Author Topic: Did you buy your first house before or after MMM/FI/ER decision.  (Read 8483 times)

Angie55

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Curious as to whether most people on the forum purchased their house to live in before they started following the lines of this site or other early retirement dreams.

With so many competing priorities I'm thinking its impossible to ever save up enough downpayment to ever buy a house. How do people do it when they are contributing to 401ks, IRAs, and brokerage accounts? My only answer was they must have purchased it before they were wiser or used equity in a previous house to downsize into their current one.

I find it hard to significantly slow long-term savings to save the 50k-60k for downpayment and repairs on top of a solid emergency fund. Following the 20% downpayment and 6-months emergency fund we'd need near 80-100k in liquid cash. A) I never have more than 5k total in my accounts doing nothing. B) Even with decent dual incomes we'd have to stop our extra savings to Roth's and maxing out 401k's for several years to reach this amount.


MDM

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #1 on: April 24, 2014, 04:48:24 PM »
Based on 60K for a 20% down payment, that would be a $300K house.  While that may be a "starter house" in some areas (e.g. see http://www.trulia.com/home_prices/), for many people that would be more than they ever pay for a house.

Given dual incomes (unless you are at risk for simultaneous job loss), you could have much less than a 6 month e-fund and likely be just fine.  Combine that with a lower target house price and...?

CommonCents

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #2 on: April 24, 2014, 05:17:13 PM »
After.  And I didn't particularly buy a mustachian home either (our house is well over MDM's suggestion of $300k, although in Boston that doesn't take much - simply the word "house" rather than "1-bed room condo" gets you there).  I just value things in addition to ER, and where I live is one of them.  It helps though that DH has a small pot of gold (and no student loans) so we can do both. 

zurich78

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #3 on: April 24, 2014, 05:30:08 PM »
Before.

And you can't buy a home in Orange County, CA for under $300K.  We call those apartments, trailers, mobile homes, etc.  Haha.  No joke, the median home price out here is about $600K. 

Workinghard

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #4 on: April 24, 2014, 06:38:11 PM »

I find it hard to significantly slow long-term savings to save the 50k-60k for downpayment and repairs on top of a solid emergency fund. Following the 20% downpayment and 6-months emergency fund we'd need near 80-100k in liquid cash. A) I never have more than 5k total in my accounts doing nothing. B) Even with decent dual incomes we'd have to stop our extra savings to Roth's and maxing out 401k's for several years to reach this amount.

Not sure how sound this advice is, but I'm trying to encourage my kiddo to hit that 100k (which seems to be the tipping point) and then work on a down payment for a house.  Emergency fund first, of course, which he has.

sunnyca

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #5 on: April 24, 2014, 06:46:36 PM »
Before as well.

zurich78 - with you on the prices of home prices in Orange County, CA.  I have a 2BR condo I bought for $300k- not comfortable with anything more expensive than that, even in my pre-MMM days.  Now I'm feeling guilty that I even spent that.

Gray Matter

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #6 on: April 24, 2014, 06:51:37 PM »
Before, which means we probably ended up with more house than we would have had we bought it after finding MMM.  But now we're well-settled, and we love it (it's home!), and the thought of leaving it to downsize is difficult (one of my kids was even born in this house).

mrsggrowsveg

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #7 on: April 25, 2014, 07:26:56 AM »
We bought our house before.  The only thing we may have changed was the location, but there weren't any other options available that aligned with our goals.  Also, I would have saved more for a larger down payment to avoid PMI.

skunkfunk

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #8 on: April 25, 2014, 07:47:17 AM »
Before. By about a month.

If it had been after, I would be renting.

ketchup

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #9 on: April 25, 2014, 08:04:12 AM »
About six months before. I was 20.  But it was a 500 square foot house for $18,500, and after living in it for a year, it's now rented out for fun and profit.  It was pre-MMM, but I was always fairly sensible with money.

smalllife

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #10 on: April 25, 2014, 08:09:00 AM »
After.

arebelspy

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #11 on: April 25, 2014, 08:38:25 AM »
Before, but just because of timing.  Had MMM been around 5 years earlier, I still would have bought.

So you save up, or you sell some investments for the downpayment.  Sol is doing that right now, and spoke of how just a week or two ago he sold stocks to make the funds liquid for their next house purchase (there were several posts around this - if he should sell ones that had gained more, or lost, i.e. tax loss harvest, etc.).

Plenty of people just save it up in a low interest account or CDs because they don't want the risk with the money invested.  Either works fine.

If anything Mustachian habits should help you quite a bit so that you can save up very quickly.

I'm not seeing the issue.
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JohnGalt

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #12 on: April 25, 2014, 08:53:39 AM »
I bought before, have since sold and gone back to renting, probably won't buy another home (to live in, may buy a rental or two as investments) until after FI if ever. 

DoubleDown

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #13 on: April 25, 2014, 09:05:01 AM »
So you save up, or you sell some investments for the downpayment. 

Same here. I sold some ESPP stocks I had for the down payment on our first house (before MMM had a blog), then have rolled the equity into new house purchases along the way when we've moved.

Runge

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #14 on: April 25, 2014, 09:18:57 AM »
After. I've been reading MMM for a little over a year now, and it's actually helped me build my down payment faster. I'm 25 and have been working for 2 years now, so I'm just getting on my feet financially. Learning to be frugal has allowed me to sock away 25%/mo specifically for a down payment in addition to retirement savings and such. I'm only putting 10% down (due to timing) because the market here is about to explode into a sellers market due to various large corporations moving in. Also, I'm buying a home worth 175k just fyi.

Angie55

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #15 on: April 25, 2014, 09:46:42 AM »

Interesting! So it is sort of like I expected. I just have a hard time justifying delaying full fledged savings to put it into something like a house. Starting at age 30 it would take us 3 years to save that while saving 401k minimum. Meaning we wouldn't get to start aggressive savings until 33/34 depending on renovations needed. Makes me not want to buy and continue renting even though I would love the consistency and "lower" payment of a house.

Frankies Girl

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #16 on: April 25, 2014, 10:06:58 AM »
Bought our house way before the idea of FIRE, but we were already really frugal. Live in a low COL area, bought a house (worth at the time) right at 1X our total salary and were contributing about 20% to retirement savings/investments. Only after I found MMM did I bump up the savings/investing part, but the house is about half paid off and we technically could pay it off completely if the interest rate wasn't so low.

I also disagree with the idea that it's impossible to save up a 20% downpayment. It really depends on the COL and the amount of house you're trying to buy. As long as you live someplace where the houses aren't outrageously priced (California and New York seem to have really insane COLs), then it's possible to to save up the 20% and still save for retirement.

JohnGalt

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #17 on: April 25, 2014, 10:09:13 AM »
I also disagree with the idea that it's impossible to save up a 20% downpayment. It really depends on the COL and the amount of house you're trying to buy. As long as you live someplace where the houses aren't outrageously priced (California and New York seem to have really insane COLs), then it's possible to to save up the 20% and still save for retirement.

I'd imagine that in the outrageously priced areas - renting will usually win out when you look at the numbers anyways.

ruthiegirl

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #18 on: April 25, 2014, 12:07:48 PM »
We bought a house pre-MMM and then we sold it to move for a new job.  We are now saving for a down payment on a more Mustachian house.  Saving is possible for us, but only because my dh has a good salary and we are willing to live with 4 children in a small duplex. 

Average cost of a house here is 300K, though I think we can beat that by quite a bit as long as we keep our expectations reasonable. 

DoubleDown

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #19 on: April 25, 2014, 01:57:03 PM »

Interesting! So it is sort of like I expected. I just have a hard time justifying delaying full fledged savings to put it into something like a house. Starting at age 30 it would take us 3 years to save that while saving 401k minimum. Meaning we wouldn't get to start aggressive savings until 33/34 depending on renovations needed. Makes me not want to buy and continue renting even though I would love the consistency and "lower" payment of a house.

I'm not following your distinction or dilemma here. I mean, you should definitely continue to take advantage of all the benefits of contributing to a 401k, but after that I don't see any real difference between saving for a house down payment or saving for something else (like ER).

Here's my fictitious example, with lots of hand waving so I don't have to get into the "is it better to invest in stocks or real estate" debate:

Scenario A: You invest $60k in stocks. Nine years later, after 8% nominal returns, your money doubles to $120k.

Scenario B: You "invest" $60k as a down payment on a house that costs $300k. Nine years later, at a very modest 3% average appreciation, you sell your house for $390k, for a profit of $90k. After transaction costs (realtor commission, taxes, etc.) your $60k investment has turned into $130k. And of course you will also recover 9 years of principal payments.

Now with all my hand waving, I've shown Scenario B to be slightly better than Scenario A, but that's not the point. The point is that once you've acquired the money for a potential down payment, whether you "let it ride" in whatever investment got you there, or transfer that money into a down payment, it really doesn't matter (besides all the other obvious differences of real estate vs. paper assets).

You should definitely go through the rent vs. buy exercise and factor your own desires into the decision, but I don't understand how buying a house is somehow "delaying full fledged savings." Could you please elaborate?

Angie55

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #20 on: April 25, 2014, 03:52:02 PM »
I don't have a dilemma. I was simply curious. The main path on this site seems to be to accumulate wealth and income streams. Housing seems it may be one of the least efficient ways to do so unless it is drastically cheaper then rent, especially when considering the cost of repairs.

I would like to own but I would also like to beef up my retirement accounts and start an after tax-investment account. Seems pretty difficult to do this along with save for a down payment at the same time. After getting so motivated to increase them up while we are 2 incomes it would be very hard to divert a significant amount of money to a downpayment savings.


I see the primary value of buying a house to pay it off to have minimal monthly expenses thus lowering the amount of money I would need to earn. Of course, I realize there are WAY too many variables to make a full comparison. Just my thoughts on this. I do see where you are going that it will likely turn into a wash whichever way you go.

« Last Edit: April 25, 2014, 04:06:52 PM by Angie55 »

DoubleDown

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #21 on: April 25, 2014, 06:25:25 PM »
The main path on this site seems to be to accumulate wealth and income streams. Housing seems it may be one of the least efficient ways to do so unless it is drastically cheaper then rent, especially when considering the cost of repairs.

Well, I don't think that's necessarily true. Many on this site (and all over the place) have built a great deal of their wealth through real estate. It can be an extremely efficient way to do that. I want to tell you I'm not trying to be argumentative, I'm trying to help and share my perspective. Real estate can be an excellent way to build wealth, even something as mundane as buying your own home. In just about any non-declining city, there is great power in buying a home, paying down the mortgage, and benefitting from appreciation over the long haul. I'm not trying to sell you on it, and it's not always fool-proof or the best strategy. But it is not inferior to investing in paper assets either, IMO. MMM describes how his annual living expenses are funded entirely by the home he first bought for his family to live in (converted later to a rental).


I would like to own but I would also like to beef up my retirement accounts and start an after tax-investment account. Seems pretty difficult to do this along with save for a down payment at the same time. After getting so motivated to increase them up while we are 2 incomes it would be very hard to divert a significant amount of money to a downpayment savings.


But see, that IS your down payment source! You save in an after-tax investment account, and you liquidate some or all of those funds for the down payment when you're ready to buy a house. You don't need to save separately for a down payment in another account or in a poor investment vehicle (like 1% CD's).


I see the primary value of buying a house to pay it off to have minimal monthly expenses thus lowering the amount of money I would need to earn. Of course, I realize there are WAY too many variables to make a full comparison. Just my thoughts on this. I do see where you are going that it will likely turn into a wash whichever way you go.


Yes, that is one advantage, and there are many others. The NYT rent vs. buy calculator should be able take away the complexity you're feeling and make sense of all the variables. The important comparison is "buy or rent", not "buy or invest", so I just hope you're not seeing it that way. Because that is a false comparison. You can buy a house (or save up for one) and invest at the same time. You are saving and investing to accumulate enough money for a down payment, then you're converting your investment into a down payment on a house. Some or most even consider buying their own home to be an investment (a highly illiquid asset), but that's controversial. But no matter what, you get a roof over your head that you can control, no one will kick you out of as long as you make the payments, the payments will never go up (unlike rent), and eventually if you hold it long enough you own it free and clear, lowering your overall expenses as you described. In most (but not all) cases, you also end up with an asset that is worth far more than you invested in it.

RLTW

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #22 on: April 28, 2014, 02:37:30 PM »
Purchased about a year before.  It was the first house we bought together, and I'd never purchased one before.  We're married with no kids yet and we bought a 2400 sq.ft., 4 br / 2.5 ba house outside of biking distance from school / work.  Oops. 

We're currently shopping for a 2/1 or 3/1 close to school and work that we can renovate and rent out after a year.  Our dilemma is whether to sell our current house or rent it out.  We are in the early stages of researching our rental market, but our initial impressions are that we will be able to cover the PITI & HOA fees by renting it out, but not much more.  We most assuredly wouldn't achieve the 2% (or even 1%) rule.  On the other hand, we overpaid for the house for a number of face-punching 'reasons,' so by our paper napkin calculations we'd lose $25k if we sold.  I'm in the middle of finals (why am I on MMM forums then!?!), but figuring out the situation with our house and finding a downsize are on the to-do list for May. 

Good luck.

Thegoblinchief

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #23 on: April 29, 2014, 06:52:00 AM »
Bought 7 years before, right at market peak.

Both now and even then, my market is biased towards owning instead of renting. My main mistake was poorly assessing the valuation. My area just didn't seem overheated, but in retrospect it absolutely was.

My house is -40% of where we bought it. If we'd waited 2-3 years before buying, we'd be in much better shape.

Rural

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #24 on: April 29, 2014, 06:57:21 AM »
We bought before the Mr. Money mustache website was started, but it was definitely part of our financial independence strategy when we bought. So I'm having a hard time answering before or after.

birdman2003

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #25 on: April 29, 2014, 03:59:21 PM »
I bought before I found MMM but I did use some other rules of thumb to help with my decision (a 20% down payment on a house where housing costs on a 15 year mortgage will be no more than 25% of your take-home pay).

Here is a response I gave on another thread in this forum back in March in response to somebody who was asking where they should keep their house down payment until they are ready to buy:

Quote
Depending on your risk tolerance and timeline, you can have a couple options:

(1) Keep it in a savings account.
Good if you're going to make your purchase within 1-5 years
You will not earn any interest but that's not your goal if you're planning on buying a house soon
(2) Put it into a low cost index fund
Good if you're going to save up money over a longer period of time such as 10 years
You will hopefully keep pace with inflation and maybe exceed it

Personally, I wouldn't wait more than 5-6 years to save up for a down payment on a house.  In the United States, if you have to save for more than 5 years to put a down payment on a house, you should probably either (1) jack up your savings rate by cutting expenses or raising your income, (2) move to a part of the country that has more affordable housing, or (3) be satisfied with knowing that if you want to stay in this expensive area, you should probably rent instead of own.

Kierun

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #26 on: April 30, 2014, 05:46:08 PM »
Before and in a highly desired area where a 1,500 sq ft home in need of massive repair went for 750k after 4 days on the market.  Would have been nice to have found MMM before.

Johnny Aloha

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #27 on: May 02, 2014, 03:56:46 PM »
Before and in a highly desired area where a 1,500 sq ft home in need of massive repair went for 750k after 4 days on the market.  Would have been nice to have found MMM before.

Me too.  Although the recent run up in prices has turbocharged achieving FI  (if we decide to sell and move to a low cost area).

Cassie

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #28 on: May 02, 2014, 04:59:51 PM »
WE bought our first house with a 20% down & savings for other things even having 3 little kids.  We just lived frugally and it was before MMM.  HOwever, this was 35 years ago and many things are different now.

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #29 on: May 03, 2014, 02:31:50 AM »
I bought mine in an another era, and frankly the before ER decision wasn't on the radar screen..

Back in 1983, double digit inflation was still very recent memory,and the prospect for it returning were very high.  In Silicon Valley, housing appreciation had slowed from 2%/month (25%/year) to merely 1%/month (10-15%).  It really changes your mindset when you are making less than 3K a month when houses are going up $1,000/month.

I couldn't buy one by myself so I teamed up with a college roommate to buy one jointly.  We borrowed from my parents for the down, put a whole 10% down and even then had Graduate Payment Mortgage. Which in English mean that for the first 5 years of the mortgage out payment increased by 8% each year.  It also meant that for the first 3 year that our payments didn't even cover the interest owed and our principal increased.

Oh and the mortgage 13.375%+1% PMI yup pretty much like buying a house on a credit card..

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #30 on: May 03, 2014, 09:13:38 AM »
Bought mine before the internet for the most part :-). Well, as we know of it today. Bought have bought and moved 7 times all before finding MMM. I was around 25 and payed cash. Wish I never moved from that house. Was plenty big even today with a family of 6 and big lot (2 acres). Could of dumped a ton of money in it over the years and be way better of than today.

ender

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #31 on: May 03, 2014, 11:09:24 AM »
I've not bought a home yet.

I will say, MMM and this forum will dramatically affect what house I do buy should I purchase in the next few years.

Ozstache

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #32 on: May 03, 2014, 11:33:09 AM »
Before, but I had saved enough to just about buy it outright. To be honest, I was more worried about GFC Mark II coming along and wanted to put most of my money into something that could at least shelter my family, should the financial system completely collapse. In hindsight, that was a tad pessimistic, but we don't regret buying because of the ridiculously high rent we would be paying otherwise and the stash has built up again and now eclipses what we had before.

MMM/FI/ER only came about in the last year when I had an epiphany with MMM's shockingly simple maths of ER and found it was more than possible in the near future, so I did it.

clarkfan1979

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Re: Did you buy your first house before or after MMM/FI/ER decision.
« Reply #33 on: May 04, 2014, 07:34:01 PM »
Trying to buy a house from a savings account is hard. Many of my friends had to move back in with their parents to do it. I sold stock. I bought before MMM. My biggest thing with MMM was that it validated many of my previous thoughts. I was kind of doing my thing opposite of my friends, with not a lot of support. However, now all of my previous ideas have been validated.