Author Topic: When to buy a house  (Read 6912 times)

MgoSam

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When to buy a house
« on: May 24, 2013, 06:19:33 AM »
Hey,

This is my first post. I am 25 and currently live at home, this is by choice as I have a job that currently pays me an adequate amount, enough for me to move out. I am the youngest and both of my siblings have moved out of state. Each time I bring up moving out both of my parents nod and then keep asking me to stay. As they put it, I am not a burden on them, they have a large house that would feel empty without me, and they want me around. In return, I honestly have it nice in that in return for the usual chores, I have a clean house (which I help to keep clean) and a ton of privacy, nearly equal to the privacy I would have had I lived on my own. I have offered to pay rent, but their response was that if I paid rent, they would just invest it as a savings for me to buy a house down the line. As it is I currently send 75% of my income to Vanguard mutual funds in weekly automatic investments.

The advantage of my arrangement is that it helps to lower my expenses, thus enabling me to invest 75% of my income. My parents house is paid off, they paid cash when they bought it a few decades ago. If I moved out, they said that they wouldn't sell and downgrade, one of my mom's weaknesses is ego and all her friends live in this area.

What do you guys and gals advice? I would prefer to buy a house if I can find a good price for it, but I'm wondering what type of timetable I should have?

Pleas

rubybeth

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Re: When to buy a house
« Reply #1 on: May 24, 2013, 07:03:48 AM »
I'm no expert and am new here, but as long as you have it pretty good living with your parents, I'd try to stay with them as long as you can and save up your cash and keep up with the investments. Depending on real estate prices in your area, you could pay cash (or make a healthy down payment) for a duplex or house with an apartment and then use your rental income to stop working or just work less.

For background, I lived at home during undergrad since the deal was that my parents would pay my tuition at local state university as long as I lived at home. Their house was also paid off, and it's a bi-level that my dad designed in the early 1970s in order to be able to put a kitchen in the lower level and rent it out someday, if needed. So parents' living area is upstairs and my younger sister and I shared the lower level. There was a bus from my back yard to campus, and I was not a party or bar person, so it worked out incredibly well. Graduated debt-free, then moved out of state for a job, getting an apartment with a roommate. Honestly, my parents were better 'roommates' than most roommates, like you mentioned--clean house, meals, comfortable space, and I just did my regular chores and cooked dinner for the family about once a week.  I moved back in with them after I learned I liked my home state better than where I'd moved, and then did graduate school while living with them. I also offered to pay rent, but my dad refused. Didn't move out until one month before my wedding when I was 27. I'm sure it saved me thousands of dollars, and it certainly didn't harm my relationship with my parents because I still visit them weekly. Bonus: they have a pool. Can't really get much better than that. :)

Good luck!

Frankies Girl

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Re: When to buy a house
« Reply #2 on: May 24, 2013, 09:22:34 AM »
I think if there is no resentment or discomfort on either side, then you've got a great deal there. It's great that your parents genuinely want you to stay on, and it sounds like you're mostly happy there and bonus - you're saving scads of money.

The only complicating factor is if you have a date or boy/girl friend that you want to come over - it might be a bit uncomfortable, but you say you have plenty of privacy, so not sure if that is much of a factor.

I guess the big thing is why you are thinking of buying a house. Is there an "itch" that you feel you need to be doing so because of your age or circumstances? Is there a voice (in your head or otherwise) telling you that you "should" be buying a house now?

I definitely could see if everyone (you and parents) was in agreement, staying until you have saved up enough for at least a 20% downpayment (not counting your regular savings and emergency funds) before moving out. And don't forget all the furniture and household items you'll need to purchase or find - washer/dryer, pots and pans, couch and tables... yard sales, craigslist and thrift shops are your friends, but you'll still need to pay SOMETHING for most of that and you need to be saving up for that stuff as well. You also want to make sure you know about all the hidden problems behind home-ownership - things that need regular maintainence, repairs, insurance, HOAs and all that fun stuff, so you're not blindsided when you do purchase a new house. Many people buy a house and don't have a clue all of the stuff that has to be done, so you'd be way ahead of the game!

My suggestion is that you need to be socking away in the house fund, figuring out if the job you're currently working is one you are going to stay around for (no relocating in the future? You wouldn't want to purchase a house if you planned on moving in under 5 years - that's kind of my cut off, but I've heard it other places) and then start looking around at home prices to get a good feel for the actual amount you're shooting for on the 20% down. Your time frame is completely based off of however long it takes you to save to your goal.

« Last Edit: May 24, 2013, 09:26:58 AM by Frankies Girl »

Jamesqf

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Re: When to buy a house
« Reply #3 on: May 24, 2013, 12:58:33 PM »
I agree.  If you have a good relationship with your parents (as it seems you do), and it's not cramping your social life, then you're way ahead.

SnackDog

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Re: When to buy a house
« Reply #4 on: May 24, 2013, 01:04:08 PM »
If you have the money, this is a great time to invest in real estate as rates are low.  You don't have to live in it - rent it out if you want to look after your parents.  But you should cut the cord at some point. 

freelancerNfulltimer

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Re: When to buy a house
« Reply #5 on: May 24, 2013, 01:18:14 PM »
Remember too that owning a home comes with starting a household. You'll need to purchase (be it used or from CL or new fancy items) furniture, kitchen items, towels, ironing board, etc... and you will also have home maintenance to budget for.  When you run your numbers for how much it would cost to move out make sure to consider these things too.

Guitarguy

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Re: When to buy a house
« Reply #6 on: May 24, 2013, 03:34:56 PM »
I honestly don't know what the big deal is about the USA painting the picture that living at home with your parents is a negative thing. If you can make it work on both sides, more power to your family. I've heard that in other countries in the world that several generations of the family sometimes live under one roof.

MgoSam

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Re: When to buy a house
« Reply #7 on: May 24, 2013, 04:47:59 PM »
Thank you everyone for your comments!

Part of the reason that I want to leave is as someone posted to cut the chord. Otherwise I have it really well right now. I checked out prices here near me and prices are low. In the past 18 months they have risen enough that I wouldn't get a bargain price. There isn't nearly as many forclosures anymore, so I likely will be waiting at least another year to see if it worth buying a place.

electricworm

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Re: When to buy a house
« Reply #8 on: May 25, 2013, 07:27:56 AM »
a slight concern is that you're saving 75% of your income with little expenses. If you have a house, that will almost certainly become your biggest expense and will likely greatly reduce your savings rate. when it becomes time, don't buy more house than you need. buying a duplex like another buyer suggested could be a good idea. live in one unit and rent the other.

Frugal_in_DC

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Re: When to buy a house
« Reply #9 on: May 25, 2013, 09:12:21 AM »
If you buy a house, I would say be ready to stay put for at least five years.  Some of the neighborhoods near where I live still haven't recovered from the housing slump eight years ago.  You never know what might happen in that time frame...you may meet someone and move out of the area because of his/her job or school, you may get a job offer or want to go back to school in another area, you may have children and want to move to another school district, etc.

Nowadays in the US moving out of our parents' house is a rite of passage that signifies independence, but as others have said here in other countries several generations live together.  If your peers tease you, I would just ignore them.  There is plenty of peer pressure, stated or otherwise, at every age, mainly revolving around spending money on unnecessary stuff or upgrading to a certain lifestyle.  Interestingly, I know quite a few folks in their 30s and older who choose to live with their parents, in-laws, or other family members.

Above all, don't fall for realtors' nonsense to buy the most expensive house you can afford.  I bet the sales pitch is even louder now with low interest rates and realtors trying to make up for lost time during the slump. 

If you do buy, put at least 20% down to avoid PMI.  Getting a house with a rental unit is great advice, as is renting out spare bedrooms. 

In terms of maintenance, I have heard that a rule of thumb is to be ready to spend 3-5% of the value of the house on maintenance every year.  I'm not sure how much those percentages reflect outsourcing vs. DIY projects.

As with any other decision, I would say trust your gut instinct.  I would also ask friends or colleagues of your age who've bought houses about their positive and negative experiences.

Good luck to you and congrats on your impressive savings rate!
« Last Edit: May 25, 2013, 09:15:40 AM by Frugal in DC »

bluecollarmusician

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Re: When to buy a house
« Reply #10 on: May 25, 2013, 09:59:24 AM »
Buying a home is not an investment unless you are able to buy below market, or unless you are able to add value in some specific way ( through sweat equity, or by being real estate savvy, and studying and knowing likely appreciation due to changing economy or improving area.)

Buying a home and maintaining it is an expense of living. It costs money, and for most it is their single biggest expense.

At the moment you do not have this expense and it is enabling you to save and invest a great portion of your earnings.  It is hard to overstate the value of this given the fact that every dollar invested at this stage of your life will be compounding for a very long time.

I had a similar situation years ago- When I was in college I went to work at a theme park in the summer.  I am a musician, and while playing a Sunday gig in a nice church, I met a nice little old widow who had known my sister when she went to college in the same town.  She invited me to Sunday lunch.  That year I was living in an apartment with some friends. She and I became friends, and she told me if I came back next year I should live with her (she had a big house, plenty of privacy for us both.)  When I came to do the same job the next year, I decided to live with her - the rent was very cheap (she never actually asked me for any money, but I insisted she take 200$/ month to at least defray the utilities)  She took the cash I gave her and set it on her bed side table.  After I moved in we became even better friends.  She enjoyed cooking for me, and I helped her out with little chores around the house.  Her son's were happy to have someone there with her all the time since she was getting a little older.  Eventually she refused rent of any kind.  Simply would not take it. The money I had given her sat on her bed side table forever.  My job turned into a more long term seasonal thing.  I lived with her off and on (since my main jobs required a lot of travel) for 11 years.   

In that time I saved, invested in a real estate, stocks, funds, etc.  Instead of paying 50% of my income to pay for housing I was able to have irreplaceable life experiences with someone who became my family- and I was able to be a good friend to her and help her in many ways too.

As a result of those and some other mustachian tendencies, I am floating on FI.  Even though I work, for the last year our investments have been creating enough income to pay all our bills. I am 35, and have never earned more than about 36K from my work.

Now- you have to live your life, and there is a stigma to living with your parents, but it is silly.  Imagine if they were some nice folks you met at church.  Would it seem as weird then?  Enjoy the time with the people who love you as long as the situation works. Make sure you contribute in whatever ways seem best.  If real estate prices are good, then invest in a rental.  Oddly enough, I am getting ready to move into a rental I bought 12 years ago that is paid off - which I bought when I was living with my friend.  How many get to experience never paying a mortgage?  You have an opportunity to do something like that  if you want to.

bluecollarmusician

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Re: When to buy a house
« Reply #11 on: May 25, 2013, 10:07:35 AM »
To be clear about what my rambling post meant: Putting off buying a residence can be a great idea *unless you are renting*
That doesn't mean putting off buying real estate.  The sooner the better!
Our first 4 properties were rental properties.
Because of that, we bought our residence with cash. 

Khan

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Re: When to buy a house
« Reply #12 on: May 25, 2013, 11:30:31 AM »
Meoates has it right, housing is not a proper investment. At best it's an asset that barely appreciates but requires extremely large maintenance fees, at worst... it depreciates and still has the maintenance fees. There are ways of doing housing right, such as duplex, apartments, sweat equity and whatnot, but ask yourself if that's for you. I'm 25 as well, and am buying a house at this very moment, but my situation is different. I have no, absolutely no love of housing(Grew up in 2 housing bubble markets, the Silicon Valley[Morgan Hill] and Las Vegas), but I'm getting a good friend and his wife as roommates, saving them scads of money while giving them a house(they'll get the master bedroom), and in return, I'll also be living on cheaper housing and thus profiting from the deal for the forseeable future.

But like I said, don't let that American attitude towards housing, that you're wrong if you don't own a house especially because you have the means to do it, force you into it. The itch to get away is a different animal, and one that I can't speak ill of, as I joined the military and moved out of state after returning from that not because of my parents, but because there's nothing in Vegas for me to stay for besides family.

MgoSam

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Re: When to buy a house
« Reply #13 on: May 25, 2013, 12:43:49 PM »
On the flip side, a concern I have is possibly never moving out. My mom subtly said to be a few days ago that once I get married (for her it's a given), the house can be mine. I appreciate the gesture, but think that is completely unnecessary. I am Indian, and come from a culture that traditionally would have many generations living under one roof, but that doesn't happen to many Indian families here in the United States.

One thing about owning is what someone said about 3-5% maintenance per year. If when I move out I don't find a good deal on a property in an area I want to live in, I think the absence of such expenses could possibility make renting better. What do you think?

One of the motivations I have for saving so much of my earnings is that once I can retire, I want to travel the world. But instead of seeing as many cities, I would prefer to live in a foreign city for a few months and then move to another. For instance, I would love to experience as much of life in Bologna and Barcelona, two cities that have such amazing cultures.

Frugal_in_DC

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Re: When to buy a house
« Reply #14 on: May 25, 2013, 12:55:59 PM »
I would say that if your goal is to travel the world, hold off on buying a house if you plan to live in other locations for several months at a time.  I would think that the only exception would be buying rental property that generates enough income to offset costs of ownership, including someone to manage the property while you're traveling.

Several months ago the WSJ had an article about a couple in their 60s (I think) who sold their house and live all over the world during their retirement.  Their website is http://homefreeadventures.com .

MgoSam

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Re: When to buy a house
« Reply #15 on: May 25, 2013, 01:27:39 PM »
Any advice on buying a property for renting? I know little, I was planning on talking to my aunt who had a properties rental business. She is a wonderful person, when I bought up to her buying a place to rent she said the most remarkable thing, "Find a place you like to buy and I'll do everything I can to manage it for you untl you know how to do it."

I think most management places charge 5-10% of the rental income plus first month (the first month is due to their expenses in finding a tenant) and that you are still in charge of reimbursing for maintanence and repairs, is this correct?

If that is the case, it seems that the only difficulties are finding a good property that can be rented, furnishing it, and then finding a good management company. What do you think?

For my finances, I currently am making around 3700/month, of which 75% goes towards my Vanguard mutual funds. I can list my current savings so far if it helps. Including my Roth IRA, also with vanguard, I have around 192,000 invested thus far.

Another Reader

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Re: When to buy a house
« Reply #16 on: May 25, 2013, 03:36:18 PM »
Since you have an aunt in the rental business, why don't you arrange to work with her a few hours each week so she can teach you what she knows about real estate?  If she is a successful investor, perhaps she can help you invest in your first rental property.  It really works best to learn real estate from someone that is good at it.  In the meantime, as you learn, you can save up the down payment for that first property.

Mr Mark

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Re: When to buy a house
« Reply #17 on: May 25, 2013, 06:30:06 PM »
Since you have an aunt in the rental business, why don't you arrange to work with her a few hours each week so she can teach you what she knows about real estate?  If she is a successful investor, perhaps she can help you invest in your first rental property.  It really works best to learn real estate from someone that is good at it.  In the meantime, as you learn, you can save up the down payment for that first property.

+1 on that.

MgoSam

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Re: When to buy a house
« Reply #18 on: June 06, 2013, 08:25:42 AM »
I've been trying to get a hold of my aunt, but she has been out of town. I hope to talk to her over the weekend when she gets back.

Things are starting to get a little more strained with my parents and I do feel that it might be time to cut the cord.

One advantage of buying is that I can buy a house in a neighborhood that it is about 2 miles from the office, rather than the 18 miles I currently need to drive. Would you recommend looking on Zillow for places? How do you go about looking at homes? Should I get preapproved or talk to a realter?