" study suggests real low correlation.

Here's the first thread in forum that discusses that study:
https://forum.mrmoneymustache.com/real-estate-and-landlording/rate-of-return-on-everything-a-150-year-history/

Jimbo

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Re: Should we buy a 600k house?...
« Reply #5 on: July 12, 2019, 09:13:31 AM »
Thanks for the feedback everyone. I appreciate it.

I understand buying a house in a HCOL city is historically not a bad move (and with some recent span of history a fantastic move). But having such a huge amount of money tied into a house seems so crippling to me. Even worse if in the long term the return will be negative... In the meantime the amount of money I am able to invest due to our low housing cost is spectacular, and the return has been great the past 10 years...

Well, now I worded out why I have a mental hurdle on this topic, I guess.


clarkfan1979

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Re: Should we buy a 600k house?...
« Reply #6 on: July 12, 2019, 02:22:34 PM »
I bought a single family home in June 2018 for 603K in Koloa, HI.

I put 20% down and my total mortgage (PITI) is $2686. Property taxes are very low in Hawaii. They are only $1440/year on a 600K house.

The house is 1850 sq. ft. upstairs (3 bed/2 bath) and 2 car garage.

Now here's the twist. There is a basement unit with a separate entrance. We spent 30K renovating it. We rent it to a younger couple (25 years old) and get $1600/month in rent.

We are spending another 20K upstairs. The house is now worth about 800K.

Was it worth it for me? Absolutely.

AMandM

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Re: Should we buy a 600k house?...
« Reply #7 on: July 12, 2019, 09:50:05 PM »
If you just need more space, is renting a bigger place an option?

Malkynn

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Re: Should we buy a 600k house?...
« Reply #8 on: July 13, 2019, 07:22:05 AM »
DH and I are high income DINKS and we wouldn't be comfortable spending that much on a house.

I've lived in Montreal, I get it, but there's no way I would do that. I would rent, or live in a cheaper neighbourhood, or buy a small condo.

It's your life, it's your priorities, but don't go spending 600K on a house just because that's what people do.

Think outside the box, look at ALL of your options and don't rule out relocating either. Be very very honest with yourself about what the trade offs are, and decide from there.

What do you actually need to be happy?
Why?