Author Topic: Do I really want a house  (Read 4568 times)

MgoSam

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Do I really want a house
« on: February 25, 2014, 12:02:51 AM »
Hey,

I have posted several topics about buying a house and am trying to do more research and also think about what my motivations are for owning a home. Earlier I asked myself, "Do I truly want to buy a house," and after thinking 'yes,' my follow-up was "Why do you want to buy a house." My initial answer wasn't a reassuring one. So in short, I think I need to think hard on whether this is a good decision for me.

This is a serious issue as buying a home would require a significant use of capital and would lock me in for some time into a place that might not be what I want. The homemoon period might ware off and I find myself living in a place that I don't like.

At the same time, I am not unhappy in my current situation (living at home with my parents). But I am not happy either.

I am thinking of trying to rent a room and then go from there.

I don't know the best way to go about this thinking process, so I would like your advice. I am going to write down a pro/con sheet of buying a home, is there anything additional that you would recommend?

If anyone has any other advise or thinks that there factors that I haven't considered please let me know. I will post an update after I have thought this through a bit more.

Thanks in advance.

Cwadda

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Re: Do I really want a house
« Reply #1 on: February 25, 2014, 12:35:47 AM »
Pros:
-Interest rates are lower right now because the real estate market is on a bubble - this will shift soon enough though
-You can do a lot of DIY fixing things to make the value increase
-You can end up turning a profit if you play your cards right
-You can be independent

Cons:
-The process is time-consuming and isn't easy

Remember, living in different places occurs in stages. You won't be locked in a situation if you can get a good deal/situation. It is by no means your final house for life. First houses aren't supposed to be like that. Well, maybe for some people, but the majority of people start off in a house that isn't their dream home.

arebelspy

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Re: Do I really want a house
« Reply #2 on: February 25, 2014, 07:08:40 AM »
I would suggest everyone wait to buy a house until they have a very compelling reason, need, or urge.

It's a decision that has significant costs (both in time and money) to undo.  You'll lose at least 10% in closing and buying/selling costs.

If it's just an "eh.. seems nice" type of feeling, no, don't buy.  Wait until you feel like you can't stand it and have to have one (and hopefully it makes financial sense to own as well, though sometimes it may not, and that's okay as well).  But don't enter into it lightly if you aren't 100% committed, because the cost of changing your mind is significant, leading to potential regret.

The other thing to consider is the numbers in terms of buying vs. renting - if rents and prices are out of whack in your area and skewed towards buying, run those numbers and see how long your break even point is, and if you'll be in the area that long.  It may make sense to buy, even if you don't care so much about owning, just from a financial perspective.  On the other hand, if you are living at home, and don't mind (and they don't mind), that will obviously be cheaper.  You'd need to compare it to what you would rent if you moved out.
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markbrynn

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Re: Do I really want a house
« Reply #3 on: February 25, 2014, 07:58:40 AM »
arebelspy points out some of the key things to look for. I would add the following:

1. Don't be fooled into thinking that you will always come out ahead economically by buying a house. Plenty of people don't.

2. You won't always be able to sell your house for more than you buy it for. Even taking into account inflation, prices sometimes go down. This has happened a lot in the past 10 years and has made people (like me) re-evaluate whether buying (and eventually selling) will be economically positive. As mentioned by arebelspy, you start in an approx. 10% hole from the buying/selling costs.
   
3. There's this big myth that you should buy a house because after 30 (or 15 or 7) years you will have paid off the mortgage and can live mortgage/rent free. It's a nice idea, but it's a lie. First, you need to compare the costs over the term of the mortgage (including mortgage, insurance, taxes, HOA, maintenance, renovations, etc.) vs. the cost of renting (rent, maybe costs to move 1-2 times), then you still have to pay taxes, insurance, maintenance and HOA after the mortgage is paid off, so only part of your monthly payment is less. Finally, you're also tying up the whole value of the house in money that can't do something else (be invested).
Run the numbers (all of the numbers) to see if it makes sense in your area with your lifestyle. Do not underestimate (or forget) any of the many costs associated with owning a house.

4. Buying also has the serious disadvantage of tying you to one location. Okay if you don't plan on moving for quite a while (or if you're lucky enough for prices to skyrocket between when you buy and sell), but problematic for others; especially for people who want to live close to work and be flexible enough to pick up the best jobs that are available to them. Another cost could be the cost of paying a mortgage for several months while you're trying to sell a place and already moved to a new location for a job. Not entirely a non-issue for rentals, but usually easier to negotiate a settlement of 1-3 months rent.

5. Maybe it's different in your area, but good rentals are not usually that hard to find. You might occasionally run into a landlord you don't like, but a little up front effort can reduce the risk and you can always move when the lease is up (or earlier if he/she is bad enough). As has come up on this forum before, many people have rented a single house/apartment for 10+ years without rents continually going up and with the option to renovate/paint/etc.

There are some nice sides of owning, but mostly they are sentimental and not something you can't get from a good rental. If you're justifying buying on financial grounds, then really set aside your emotions and make sure that the numbers add up. If they do, then go for it. If they don't, don't justify the bad numbers with sentiment.


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Re: Do I really want a house
« Reply #4 on: February 25, 2014, 08:16:17 AM »
I would suggest everyone wait to buy a house until they have a very compelling reason, need, or urge.

It's a decision that has significant costs (both in time and money) to undo.  You'll lose at least 10% in closing and buying/selling costs.

If it's just an "eh.. seems nice" type of feeling, no, don't buy.  Wait until you feel like you can't stand it and have to have one (and hopefully it makes financial sense to own as well, though sometimes it may not, and that's okay as well).  But don't enter into it lightly if you aren't 100% committed, because the cost of changing your mind is significant, leading to potential regret.

The other thing to consider is the numbers in terms of buying vs. renting - if rents and prices are out of whack in your area and skewed towards buying, run those numbers and see how long your break even point is, and if you'll be in the area that long.  It may make sense to buy, even if you don't care so much about owning, just from a financial perspective.  On the other hand, if you are living at home, and don't mind (and they don't mind), that will obviously be cheaper.  You'd need to compare it to what you would rent if you moved out.
arebelspy points out some of the key things to look for. I would add the following:

1. Don't be fooled into thinking that you will always come out ahead economically by buying a house. Plenty of people don't.

2. You won't always be able to sell your house for more than you buy it for. Even taking into account inflation, prices sometimes go down. This has happened a lot in the past 10 years and has made people (like me) re-evaluate whether buying (and eventually selling) will be economically positive. As mentioned by arebelspy, you start in an approx. 10% hole from the buying/selling costs.
   
3. There's this big myth that you should buy a house because after 30 (or 15 or 7) years you will have paid off the mortgage and can live mortgage/rent free. It's a nice idea, but it's a lie. First, you need to compare the costs over the term of the mortgage (including mortgage, insurance, taxes, HOA, maintenance, renovations, etc.) vs. the cost of renting (rent, maybe costs to move 1-2 times), then you still have to pay taxes, insurance, maintenance and HOA after the mortgage is paid off, so only part of your monthly payment is less. Finally, you're also tying up the whole value of the house in money that can't do something else (be invested).
Run the numbers (all of the numbers) to see if it makes sense in your area with your lifestyle. Do not underestimate (or forget) any of the many costs associated with owning a house.

4. Buying also has the serious disadvantage of tying you to one location. Okay if you don't plan on moving for quite a while (or if you're lucky enough for prices to skyrocket between when you buy and sell), but problematic for others; especially for people who want to live close to work and be flexible enough to pick up the best jobs that are available to them. Another cost could be the cost of paying a mortgage for several months while you're trying to sell a place and already moved to a new location for a job. Not entirely a non-issue for rentals, but usually easier to negotiate a settlement of 1-3 months rent.

5. Maybe it's different in your area, but good rentals are not usually that hard to find. You might occasionally run into a landlord you don't like, but a little up front effort can reduce the risk and you can always move when the lease is up (or earlier if he/she is bad enough). As has come up on this forum before, many people have rented a single house/apartment for 10+ years without rents continually going up and with the option to renovate/paint/etc.

There are some nice sides of owning, but mostly they are sentimental and not something you can't get from a good rental. If you're justifying buying on financial grounds, then really set aside your emotions and make sure that the numbers add up. If they do, then go for it. If they don't, don't justify the bad numbers with sentiment.



^ +1 and there is enough indications in your opening that you are not ready yet. Probably the best thing you can do is really research areas you would want to live and or just educate yourself more in home ownership and hashing out over and over what financially makes the most sense.

nereo

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Re: Do I really want a house
« Reply #5 on: February 25, 2014, 08:18:28 AM »
Here's a few yes/no questions i asked myself before i decided to purchase my first house.

1) can i afford it (the mortgage, plus monthly fees, taxes, one-time closing costs, etc)

2) am I confident that is where I want to live for 5+ years (7+ would be better) - can i walk most places?

3) does the rent-vs-buy equation come out in favor of buying? (Quick test: is the interest + any fees + 1/24th of the total closing costs less than what a similar unit would rent for in that area?)

4) do i like/mind doing home repairs or home improvement projects? (or: can I patch a wall, fix a leak, replace a faucet and other 'minor' tasks that are cheap to do but cost lots to call in a professional)

5) are there projects on the house I can tackle to improve its value, or will is it top-notch now and therefore will only decrease in fit-and-finish?

6) do i have the time and desire to do home projects?

7) do i have enough cash for a down payment (without gutting my finances) and can I get a good mortgage rate?

8) if necessary could i take on a roommate to help pay the bills?

If you are getting a lot of "No" answers then buying a home might not be a good decision right now.

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Re: Do I really want a house
« Reply #6 on: February 25, 2014, 08:32:38 AM »

1) can i afford it (the mortgage, plus monthly fees, taxes, one-time closing costs, etc)

4) do i like/mind doing home repairs or home improvement projects? (or: can I patch a wall, fix a leak, replace a faucet and other 'minor' tasks that are cheap to do but cost lots to call in a professional)

5) are there projects on the house I can tackle to improve its value, or will is it top-notch now and therefore will only decrease in fit-and-finish?

6) do i have the time and desire to do home projects?


These were the biggest factors I weighed when deciding whether or not to purchase a house.

Some advice I have before even looking at houses.  Know the price you want to spend per month.  Figure this out by looking at your budget and savings goals.  Depending on where you go for your mortgage, they might tell you straight out that you qualify for XXX,XXX amount of mortgage.  Usually this value is way beyond what most would have considered.  If you work backwards and decide:

Quote
I can spend 1,200 a month on a mortgage (includes taxes and insurance) that means I can purchase a 200,000 house.

Go from there.

Other factors that helped me decide were my ultimate wants.  I wanted a yard for my dog.  I wanted to be able to put a hole in the wall and not factor in a damage deposit, I wanted to be able to paint a wall and not have to ask anybody.  Some day soon I want to gut my kitchen and make it how I want.

Just sharing my process.  Hope you find an answer for yourself.

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Re: Do I really want a house
« Reply #7 on: February 25, 2014, 08:43:09 AM »
Is there enough space/freedom at your parents' house for you to set up some kind of a tiny house arrangement, by building one yourself or by just camping out in an RV?  That would give you a little more independence without taking on the huge obligation of buying a house.

PeteD01

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Re: Do I really want a house
« Reply #8 on: February 25, 2014, 08:43:26 AM »
We relocated three years ago and faced this decision.
We bought a duplex with a basement rental in a downtown area.

After we moved in, we found that our neighborhood is one of thrifty homeowners and small time landlords with their own self help network. There are no garages in our neighborhood and no fancy cars but people keep their houses neat looking - its all Victorian era houses.
Our neighbor next door hasn't paid rent since the seventies and his mortgages were always covered by the rental apartments in the properties he has owned over the years. He bought his first multifamily when he was in his early twenties and has been FIRE for several years.

Financially, the decision was easy for us. In a couple of years we will be living rent free with all taxes, insurance and maintenance cost covered by the basement apartment - exactly what our neighbors are doing.

If that kind of property is available in your area, the rental market is good, and you can do it financially, the decision may not be difficult at all.

Peter

MgoSam

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Re: Do I really want a house
« Reply #9 on: February 25, 2014, 09:30:30 AM »
Here's a few yes/no questions i asked myself before i decided to purchase my first house.

1) can i afford it (the mortgage, plus monthly fees, taxes, one-time closing costs, etc)

2) am I confident that is where I want to live for 5+ years (7+ would be better) - can i walk most places?

3) does the rent-vs-buy equation come out in favor of buying? (Quick test: is the interest + any fees + 1/24th of the total closing costs less than what a similar unit would rent for in that area?)

4) do i like/mind doing home repairs or home improvement projects? (or: can I patch a wall, fix a leak, replace a faucet and other 'minor' tasks that are cheap to do but cost lots to call in a professional)

5) are there projects on the house I can tackle to improve its value, or will is it top-notch now and therefore will only decrease in fit-and-finish?

6) do i have the time and desire to do home projects?

7) do i have enough cash for a down payment (without gutting my finances) and can I get a good mortgage rate?

8) if necessary could i take on a roommate to help pay the bills?

If you are getting a lot of "No" answers then buying a home might not be a good decision right now.

Thanks, I have yes to everything exept 2 and 3. I don't know as much about the rent/buying equation and need to research this. For living there for 5+ years, that's the hangup that I currently have. Right now I have the freedom to live at a moment's notice, the only thing holding me here are some minor physical things like clothes, my job, my family, and my friends. With a house that becomes a lot harder to do, especially as someone here mentioned correctly that a home is a very illiquid asset.

MgoSam

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Re: Do I really want a house
« Reply #10 on: February 25, 2014, 10:12:47 AM »
I think you guys are right in that if I am not completely confident on the idea of owning a home, then I should step back and wait. Do you have any advice for getting into a state of readiness to buy a home?

Here is my mindset right now.

I live in the same bedroom I grew up in during the colder months, during the warmer months I live in the basement which is largely isolated and quieter. Though I have freedom of travel and no curfews of any time, there is still the annoying knowledge that I am seen as a kid. If I don't come home by a certain time, they want to know, and if I am staying out later than then, they want to know. If anyone is coming over to hang out, they want to and should get to know (this isn't a complain on them, but on the situation).

I like doing things in a certain way, but while I live there I know that the house is theirs and not mine. As such I realize that I have to do things they way they want it. Unfortunately that also includes how my room is set up. I know this is a complainypants argument, but that is part of the reason I want to own my own real estate. My roof my rules.

My mom will always be the same, and still has strong maternal instincts. This includes trying to clean up after me, which I don't like as this covinces her that I am unable to fend for myself and two, stops me from doing things the way I want them. An example of this was me taking out raw chicken that was marinading in soy sauce, I was going to make kung pao chicken. I went and took a shower and came down and the chicken and rice were both cooked and waiting. This is an incredibly nice gesture on her part, but that defeats what I wanted to do. It is hard to say anything especially as her response is one of concern and her reasoning is, "I know you're hungry and in a hurry and I had time....". Again this is a complainypants-like thinking, but after a few years I need to get out of this.

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Re: Do I really want a house
« Reply #11 on: February 25, 2014, 10:17:47 AM »
Maybe the answer is just to move out.  It sounds like you are just looking to be on your own.

You have other options other than buying.  Rent a small apartment.  Find a house or apartment to rent with some roommates.

There are options a lot less restrictive than buying a house.  And standard leases are usually a year, plenty of time to figure out whether you want to keep renting or become more interested in buying your own place.

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Re: Do I really want a house
« Reply #12 on: February 25, 2014, 11:34:19 AM »
I think you guys are right in that if I am not completely confident on the idea of owning a home, then I should step back and wait. Do you have any advice for getting into a state of readiness to buy a home?


It sounds like living on your own (renting) might be your best scenerio in the short term.  You can re-evaluate purchasing a home in a year or two.
In the meantime, keep saving and keep your polishing your credit so that you qualify for a low rate and you do not need to borrow a huge amount.

regarding the "rent-vs-buy" equation, first you need to get a sense of what the rental market is like in your area, and what the real estate market is like.  Renting (and touring rental properties) will give you a good sense of the former.  Looking at listings online (and tracking how much they sell for) will give you a sense of the latter.
Then run some simulations with different sized loans and different interest rates.  Here's an online calculator I like: http://usmortgagecalculator.org/
For owning to make financial sense, the interest portion of your mortgage + any HOA, taxes etc must be less than what you would pay for renting.  I would also add the closing costs averaged out over 2 or 3 years (24 or 36 months) and add that to the total.
You can consider the difference between this number and the cost of renting to be your 'margin of safety'. 
If they are the same, then owning won't save you money over renting in the short term (3-5 years).

For example, using the calculator above I put in the following hypothetical numbers ($200,000/20%/$160,000/4% rate/30 year/1% taxes/0%PMI/0.35%Insurance/0 HOA).  I get a monthly payment of 988.86, of which I subtract the $230.53 in principle.  That gives me $758.33.  If I assume closing costs of 5% (averaged over 36 months) I would add $277.78 to the total.  That means "owning" costs $1,036.11.  I then compare that to similar rental properties.  The numbers change drastically depending on the values you plug in, and this is just a first approximation.  Later you can add necessary/emergency repair work, remodels or upgrades, etc to the equation.

Then you can get fancy and factor in different appreciation or depreciation scenarios.  Do both!  Imagine you sell after 5 years and the property has gone UP 3% per year (a typical amount).  What is your net-equity?  Now calculate after 5 years of paying a mortgage how far the property value would have to fall in order for you to be "underwater" (owe more than the house is worth).  If it's less than 10% I'd be worried.

These are all calculations I do when I'm sticking my toe into any real estate market.