Author Topic: My BIL's new house  (Read 33142 times)

jinga nation

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Re: My BIL's new house
« Reply #100 on: May 08, 2017, 06:08:54 AM »
Interesting to see so many people say that the local market is what determines if it was a good buy or not.

 Whether a purchase is a 'bargain' or not has nothing to do with if it is a wise purchase based on your income, savings rate, etc.

Just because most houses in an area are 500K doesn't mean it's always ok for somebody to buy a 300k house. It could still be more than somebody can afford.

I'm not saying it is in this case (that depends on what their total financial picture looks like), but that is just the wrong way to evaluate a purchase.

You don't decide if you can afford something by seeing if it is a 'deal', you do it by seeing how much money you have.

Psssh! Where you been? That is so last century backward thinking. You borrow the max your allowed to, based on your sub-620 credit score. A deal is a deal if your peeps on social media agree. Everything else is alternative facts. /sarcasm

boarder42

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Re: My BIL's new house
« Reply #101 on: May 08, 2017, 07:55:13 AM »
Interesting to see so many people say that the local market is what determines if it was a good buy or not.

 Whether a purchase is a 'bargain' or not has nothing to do with if it is a wise purchase based on your income, savings rate, etc.

Just because most houses in an area are 500K doesn't mean it's always ok for somebody to buy a 300k house. It could still be more than somebody can afford.

I'm not saying it is in this case (that depends on what their total financial picture looks like), but that is just the wrong way to evaluate a purchase.

You don't decide if you can afford something by seeing if it is a 'deal', you do it by seeing how much money you have.

Psssh! Where you been? That is so last century backward thinking. You borrow the max your allowed to, based on your sub-620 credit score. A deal is a deal if your peeps on social media agree. Everything else is alternative facts. /sarcasm

yeah whether you can afford something or not is not based on the level of a deal.  but a deal could make you stretch to afford something.  if its truly a good deal.  I did that with both my houses i've purchased in my life.  stretched and bought my first house with 3.5% down 7 days out of college.   why. 1. the govt was giving me 8k tax credit for buying 2. the house was a foreclosure that had been sitting for months on the market and i bought about 20% under what it was really worth. - though not much was selling at that time. 
house 2. got me where i wanted to be and was a wierd situation that a house that started at 120k more than it eventually sold for b/c of unique wierd timing circumstances and some minor updates being needed.  house is worth around 100k more than we paid the day we moved in. - this house wasnt really a stretch financially but i thought it would be at the time.  now we're earning the 5-7% housing increases on equity we didnt even have to buy.  - also was partially timing the markets here as i thought rates were at an all time bottom. - they werent but we still REFId at the actual bottom to an insane 3.25% 30 years interest rate.  <-- basically paying inflation

mtn

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Re: My BIL's new house
« Reply #102 on: May 08, 2017, 08:21:24 AM »
Interesting to see so many people say that the local market is what determines if it was a good buy or not.

 Whether a purchase is a 'bargain' or not has nothing to do with if it is a wise purchase based on your income, savings rate, etc.

Just because most houses in an area are 500K doesn't mean it's always ok for somebody to buy a 300k house. It could still be more than somebody can afford.

I'm not saying it is in this case (that depends on what their total financial picture looks like), but that is just the wrong way to evaluate a purchase.

You don't decide if you can afford something by seeing if it is a 'deal', you do it by seeing how much money you have.

Psssh! Where you been? That is so last century backward thinking. You borrow the max your allowed to, based on your sub-620 credit score. A deal is a deal if your peeps on social media agree. Everything else is alternative facts. /sarcasm

I don't disagree, but the initial purchase looked like something his BIL should be able to afford. Well, he definitely can afford it, but he may put himself into a hole because of spendypantsness.

Say you earn $120k. Which one of these makes the most sense:
1: A house worth $400,000 on a block where every other house is $1M, and the house down the street that was torn down just sold for $350,000
2: A house worth $350,000 on a block where every other house is $250,000

Area does have a say in what is affordable--I couldn't rent a 2 bedroom for less than $2,000 that gave both my wife and I a reasonable commute and was in an area we wanted to be in. So instead I have a $2,400 mortgage (including MIP, taxes, and home insurance).

talltexan

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Re: My BIL's new house
« Reply #103 on: May 08, 2017, 08:38:39 AM »
I'd be willing to forego some retirement savings if I were achieving unrealised gains of $1,000/month from my house. Shifting money from 401(K) contributions to the carrying costs of that house seems defensible if the goal is to maximize net worth in ten years.

Shifting money from outright consumption to the carrying costs of that house would be even better.

vivophoenix

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Re: My BIL's new house
« Reply #104 on: May 08, 2017, 11:33:41 AM »
Interesting to see so many people say that the local market is what determines if it was a good buy or not.

 Whether a purchase is a 'bargain' or not has nothing to do with if it is a wise purchase based on your income, savings rate, etc.

Just because most houses in an area are 500K doesn't mean it's always ok for somebody to buy a 300k house. It could still be more than somebody can afford.

I'm not saying it is in this case (that depends on what their total financial picture looks like), but that is just the wrong way to evaluate a purchase.

You don't decide if you can afford something by seeing if it is a 'deal', you do it by seeing how much money you have.

Psssh! Where you been? That is so last century backward thinking. You borrow the max your allowed to, based on your sub-620 credit score. A deal is a deal if your peeps on social media agree. Everything else is alternative facts. /sarcasm

I don't disagree, but the initial purchase looked like something his BIL should be able to afford. Well, he definitely can afford it, but he may put himself into a hole because of spendypantsness.

Say you earn $120k. Which one of these makes the most sense:
1: A house worth $400,000 on a block where every other house is $1M, and the house down the street that was torn down just sold for $350,000
2: A house worth $350,000 on a block where every other house is $250,000

Area does have a say in what is affordable--I couldn't rent a 2 bedroom for less than $2,000 that gave both my wife and I a reasonable commute and was in an area we wanted to be in. So instead I have a $2,400 mortgage (including MIP, taxes, and home insurance).

this is true. there are more factors involved than take home pay and house price.

I just bought a condo in a crazy expensive state, but I also rent out all of the rooms but my own.

yes, my mortgage is 21% of my take home.

but after roommates, I pay 8%. that does not take into account equity gains, so if i actually did the math I am probably earning money.

ooo i will go calculate that now

The Money Monk

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Re: My BIL's new house
« Reply #105 on: May 10, 2017, 10:49:23 AM »

Area does have a say in what is affordable

that's the thing - It doesn't. It has a say in what is AVAILABLE at any given price point, but what you can AFFORD is strictly a function of how much money you have available for that purpose.

If I can't afford a $200,000 house, finding one in an area where most other houses are $400,000 won't magically make me be able to afford it.

What happens in these HCOL areas you are talking about is that people either:
A. Have to make sacrifices in other areas of their lives to be able to pay for a house that is more than they initially could afford, but because of restructuring they end up being able to afford it.

B. They get a place that IS more than they can afford, and get into debt or other bad financial circumstances because of it.

mtn

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Re: My BIL's new house
« Reply #106 on: May 10, 2017, 11:25:43 AM »

Area does have a say in what is affordable

that's the thing - It doesn't. It has a say in what is AVAILABLE at any given price point, but what you can AFFORD is strictly a function of how much money you have available for that purpose.

If I can't afford a $200,000 house, finding one in an area where most other houses are $400,000 won't magically make me be able to afford it.

What happens in these HCOL areas you are talking about is that people either:
A. Have to make sacrifices in other areas of their lives to be able to pay for a house that is more than they initially could afford, but because of restructuring they end up being able to afford it.


B. They get a place that IS more than they can afford, and get into debt or other bad financial circumstances because of it.

So area does have a say in what is affordable.

MightyAl

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Re: My BIL's new house
« Reply #107 on: May 10, 2017, 11:42:28 AM »
I am from the area that the OP is speaking about and you would get a crazy amount of house with extremely low taxes if it is within Jeffco for that amount of money.  Probably paying ~$2k/year to the county.  If your not worried about schools it is a decent area. 

I have a more expensive house and make about the same money but I am paying $1.4k/ year in taxes.  I would say if they enjoy spending time at their house and on their property then it is a good investment.  We have chickens and a garden and love being away from everything.

The Money Monk

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Re: My BIL's new house
« Reply #108 on: May 10, 2017, 01:01:32 PM »

Area does have a say in what is affordable

that's the thing - It doesn't. It has a say in what is AVAILABLE at any given price point, but what you can AFFORD is strictly a function of how much money you have available for that purpose.

If I can't afford a $200,000 house, finding one in an area where most other houses are $400,000 won't magically make me be able to afford it.

What happens in these HCOL areas you are talking about is that people either:
A. Have to make sacrifices in other areas of their lives to be able to pay for a house that is more than they initially could afford, but because of restructuring they end up being able to afford it.


B. They get a place that IS more than they can afford, and get into debt or other bad financial circumstances because of it.

So area does have a say in what is affordable.

No. It may influence WHAT they choose to spend their money on (housing vs something else) but not on how much money they have to spend.

talltexan

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Re: My BIL's new house
« Reply #109 on: May 11, 2017, 07:38:59 AM »
I am from the area that the OP is speaking about and you would get a crazy amount of house with extremely low taxes if it is within Jeffco for that amount of money.  Probably paying ~$2k/year to the county.  If your not worried about schools it is a decent area. 

I have a more expensive house and make about the same money but I am paying $1.4k/ year in taxes.  I would say if they enjoy spending time at their house and on their property then it is a good investment.  We have chickens and a garden and love being away from everything.

Happy to learn about a Mustachian in the area...perhaps I can introduce you to the family, you'd be a healthy influence :-)

Dicey

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Re: My BIL's new house
« Reply #110 on: May 13, 2017, 02:18:50 PM »
Interesting to see so many people say that the local market is what determines if it was a good buy or not.

 Whether a purchase is a 'bargain' or not has nothing to do with if it is a wise purchase based on your income, savings rate, etc.

Just because most houses in an area are 500K doesn't mean it's always ok for somebody to buy a 300k house. It could still be more than somebody can afford.

I'm not saying it is in this case (that depends on what their total financial picture looks like), but that is just the wrong way to evaluate a purchase.

You don't decide if you can afford something by seeing if it is a 'deal', you do it by seeing how much money you have.

Psssh! Where you been? That is so last century backward thinking. You borrow the max your allowed to, based on your sub-620 credit score. A deal is a deal if your peeps on social media agree. Everything else is alternative facts. /sarcasm

I don't disagree, but the initial purchase looked like something his BIL should be able to afford. Well, he definitely can afford it, but he may put himself into a hole because of spendypantsness.

Say you earn $120k. Which one of these makes the most sense:
1: A house worth $400,000 on a block where every other house is $1M, and the house down the street that was torn down just sold for $350,000
2: A house worth $350,000 on a block where every other house is $250,000

Area does have a say in what is affordable--I couldn't rent a 2 bedroom for less than $2,000 that gave both my wife and I a reasonable commute and was in an area we wanted to be in. So instead I have a $2,400 mortgage (including MIP, taxes, and home insurance).

this is true. there are more factors involved than take home pay and house price.

I just bought a condo in a crazy expensive state, but I also rent out all of the rooms but my own.

yes, my mortgage is 21% of my take home.

but after roommates, I pay 8%. that does not take into account equity gains, so if i actually did the math I am probably earning money.

ooo i will go calculate that now
While you're clacking the keys of the calculator, don't forget to consider the tax implications. You could be far better off than you realize, after taxes, if you itemize.

talltexan

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Re: My BIL's new house
« Reply #111 on: May 15, 2017, 07:03:36 AM »
BIL has young kids, it's possible that childcare expenses are substantial for them, although grandma watches the kids during most business hours.

I estimate that he's logging a minimum of $1,000/month in mortgage interest, so how could they not itemize?

Dicey

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Re: My BIL's new house
« Reply #112 on: May 15, 2017, 07:12:26 AM »
I estimate that he's logging a minimum of $1,000/month in mortgage interest, so how could they not itemize?
I was commenting on itemizing to vivoPHX, but it occurs to me that some non-mustachians might fail to itemize out of sheer laziness. It's shocking how many people can't math, or just don't bother to.

Abo345

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Re: My BIL's new house
« Reply #113 on: May 15, 2017, 11:10:26 PM »
I love people from the Midwest and/or South complaining about housing costs. Always entertains me.

Dicey

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Re: My BIL's new house
« Reply #114 on: May 15, 2017, 11:41:56 PM »
I love people from the Midwest and/or South complaining about housing costs. Always entertains me.
No shit. Me, too!

talltexan

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Re: My BIL's new house
« Reply #115 on: May 16, 2017, 08:42:50 AM »
True, but housing costs would be lower in all markets if families of four left the five-bedroom monstrousities to the more highly fertile.

dougules

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Re: My BIL's new house
« Reply #116 on: May 16, 2017, 10:49:49 AM »
I love people from the Midwest and/or South complaining about housing costs. Always entertains me.
No shit. Me, too!

Yes it's crazy.  Before we sold our second rental house, we had a total of 3 houses, almost 5000 sq ft put together,  worth less than a friend's 1300 sq ft house on the less desirable side of Berkeley.  We got our first rental for less than a lot of the ridiculous luxury vehicles you see running down the road a lot. 

That being said, a lot of people here don't make much at all as compared to earning potential in California.  Affordability is relative. 

redbird

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Re: My BIL's new house
« Reply #117 on: May 16, 2017, 10:58:20 AM »
I love people from the Midwest and/or South complaining about housing costs. Always entertains me.
No shit. Me, too!

Yes it's crazy.  Before we sold our second rental house, we had a total of 3 houses, almost 5000 sq ft put together,  worth less than a friend's 1300 sq ft house on the less desirable side of Berkeley.  We got our first rental for less than a lot of the ridiculous luxury vehicles you see running down the road a lot. 

That being said, a lot of people here don't make much at all as compared to earning potential in California.  Affordability is relative.

That's why you rent in a HCOL, live frugally, save lots of money, and then retire to a LCOL. It's ridiculous the cost difference.

cloudsail

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Re: My BIL's new house
« Reply #118 on: May 16, 2017, 11:56:21 AM »
I love people from the Midwest and/or South complaining about housing costs. Always entertains me.
No shit. Me, too!

Yes it's crazy.  Before we sold our second rental house, we had a total of 3 houses, almost 5000 sq ft put together,  worth less than a friend's 1300 sq ft house on the less desirable side of Berkeley.  We got our first rental for less than a lot of the ridiculous luxury vehicles you see running down the road a lot. 

That being said, a lot of people here don't make much at all as compared to earning potential in California.  Affordability is relative.

That's why you rent in a HCOL, live frugally, save lots of money, and then retire to a LCOL. It's ridiculous the cost difference.

I dunno, I'm pretty glad we bought our townhouse in the Bay Area four years ago. When we sell it this year, we will probably make more than we saved through our salaries the whole time we were here. I know some co-workers who never bought a house because the market was just too competitive, or bought one really far away, and there's definitely a lot of regret there. Though real estate speculation is always risky, of course. Kind of like timing the market. I wouldn't buy a house in the Bay Area now, if I were just moving here.

Just trying to say that there are no absolutes. You have to really assess the market and make your own judgments. When we first moved here the amount that we were going to pay for a small and old townhouse seemed insanely high, because we weren't used to the market. It took us a year to acclimate, during which time we watched housing prices climb ever higher.

talltexan

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Re: My BIL's new house
« Reply #119 on: May 17, 2017, 08:09:51 AM »
I'm impressed by your description of the appreciation in the Bay Area.

My BIL insists he paid $350,000 for a $400,000 house. Taking those numbers at face value--with a 3% down payment--and he's at 6X, Cash-on-cash.

But he has to sell that house to realize that gain. Otherwise, it's just consumption, for which he pays via the large carrying costs associated with that mortgage.

mtn

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Re: My BIL's new house
« Reply #120 on: May 17, 2017, 10:18:32 AM »

But he has to sell that house index fund to realize that gain. Otherwise, it's just consumption, for which he pays via the large small carrying costs associated with Vanguard that mortgage.

Gotta sell anything to make money on a financial investment.

Not that that should justify a housing purchase, but just adding another layer to the mess.

Jrr85

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Re: My BIL's new house
« Reply #121 on: May 17, 2017, 12:00:32 PM »

Area does have a say in what is affordable

that's the thing - It doesn't. It has a say in what is AVAILABLE at any given price point, but what you can AFFORD is strictly a function of how much money you have available for that purpose.

If I can't afford a $200,000 house, finding one in an area where most other houses are $400,000 won't magically make me be able to afford it.

What happens in these HCOL areas you are talking about is that people either:
A. Have to make sacrifices in other areas of their lives to be able to pay for a house that is more than they initially could afford, but because of restructuring they end up being able to afford it.

B. They get a place that IS more than they can afford, and get into debt or other bad financial circumstances because of it.

You're using a pretty narrow definition of affordable.  I could afford a $100k car in the sense that I could send money to the dealership and have the car, but I cannot afford it in the sense that it is not a remotely reasonable purchase for someone with my income and net worth (which I think is fairly common way people use afford).
 
Similarly, I can't afford a $600k house where I live.  Could I afford a $600k house in a HCOL area that has good long term growth prospects?  Probably.  It would suck but a $600k house that you can expect to appreciate 5% a year is much more affordable than a $600k house that is probably going to fail to keep up with inflation. 

I personally think people are grossly overestimating property appreciation in HCOL areas, and that outside of the few places where the independently wealthy choose to move to, you can't continue to have property appreciation that outstrips income growth in the area.  But I do think expected appreciation impacts what people can reasonably afford to buy.   

Dicey

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Re: My BIL's new house
« Reply #122 on: May 17, 2017, 06:35:56 PM »
I personally think people are grossly overestimating property appreciation in HCOL areas, and that outside of the few places where the independently wealthy choose to move to, you can't continue to have property appreciation that outstrips income growth in the area.  But I do think expected appreciation impacts what people can reasonably afford to buy.
You are free to think that, but in the Bay Area, you'd be wrong. We've owned our current home outright for four years, and for each of those years, it has gone up in value $100k, which is more than DH earns. Our neighbor is building their dream house immediately next door. If it ever gets finished (we haven't seen their contractor in two weeks), we'll get another $100k bounce. It's an insane ride, but we're glad to be on it and not watching from the sidelines.

The reason that appreciation is so high is because there are a lot of high-paying jobs here. (We're "poor" in comparison. FWP, I know.) Plus, for some crazy reason, people still want to live here. First on the list is No Snow, followed by Endless Sunshine, then Magnificent Scenery.

Jrr85

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Re: My BIL's new house
« Reply #123 on: May 17, 2017, 09:00:29 PM »
I personally think people are grossly overestimating property appreciation in HCOL areas, and that outside of the few places where the independently wealthy choose to move to, you can't continue to have property appreciation that outstrips income growth in the area.  But I do think expected appreciation impacts what people can reasonably afford to buy.
You are free to think that, but in the Bay Area, you'd be wrong. We've owned our current home outright for four years, and for each of those years, it has gone up in value $100k, which is more than DH earns. Our neighbor is building their dream house immediately next door. If it ever gets finished (we haven't seen their contractor in two weeks), we'll get another $100k bounce. It's an insane ride, but we're glad to be on it and not watching from the sidelines.

The reason that appreciation is so high is because there are a lot of high-paying jobs here. (We're "poor" in comparison. FWP, I know.) Plus, for some crazy reason, people still want to live here. First on the list is No Snow, followed by Endless Sunshine, then Magnificent Scenery.

Well I stand corrected. Certainly anything that has gone on for four years will go on forever.

talltexan

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Re: My BIL's new house
« Reply #124 on: May 18, 2017, 08:48:05 AM »

But he has to sell that house index fund to realize that gain. Otherwise, it's just consumption, for which he pays via the large small carrying costs associated with Vanguard that mortgage.

Gotta sell anything to make money on a financial investment.

Not that that should justify a housing purchase, but just adding another layer to the mess.

VTSAX pays a dividend, which you can immediately use to buy things.

Housing also pays a dividend, which economists call "Imputed Rent"; if you rent property out, it's the thing you sell to your tenant. If you live in the house, you're simply consuming the imputed rent.

Dicey

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Re: My BIL's new house
« Reply #125 on: May 20, 2017, 10:07:44 AM »
I personally think people are grossly overestimating property appreciation in HCOL areas, and that outside of the few places where the independently wealthy choose to move to, you can't continue to have property appreciation that outstrips income growth in the area.  But I do think expected appreciation impacts what people can reasonably afford to buy.
You are free to think that, but in the Bay Area, you'd be wrong. We've owned our current home outright for four years, and for each of those years, it has gone up in value $100k, which is more than DH earns. Our neighbor is building their dream house immediately next door. If it ever gets finished (we haven't seen their contractor in two weeks), we'll get another $100k bounce. It's an insane ride, but we're glad to be on it and not watching from the sidelines.

The reason that appreciation is so high is because there are a lot of high-paying jobs here. (We're "poor" in comparison. FWP, I know.) Plus, for some crazy reason, people still want to live here. First on the list is No Snow, followed by Endless Sunshine, then Magnificent Scenery.

Well I stand corrected. Certainly anything that has gone on for four years will go on forever.
That's a completely different argument.  If you'd like to move in that direction, I'll offer that I purchased a home in 1996 on a short sale, which more than doubled in price when I sold it four years later. The example given above was also purchased on a short sale. In another market, we've recently purchased two rental properties at their 15 years ago prices, because the market dumped when the Canadian dollar did.

Here's the point you missed: We could easily sell our home in the current market for at least $400k over what we paid for it, with multiple offers, and the gains would be tax-free. Just because it may not be the reality of your market doesn't make it completely real in others.

Counting on the market always going up is a fool's game. But making money in real estate is a proven way to create wealth, if done correctly.

englishteacheralex

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Re: My BIL's new house
« Reply #126 on: May 20, 2017, 10:55:37 AM »
Read through the heated discussion here with interest. We have a combined gross of $140k and own a 3/2, 900 square foot condo that we bought for $364k in 2015. Ideally we would have loved to buy for $200k or less, but that doesn't exist in Honolulu. It hasn't been a stretch for us so far.

One thing I will say: I LOVE it when family/friends buy big houses. Gives us one more fun place to visit. Some of them even let us throw parties at their places. Lots of fun for us, no giant mortgage or upkeep!

cloudsail

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Re: My BIL's new house
« Reply #127 on: May 20, 2017, 09:37:40 PM »
I personally think people are grossly overestimating property appreciation in HCOL areas, and that outside of the few places where the independently wealthy choose to move to, you can't continue to have property appreciation that outstrips income growth in the area.  But I do think expected appreciation impacts what people can reasonably afford to buy.
You are free to think that, but in the Bay Area, you'd be wrong. We've owned our current home outright for four years, and for each of those years, it has gone up in value $100k, which is more than DH earns. Our neighbor is building their dream house immediately next door. If it ever gets finished (we haven't seen their contractor in two weeks), we'll get another $100k bounce. It's an insane ride, but we're glad to be on it and not watching from the sidelines.

The reason that appreciation is so high is because there are a lot of high-paying jobs here. (We're "poor" in comparison. FWP, I know.) Plus, for some crazy reason, people still want to live here. First on the list is No Snow, followed by Endless Sunshine, then Magnificent Scenery.

Well I stand corrected. Certainly anything that has gone on for four years will go on forever.
That's a completely different argument.  If you'd like to move in that direction, I'll offer that I purchased a home in 1996 on a short sale, which more than doubled in price when I sold it four years later. The example given above was also purchased on a short sale. In another market, we've recently purchased two rental properties at their 15 years ago prices, because the market dumped when the Canadian dollar did.

Here's the point you missed: We could easily sell our home in the current market for at least $400k over what we paid for it, with multiple offers, and the gains would be tax-free. Just because it may not be the reality of your market doesn't make it completely real in others.

Counting on the market always going up is a fool's game. But making money in real estate is a proven way to create wealth, if done correctly.

I'm looking to purchase rental property in Canada. Can I ask where you bought yours?

Dicey

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Re: My BIL's new house
« Reply #128 on: May 21, 2017, 03:13:16 AM »
Hi cloudsail, they're not in Canada. Palm Desert, CA=Snowbird HQ. I bought my first house there in 2003. We picked up two more in the last two years for about the same price per sf that I paid for the first one. Still looking to pick up a couple more before the loonie rebounds. Nothing so far, but as the summer desert temperatures soar, prices tend to drop, so fingers crossed.

I should point out that these homes are located in a very large senior community. Canadians are not selling off these homes en masse, but as the owners pass away or age to the point where they stop traveling, they sell, because: Canadian Healthcare > American Healthcare.

At the moment, the pool of new Canadian buyers has shrunk considerably . Since CA still has plenty of winter sunshine, and the loonie *will* rebound, we see this as a good time to buy. They still rent quite easily.


We are not expecting to make a killing on them. These homes have good bones, but they're starting to get old enough that a little nipping and tucking is in order. Most people do not want to do this work, they want turnkey living. We love doing this stuff, so it will be something fun we can do together, at a relaxed pace, when DH retires.

valsecito

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Re: My BIL's new house
« Reply #129 on: May 21, 2017, 04:03:43 AM »
Kids in Toronto are dropping low 7 figures on old houses with combined incomes in the $100-$150K range.    They can't get 30 year mortgages up here, so if interest rates jump a percentage point or two they will be pooched when they have to renew.     Leverage gone wild.

the local governments are jumping on the opportunity to tax the snot out of them too.  $20K+ in land transfer taxes, for example.
Somewhat off topic: you'd pay 20k of land transfer taxes on a 160k home purchase here (or 33.6k of VAT). Not including the rest of the fees, taxes and expenses, like mortgage registration fees, mortgage bank fees, notaries, property deed registration authorities, and more.

That might explain why flipping houses is not quite as popular around here...

cloudsail

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Re: My BIL's new house
« Reply #130 on: May 21, 2017, 07:43:07 PM »
Hi cloudsail, they're not in Canada. Palm Desert, CA=Snowbird HQ. I bought my first house there in 2003. We picked up two more in the last two years for about the same price per sf that I paid for the first one. Still looking to pick up a couple more before the loonie rebounds. Nothing so far, but as the summer desert temperatures soar, prices tend to drop, so fingers crossed.

I should point out that these homes are located in a very large senior community. Canadians are not selling off these homes en masse, but as the owners pass away or age to the point where they stop traveling, they sell, because: Canadian Healthcare > American Healthcare.

At the moment, the pool of new Canadian buyers has shrunk considerably . Since CA still has plenty of winter sunshine, and the loonie *will* rebound, we see this as a good time to buy. They still rent quite easily.


We are not expecting to make a killing on them. These homes have good bones, but they're starting to get old enough that a little nipping and tucking is in order. Most people do not want to do this work, they want turnkey living. We love doing this stuff, so it will be something fun we can do together, at a relaxed pace, when DH retires.

Ah I see. Thanks for the explanation! I'm specifically looking for places in Canada because we came into some inheritance in CDN that we don't know what to do with. Hmmm, maybe I should start a thread.

Jrr85

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Re: My BIL's new house
« Reply #131 on: May 22, 2017, 09:34:18 AM »
I personally think people are grossly overestimating property appreciation in HCOL areas, and that outside of the few places where the independently wealthy choose to move to, you can't continue to have property appreciation that outstrips income growth in the area.  But I do think expected appreciation impacts what people can reasonably afford to buy.
You are free to think that, but in the Bay Area, you'd be wrong. We've owned our current home outright for four years, and for each of those years, it has gone up in value $100k, which is more than DH earns. Our neighbor is building their dream house immediately next door. If it ever gets finished (we haven't seen their contractor in two weeks), we'll get another $100k bounce. It's an insane ride, but we're glad to be on it and not watching from the sidelines.

The reason that appreciation is so high is because there are a lot of high-paying jobs here. (We're "poor" in comparison. FWP, I know.) Plus, for some crazy reason, people still want to live here. First on the list is No Snow, followed by Endless Sunshine, then Magnificent Scenery.

Well I stand corrected. Certainly anything that has gone on for four years will go on forever.
That's a completely different argument. If you'd like to move in that direction, I'll offer that I purchased a home in 1996 on a short sale, which more than doubled in price when I sold it four years later. The example given above was also purchased on a short sale. In another market, we've recently purchased two rental properties at their 15 years ago prices, because the market dumped when the Canadian dollar did.

Here's the point you missed: We could easily sell our home in the current market for at least $400k over what we paid for it, with multiple offers, and the gains would be tax-free. Just because it may not be the reality of your market doesn't make it completely real in others.

Counting on the market always going up is a fool's game. But making money in real estate is a proven way to create wealth, if done correctly.

Actually, it's the exact same argument.  Although it looks like maybe it's a wrong argument. 

Prices can only go up at a rate that people can and will pay.  I was operating under the premise that when you have places that independently wealthy people want to move to (or just park buy real estate to park cash), you can have prices go up much faster than wages indefinitely (bay area, Manhattan, vacation areas, etc).  And even outside of those areas, local rich people/people with inheritances can push the prices in favorable areas faster than wage growth. 

But I thought that without those forces, prices can only go up with wages, and that most of the housing boom on a nationwide basis was due to the fact that we have been in a prolonged period where interest rates have been dropping, financing has been made available at higher and higher leverage, and people have been willing to spend more of their resources on housing up and down the income range. 

But now that I look at it, as long as we are willing to devote the lionshare of income growth to housing, maybe the leverage allows housing prices to continually grow faster than wages???  I just plugged some stuff into a spreadsheet, and it looks like a 2% real wage increase, if we devote 80% of it to housing, allows price growth of about 4% (of course this ignores any restraint that down payment requirements would put on pricing growth)?  But the housing growth is a lower percentage each year at least through 13 years, so maybe it will eventually get down to match the wage growth? 

I've totally confused myself at this point.  I get why leverage would allow home price growth faster than wage growth, but I'm confused as to why that growth would be decreasing each year rather than having a steady relationship between the wage growth percentage and price growth percentage. 


 

talltexan

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Re: My BIL's new house
« Reply #132 on: May 22, 2017, 12:09:36 PM »
Read through the heated discussion here with interest. We have a combined gross of $140k and own a 3/2, 900 square foot condo that we bought for $364k in 2015. Ideally we would have loved to buy for $200k or less, but that doesn't exist in Honolulu. It hasn't been a stretch for us so far.

One thing I will say: I LOVE it when family/friends buy big houses. Gives us one more fun place to visit. Some of them even let us throw parties at their places. Lots of fun for us, no giant mortgage or upkeep!

Indeed the extra space had several conveniences when I visited my BiL. What was inconvenient was the lack of AC, but I don't think the delays in fixing the AC had anything to do with financial strain because my BiL couldn't afford the house. Meanwhile, my BiL will be missing a family vacation this January, because they are retrenching financially.

Alim Nassor

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Re: My BIL's new house
« Reply #133 on: June 15, 2017, 12:16:46 AM »
I've always heard the rule of thumb that your house "should be" ~3x your annual income.  So $380k on $120k would follow that rule. 

Beyond that, is it smart?  Way too many variables to say yes or no.

"The now-defunct Washington Mutual Bank suggested up to 4-5 times: As a broad generalization, most people can afford to purchase a house worth about three times their total (gross) annual income, assuming a 20% down payment and a moderate amount of other long-term debts, such as car or student loan payments.Jul 22, 2015"

https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=how%20many%20times%20annual%20income%20for%20house

We were told that a few times when house hunting, my reply was "What fucking planet are you on?"  I never paid even close to 2x for a house.

Alim Nassor

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Re: My BIL's new house
« Reply #134 on: June 15, 2017, 12:31:14 AM »
$120k salary for a $380k home doesn't sound bad at all.

Wow, I guess even when I was un-mustachian, I was mustachian.    That sounds insane to me.   Last new house I bought we paid 126k for.  Brand new custom built for us on 2 acres of beautiful forested land, in 2011.   Granite, hickory custom cabinets, Jacuzzi tub, hardwood floors, etc.  I did quite a bit of the interior work myself to cut costs. Our income at the time was about 150k, and I really disliked spending that on a house.  Since we decided to try to FIRE a few years ago, we sold that beautiful place and bought a little house in town for 70k and put 10k more into it.    I owe nothing else, and hope to FIRE in about 11 months.

talltexan

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Re: My BIL's new house
« Reply #135 on: June 15, 2017, 07:14:57 AM »
Alim-
I share your values of restraint. But is moving $46,000 from home equity into investments moving up your retirement date by more than one year?

TheGrimSqueaker

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Re: My BIL's new house
« Reply #136 on: June 15, 2017, 10:35:08 AM »
I've always heard the rule of thumb that your house "should be" ~3x your annual income.  So $380k on $120k would follow that rule. 

Beyond that, is it smart?  Way too many variables to say yes or no.

"The now-defunct Washington Mutual Bank suggested up to 4-5 times: As a broad generalization, most people can afford to purchase a house worth about three times their total (gross) annual income, assuming a 20% down payment and a moderate amount of other long-term debts, such as car or student loan payments.Jul 22, 2015"

https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=how%20many%20times%20annual%20income%20for%20house

We were told that a few times when house hunting, my reply was "What fucking planet are you on?"  I never paid even close to 2x for a house.

I believe I remember reading, in "The Millionaire Next Door", a few paragraphs discussing the relationship between net worth, mortgage, and annual income. If my memory serves me correctly, Stanley and Danko stated that next to none of the self-made millionaires or multimillionaires they interviewed *ever* had a mortgage worth more than twice their annual realized income. Some of them had very nice houses worth several times their annual realized income, but those who did found ways to get their houses that didn't involve big mortgages. Many, for example, benefited by buying in future HCOL areas before a big real estate boom or keeping a basic family home until later in life and then capitalizing on increased property values. Some were DIY'ers.

SeaEhm

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Re: My BIL's new house
« Reply #137 on: June 15, 2017, 06:33:37 PM »
Some of the responses here smell like people live in very low cost of living areas. 

When one lives in an area where apples are priced from $1-3, buying the $1 apple doesn't sound too bad to them.  Only on the internet do they encounter people who have apples available to them for $0.10.  And in some cases, those people paying $0.10 love to tell them how stupid they are for paying a dollar.

Alim Nassor

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Re: My BIL's new house
« Reply #138 on: June 15, 2017, 08:25:00 PM »
Alim-
I share your values of restraint. But is moving $46,000 from home equity into investments moving up your retirement date by more than one year?

It's more than just that.  This house is almost paid for, the other had a 30 year mortgage with 28 years left on it,  I neglected to mention that the place I worked for shut down, and my next job was for less money.   Plus that gave me the impetus t consider FIRE, something I had never really done before.

Alim Nassor

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Re: My BIL's new house
« Reply #139 on: June 15, 2017, 08:27:18 PM »
Some of the responses here smell like people live in very low cost of living areas. 

When one lives in an area where apples are priced from $1-3, buying the $1 apple doesn't sound too bad to them.  Only on the internet do they encounter people who have apples available to them for $0.10.  And in some cases, those people paying $0.10 love to tell them how stupid they are for paying a dollar.

I live in North Texas.  I could have chosen to spend as much on a house as any bank would lend me, but I chose not to.  Plenty of houses in the 500,000 to 1 million price range around.

SeaEhm

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Re: My BIL's new house
« Reply #140 on: June 15, 2017, 08:30:04 PM »
Some of the responses here smell like people live in very low cost of living areas. 

When one lives in an area where apples are priced from $1-3, buying the $1 apple doesn't sound too bad to them.  Only on the internet do they encounter people who have apples available to them for $0.10.  And in some cases, those people paying $0.10 love to tell them how stupid they are for paying a dollar.

I live in North Texas.  I could have chosen to spend as much on a house as any bank would lend me, but I chose not to.  Plenty of houses in the 500,000 to 1 million price range around.

So you have apples that range from $0.10 to $1.25?

Alim Nassor

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Re: My BIL's new house
« Reply #141 on: June 15, 2017, 08:32:37 PM »
Some of the responses here smell like people live in very low cost of living areas. 

When one lives in an area where apples are priced from $1-3, buying the $1 apple doesn't sound too bad to them.  Only on the internet do they encounter people who have apples available to them for $0.10.  And in some cases, those people paying $0.10 love to tell them how stupid they are for paying a dollar.

I live in North Texas.  I could have chosen to spend as much on a house as any bank would lend me, but I chose not to.  Plenty of houses in the 500,000 to 1 million price range around.

So you have apples that range from $0.10 to $1.25?

Seems that way.  Living in a HCOL area is a choice, just like buying the 10 cent apple.

SeaEhm

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Re: My BIL's new house
« Reply #142 on: June 15, 2017, 11:24:19 PM »
Some of the responses here smell like people live in very low cost of living areas. 

When one lives in an area where apples are priced from $1-3, buying the $1 apple doesn't sound too bad to them.  Only on the internet do they encounter people who have apples available to them for $0.10.  And in some cases, those people paying $0.10 love to tell them how stupid they are for paying a dollar.

I live in North Texas.  I could have chosen to spend as much on a house as any bank would lend me, but I chose not to.  Plenty of houses in the 500,000 to 1 million price range around.

So you have apples that range from $0.10 to $1.25?

Seems that way.  Living in a HCOL area is a choice, just like buying the 10 cent apple.

That it is... That it is... Often times, HCOL of living areas have not only a wide selection of apples, but also includes many other fruits.  Some people just love apples and I respect that.  I, too, often think "do I really need all this fruit available to me?"  An apple or two is really all that I need. However, I am greedy and like the possibility of eating a kiwi if I ever cared to buy one.


Alim Nassor

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Re: My BIL's new house
« Reply #143 on: June 16, 2017, 12:44:45 AM »
Some of the responses here smell like people live in very low cost of living areas. 

When one lives in an area where apples are priced from $1-3, buying the $1 apple doesn't sound too bad to them.  Only on the internet do they encounter people who have apples available to them for $0.10.  And in some cases, those people paying $0.10 love to tell them how stupid they are for paying a dollar.

I live in North Texas.  I could have chosen to spend as much on a house as any bank would lend me, but I chose not to.  Plenty of houses in the 500,000 to 1 million price range around.

So you have apples that range from $0.10 to $1.25?

Seems that way.  Living in a HCOL area is a choice, just like buying the 10 cent apple.

That it is... That it is... Often times, HCOL of living areas have not only a wide selection of apples, but also includes many other fruits.  Some people just love apples and I respect that.  I, too, often think "do I really need all this fruit available to me?"  An apple or two is really all that I need. However, I am greedy and like the possibility of eating a kiwi if I ever cared to buy one.

My taste runs more to the tropical, and since I bought the 10 cent apple, I can afford an occasional foray to the lands of bananas and coconuts.

Dicey

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Re: My BIL's new house
« Reply #144 on: June 16, 2017, 08:21:16 AM »
Yes, but you still live somewhere where there are decent ten-cent apples, which makes it a hellUvalde* lot easier.  (*That's an auto fill for "helluva", which is kinda funny, so stet.)

Sure, I can move, but my friends and family are here and I have deep roots in my community. What rankles is the perception of smugness, as if folks in LCOLAs are more virtuous than folks who simply don't have access to the same options - er, fruit. Frankly, it's harder to reach FIRE with high housing costs, but that doesn't mean it can't be done. Look at all those badass Aussies, especially the Sydneysiders.

talltexan

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Re: My BIL's new house
« Reply #145 on: June 16, 2017, 08:57:40 AM »
the problem with conflating Fruits and Housing is that Housing is--frequently--the single largest lifestyle expense for households, while Fruit is rounding error.

But HCOLA areas got that way because the labor market opportunities pay better. So you're choosing a bundle of Job + seemingly overpriced real estate. Assuming you depend on the job for your income.

dougules

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Re: My BIL's new house
« Reply #146 on: June 16, 2017, 10:50:14 AM »
Some of the responses here smell like people live in very low cost of living areas. 

When one lives in an area where apples are priced from $1-3, buying the $1 apple doesn't sound too bad to them.  Only on the internet do they encounter people who have apples available to them for $0.10.  And in some cases, those people paying $0.10 love to tell them how stupid they are for paying a dollar.

I live in North Texas.  I could have chosen to spend as much on a house as any bank would lend me, but I chose not to.  Plenty of houses in the 500,000 to 1 million price range around.

So you have apples that range from $0.10 to $1.25?

And where are you going to want to be if you run a fruit stand?

Alim Nassor

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Re: My BIL's new house
« Reply #147 on: June 16, 2017, 08:00:31 PM »
Yes, but you still live somewhere where there are decent ten-cent apples, which makes it a hellUvalde* lot easier.  (*That's an auto fill for "helluva", which is kinda funny, so stet.)

Sure, I can move, but my friends and family are here and I have deep roots in my community. What rankles is the perception of smugness, as if folks in LCOLAs are more virtuous than folks who simply don't have access to the same options - er, fruit. Frankly, it's harder to reach FIRE with high housing costs, but that doesn't mean it can't be done. Look at all those badass Aussies, especially the Sydneysiders.

I'm sorry, I wasn't trying to be smug or condescending, it's that housing prices like that are a complete other world to me.  I couldn't ever dream of buying a half million dollar or higher house.   Highest priced place I ever lived was a 4 bedroom 2 story log home on 23 acres.  I sold it for 192k back in 2000.  I was only into it for about 120k.

Dicey

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Re: My BIL's new house
« Reply #148 on: June 17, 2017, 12:07:32 AM »
Yes, but you still live somewhere where there are decent ten-cent apples, which makes it a hellUvalde* lot easier.  (*That's an auto fill for "helluva", which is kinda funny, so stet.)

Sure, I can move, but my friends and family are here and I have deep roots in my community. What rankles is the perception of smugness, as if folks in LCOLAs are more virtuous than folks who simply don't have access to the same options - er, fruit. Frankly, it's harder to reach FIRE with high housing costs, but that doesn't mean it can't be done. Look at all those badass Aussies, especially the Sydneysiders.

I'm sorry, I wasn't trying to be smug or condescending, it's that housing prices like that are a complete other world to me.  I couldn't ever dream of buying a half million dollar or higher house.   Highest priced place I ever lived was a 4 bedroom 2 story log home on 23 acres.  I sold it for 192k back in 2000.  I was only into it for about 120k.
You apologized, but then you did it again. Huh?

I get that's a completely different world. It's just that: different. Not better, not worse, just different. It is also nothing by which to judge someone's character.

Anecdote: I bought an 880 sf condo in December 1996 for $120k. I sold it in August of 2001 for $260k. I doubled my money in less than five years. It sold again in February of 2017 for $533k. Oh yes, it's an apartment conversion. Welcome to the Bay Area. Prices are nuts, but so is the appreciation.

Alim Nassor

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Re: My BIL's new house
« Reply #149 on: June 17, 2017, 02:39:37 AM »
Yes, but you still live somewhere where there are decent ten-cent apples, which makes it a hellUvalde* lot easier.  (*That's an auto fill for "helluva", which is kinda funny, so stet.)

Sure, I can move, but my friends and family are here and I have deep roots in my community. What rankles is the perception of smugness, as if folks in LCOLAs are more virtuous than folks who simply don't have access to the same options - er, fruit. Frankly, it's harder to reach FIRE with high housing costs, but that doesn't mean it can't be done. Look at all those badass Aussies, especially the Sydneysiders.

I'm sorry, I wasn't trying to be smug or condescending, it's that housing prices like that are a complete other world to me.  I couldn't ever dream of buying a half million dollar or higher house.   Highest priced place I ever lived was a 4 bedroom 2 story log home on 23 acres.  I sold it for 192k back in 2000.  I was only into it for about 120k.
You apologized, but then you did it again. Huh?

I get that's a completely different world. It's just that: different. Not better, not worse, just different. It is also nothing by which to judge someone's character.

Anecdote: I bought an 880 sf condo in December 1996 for $120k. I sold it in August of 2001 for $260k. I doubled my money in less than five years. It sold again in February of 2017 for $533k. Oh yes, it's an apartment conversion. Welcome to the Bay Area. Prices are nuts, but so is the appreciation.

No, I didn't do it again.  Do you really think saying I couldn't ever dream of buying a house that expensive is smug?  Maybe I should have said I couldn't ever afford to buy one that high.  That's what I meant and I thought that was clear.  Sorry.