Author Topic: Thinking of buying a 500K house...  (Read 12491 times)

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Thinking of buying a 500K house...
« on: June 28, 2014, 11:02:59 PM »
I own two houses, worth close 400K. One paid in full, the other with enough cash on hand to pay it off, though I don't due to the low 3.25% interest rate. I am a high income earner, and make more than 120K a year.

I've been contemplating buying a house in a nicer area, and was looking in the 300K range, for a sub 2K square foot house. I got to looking at higher priced homes just to see what I could afford and found a nice property with 2 acres, 5 THOUSAND square feet (3K upstairs, 2K downstairs basement with seperate entry). It is a custom built log cabin that is just WoW!!!! I am in love!!! If you could see this place!!!

Even a lot of cash tied up in other real estate, I still have enough cash on hand for this 500+K house with 20% down. Mortgage payment would be about 3K a month including taxes, insurance, etc. I could even rent out the 2K square foot basement and would intend to, though the 3K a month mortgage is not even half of my take home pay, though it is about 40% of it, not counting any money I would receive from the 2K downstairs basement that I could rent out (seperate entry).

Even though it would be my primary residence, I can't help but consider that at 9% appreciation in the area, the house is basically adding 50K a year to my networth. The area is VERY desirable and just continues to be more so. At the peak of the market the house was worth 700+K.

Have I lost my mind? Any reason why I should NOT do this? It's not like I'm buying a 120K mercedez. At the end of the day, it is still real estate. I am not doing it for lifestyle inflation, more for asset appreciation. The quality of life thing is just a side benefit.

former player

  • Magnum Stache
  • ******
  • Posts: 4270
  • Location: Avalon
Re: Thinking of buying a 500K house...
« Reply #1 on: June 29, 2014, 12:14:30 AM »
I'm all in favour of buying in a great location.  But 5,000 square feet is big.  Insanely big.  If you are on your own you will feel like you live in an unpopulated convention centre, and if you have a family you will never see them because much of the time each family member will be off in their own sets of rooms interacting with their electronics.   Even the 3k without the basement is bigger than any normal-sized family can decently make use of.  And oh god, the amount of furniture you would need to buy to put each room to use!

Also, there is a lot of either time or money in upkeep and updating involved in a house that size.  Unless it's desert or woodland, 2 acres takes a lot of looking after, too. 

So for quality of life, personally I'd suggest finding a smaller house in the same location, and not buying the land unless you've a use planned for it.

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Thinking of buying a 500K house...
« Reply #2 on: June 29, 2014, 01:13:40 AM »
Keep in mind 2k of it is basement with seperate entry. I would rent that out. The large lot is a qualityof life thing; I prefer being far away from neighbor as I absolutely cannot stand most people who are loud (boom cars, loud gatherings that are not at my house but next door, screaming kids). My gf would move in with me so between her and a tenant, it would not be wasted space. Plus entertaining the c suite in a place like this has got to be good for my career.
« Last Edit: June 29, 2014, 10:00:36 AM by Bearded Man »

former player

  • Magnum Stache
  • ******
  • Posts: 4270
  • Location: Avalon
Re: Thinking of buying a 500K house...
« Reply #3 on: June 29, 2014, 02:39:21 AM »
Will someone paying $2,000 a month to live in 2000 square feet on a big lot be entirely free of cars, parties and kids?  Seems unlikely to me.

3,000 square feet for you and a girlfriend is still overkill for a mustachian, even if you will eventually use up some of it on housing your little beardies as well as trying to impress your bosses.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3238
Re: Thinking of buying a 500K house...
« Reply #4 on: June 29, 2014, 07:35:10 AM »
If the mortgage is ~40% of your take-home pay you *may* have trouble qualifying for the loan.

Don't count on future appreciation, EVER, when buying a residence. It's a place to live, not an investment.

If the place will make you super happy, move there. But IMO it's probably a money pit (lots of land, lots of square footage, made of logs? You're going to spend all your time maintaining it).

-W

Daleth

  • Handlebar Stache
  • *****
  • Posts: 1201
Re: Thinking of buying a 500K house...
« Reply #5 on: June 29, 2014, 08:33:06 AM »
3,000 square feet for you and a girlfriend is still overkill for a mustachian

I don't think there's a maximum square footage requirement for being a mustachian. You can be wasteful and frivolous in 800 sq ft and non-wasteful/non-frivolous in 3000 or 5000 sq ft. If you're buying a big place in part because you can rent a portion of it out, you might come out better financially than you would buying a small place. And isn't the whole point of being Mustachian being able to afford the freedom to live how you want? For some people, that's out in nature on a big lot.

GrayGhost

  • Bristles
  • ***
  • Posts: 383
  • Location: USA
Re: Thinking of buying a 500K house...
« Reply #6 on: June 29, 2014, 08:52:37 AM »
^ I disagree entirely. 3,000 square feet for two people is a very wasteful use of resources, no matter if you're a Mustachian or not. My parents, sister, grandfather, and myself are currently living in about 3,500 square feet, and the house is depressingly empty and idle most of the time.

I can see the enjoyment one might get out of living on a large lot of land--believe me, I can--but unless OP is buying this place specifically as an investment, I wouldn't pull the trigger. Check if the numbers work when it comes to renting the place out, and if they do, I guess you can go for it, but as a primary residence, this place is just wasteful.

Daleth

  • Handlebar Stache
  • *****
  • Posts: 1201
Re: Thinking of buying a 500K house...
« Reply #7 on: June 29, 2014, 08:58:42 AM »
^ I disagree entirely. 3,000 square feet for two people is a very wasteful use of resources, no matter if you're a Mustachian or not. My parents, sister, grandfather, and myself are currently living in about 3,500 square feet, and the house is depressingly empty and idle most of the time.

I can see the enjoyment one might get out of living on a large lot of land--believe me, I can--but unless OP is buying this place specifically as an investment, I wouldn't pull the trigger. Check if the numbers work when it comes to renting the place out, and if they do, I guess you can go for it, but as a primary residence, this place is just wasteful.

How is it wasteful? The house is already built; the materials have already been used. I guess I just don't see WHAT is being wasted by having two people and a tenant (or tenants) move in. I mean, how do you "waste" floor space? It's just sitting there, not wasting anything. And presumably its existence will permit the OP to do things a smaller place doesn't allow, such as host tons of family and friends for holidays and other visits, have an art studio or workshop or home office or whatever floats his boat, provide housing for elderly parents at no extra cost, and so forth. The only potential waste I can see is in utilities, but Mustachians can solve such problems with zoned heating/cooling, reasonable temperature settings, solar panels, yada yada.

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Thinking of buying a 500K house...
« Reply #8 on: June 29, 2014, 09:11:09 AM »
Daleth is touching on the points I had made in my OP. I would be renting nearly half of it out. This is the kind of house I could entertain the c suite in for networking. Plus, The house would be appreciating at 50-60 k per year. 2 acres could be subdivided and sold. 

I don't invest in the stock market, so real estate is pretty much it for me. Right now my cash is losing value every year to the tune of thousands jhst sitting in the bank.

Villanelle

  • Magnum Stache
  • ******
  • Posts: 2646
Re: Thinking of buying a 500K house...
« Reply #9 on: June 29, 2014, 09:24:22 AM »
Are you being realistic about the rent?  It's 200osqft, so it likely isn't going to be a quite little elderly couple. 

Also, you keep mentioning 50k in appreciation.  What if we hit point in the cycle like 8ish years ago, and you lose 10% a year?  That's about equally likely as your $50k per year appreciation.  So you need to take the appreciation entirely out of the equation.  A house is not in investment, or at least not in that way.

GrayGhost

  • Bristles
  • ***
  • Posts: 383
  • Location: USA
Re: Thinking of buying a 500K house...
« Reply #10 on: June 29, 2014, 09:29:31 AM »
How is it wasteful? The house is already built; the materials have already been used. I guess I just don't see WHAT is being wasted by having two people and a tenant (or tenants) move in. I mean, how do you "waste" floor space? It's just sitting there, not wasting anything. And presumably its existence will permit the OP to do things a smaller place doesn't allow, such as host tons of family and friends for holidays and other visits, have an art studio or workshop or home office or whatever floats his boat, provide housing for elderly parents at no extra cost, and so forth. The only potential waste I can see is in utilities, but Mustachians can solve such problems with zoned heating/cooling, reasonable temperature settings, solar panels, yada yada.

Idle resources are wasteful. Just think about it as if it was a business decision and I think you'll come to a similar opinion. Sure, you can get some use out of a large house by hosting large networking parties and things like that, but we're very quickly getting away from the Mustachian ethos of relatively simple, low-key living.

Erica/NWEdible

  • Pencil Stache
  • ****
  • Posts: 881
    • Northwest Edible Life - life on garden time
Re: Thinking of buying a 500K house...
« Reply #11 on: June 29, 2014, 09:35:10 AM »
Make sure you have a reasonable idea of the upkeep expenditures of the place. They say 1% a year in upkeep, for $5000 a year on a $500K home. And log homes need special treatment I think. Just another something to consider.

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Thinking of buying a 500K house...
« Reply #12 on: June 29, 2014, 09:51:50 AM »
Are you being realistic about the rent?  It's 200osqft, so it likely isn't going to be a quite little elderly couple. 

Also, you keep mentioning 50k in appreciation.  What if we hit point in the cycle like 8ish years ago, and you lose 10% a year?  That's about equally likely as your $50k per year appreciation.  So you need to take the appreciation entirely out of the equation.  A house is not in investment, or at least not in that way.

Did you read the post? I never gave a dollar ammount for rent, it was 2K square footage of space that I would be renting out, not for $2,000 dollars. Not sure how you arrived at that figure. Besides, is that a straw man argument with the elderly couple comment or a red-herring? And how do you know it won't be an elderly couple?

You make an awful lot of assumptions based on things that I didn't say, such as $2,000 a month in rent and a quiet elderly couple moving in. I'd almost say you are purposely detracting to try to dissuade me. If you can make a logical argument with facts, that's one thing, but to try to make up logical fallacies to try to dissade me? Hmmmm...

It's a logical fallacy, that a house (actually, the saying goes, PRIMARY residence) is not an investment. That's true if you intend to live in the house for life as a consumable good, but it is not if you intend to flip it some day and eventually downsize.

But if you really still think that a house in the above scenario is not an investment, I guess I better tell the bank the 100K I made due to one primary residence in 2 years doesn't really exist because someone told me it is impossible because it is not an investment or the 100K off another primary residence in 2 years prior to that. Or my colleague who made 100K in 2 years off his primary residence for that matter. The fact that I can rent out the basement with seperate entry makes it even more of an investment than just selling it with a profit does.

While I appreciate the detractors and naysayers since I did afterall ask for opinions, I have not seen one factual argument presented against buying that holds water. The "a house is not an investment" mantra is great...until you actually check the facts and numbers.

Heck, there is a thread on here from a guy who makes 36K a year but in 14 years managed to become a millionaire just buying and selling primary residences, upgrading along the way by using the gains from sales to buy more expensive houses that appreciated even more. Better tell that guy he didn't really make a million since a house is not an investment.
« Last Edit: June 29, 2014, 10:05:14 AM by Bearded Man »

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Thinking of buying a 500K house...
« Reply #13 on: June 29, 2014, 09:59:01 AM »
Make sure you have a reasonable idea of the upkeep expenditures of the place. They say 1% a year in upkeep, for $5000 a year on a $500K home. And log homes need special treatment I think. Just another something to consider.

Thanks, I've considered the maintenance. It is a newly built log home with metal roof. Very low maintenance for the span of time I intend to keep it (2-4 years).

waltworks

  • Magnum Stache
  • ******
  • Posts: 3238
Re: Thinking of buying a 500K house...
« Reply #14 on: June 29, 2014, 10:00:42 AM »
Dude, you're single, have >$800k net worth, and a $120/year job - you are essentially FI now, as long as you *don't* buy the house. Work a couple more years and you're definitely done.

Not sure why you would post this if you didn't want contrary opinions - it's probably a financial disaster waiting to happen. Doesn't mean it *will* be, but you are making very optimistic assumptions (ie it's legal to rent the basement, someone will want to rent it who you want as a tenant, house will appreciate 10%/year going forward, lot can be subdivided, etc). It's usually good to at least consider what happens if you are wrong about some/all of those things, because the most rosy possible scenario is not usually the one that comes to pass.

-W

waltworks

  • Magnum Stache
  • ******
  • Posts: 3238
Re: Thinking of buying a 500K house...
« Reply #15 on: June 29, 2014, 10:08:21 AM »
Just for reference, here are some of the things you have posted in other threads which I am having trouble wrapping my brain around given your stated situation in this thread:

"I mean dang, I could buy a handful of these, rent them out and retire to my dream mountain cabin NOW and just let my stock portfolio compound itself as I let it grow living off the rental income."

" I could retire just fine (1K a month is all I need). Between that, a paid off house and a few hundred grand in index funds compounding for decades untouched while you live off rental income, this sounds like a reasonable strategy that is worthy of more research and verification."

"That is still a good plan IMO, but I would still be ALL in RE. So I got to thinking, why not keep the paid off rental as is, sell my current mortgaged house which I made 100K on in about 1.5 years so far (low balled a short sale with multiple lien holders and they took it, then my area went back into bubble mode with a 22% gain in one year) and use that money to downsize to a rural property away from city annoyances. At that point, I could live off the income from my one paid off rental alone."

The previous posts seem to contradict a bunch of the stuff you've said here (your area is a bubble but you are expecting 10% appreciation going forward?)

-W

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Thinking of buying a 500K house...
« Reply #16 on: June 29, 2014, 10:15:41 AM »
Dude, you're single, have >$800k net worth, and a $120/year job - you are essentially FI now, as long as you *don't* buy the house. Work a couple more years and you're definitely done.

Not sure why you would post this if you didn't want contrary opinions - it's probably a financial disaster waiting to happen. Doesn't mean it *will* be, but you are making very optimistic assumptions (ie it's legal to rent the basement, someone will want to rent it who you want as a tenant, house will appreciate 10%/year going forward, lot can be subdivided, etc). It's usually good to at least consider what happens if you are wrong about some/all of those things, because the most rosy possible scenario is not usually the one that comes to pass.

-W

"Dude", as I noted above, I wanted factual detractors not people who make up things that I never said, such as the comment about not being able to get $2,000 a month rent and that it won't be an elderly couple that I would rent out to. Where did I say I would get $2,000 rent and that I would only rent out to elderly couples? And how does the guy who made the comment know it woudn't be an elderly couple? Sounds like a crab trying to pull another crab back down into the bucket to me...

Again, as I said, if you have a solid argument to convince me not to buy, that's one thing. But to post that a house is not an investment just because you read it somewhere even though there are tens of thousands of people who have proven this to be wrong with the right strategy, myself included is just not a valid argument. Then to post that I won't get $2,000 a month rent from an elderly couple when I never even hinted at such a thing is just a straw man argument.

If you have some valid arguments based on facts, bring it. But don't expect me to lay down an accept an invalid argument based on things I never said, and mantras that are not entirely true.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3238
Re: Thinking of buying a 500K house...
« Reply #17 on: June 29, 2014, 10:20:04 AM »
Ok, so what is the worst case scenario here? Run those numbers at least (ie no appreciation at all, no tenants you can stand having live with you, etc) and see how much it delays FI/ruins your finances.

And also explain your situation better. Your older posts indicate you own stocks, this one says you don't, you have a bunch of others about buying other houses and trying to hire GCs to do some flooring, etc. It's all over the place - hard to give good advice when it's unclear what is going on.

-W

Dude, you're single, have >$800k net worth, and a $120/year job - you are essentially FI now, as long as you *don't* buy the house. Work a couple more years and you're definitely done.

Not sure why you would post this if you didn't want contrary opinions - it's probably a financial disaster waiting to happen. Doesn't mean it *will* be, but you are making very optimistic assumptions (ie it's legal to rent the basement, someone will want to rent it who you want as a tenant, house will appreciate 10%/year going forward, lot can be subdivided, etc). It's usually good to at least consider what happens if you are wrong about some/all of those things, because the most rosy possible scenario is not usually the one that comes to pass.

-W

"Dude", as I noted above, I wanted factual detractors not people who make up things that I never said, such as the comment about not being able to get $2,000 a month rent and that it won't be an elderly couple that I would rent out to. Where did I say I would get $2,000 rent and that I would only rent out to elderly couples? And how does the guy who made the comment know it woudn't be an elderly couple? Sounds like a crab trying to pull another crab back down into the bucket to me...

Again, as I said, if you have a solid argument to convince me not to buy, that's one thing. But to post that a house is not an investment just because you read it somewhere even though there are tens of thousands of people who have proven this to be wrong with the right strategy, myself included is just not a valid argument. Then to post that I won't get $2,000 a month rent from an elderly couple when I never even hinted at such a thing is just a straw man argument.

If you have some valid arguments based on facts, bring it. But don't expect me to lay down an accept an invalid argument based on things I never said, and mantras that are not entirely true.

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Thinking of buying a 500K house...
« Reply #18 on: June 29, 2014, 10:20:13 AM »
Just for reference, here are some of the things you have posted in other threads which I am having trouble wrapping my brain around given your stated situation in this thread:

"I mean dang, I could buy a handful of these, rent them out and retire to my dream mountain cabin NOW and just let my stock portfolio compound itself as I let it grow living off the rental income."

" I could retire just fine (1K a month is all I need). Between that, a paid off house and a few hundred grand in index funds compounding for decades untouched while you live off rental income, this sounds like a reasonable strategy that is worthy of more research and verification."

"That is still a good plan IMO, but I would still be ALL in RE. So I got to thinking, why not keep the paid off rental as is, sell my current mortgaged house which I made 100K on in about 1.5 years so far (low balled a short sale with multiple lien holders and they took it, then my area went back into bubble mode with a 22% gain in one year) and use that money to downsize to a rural property away from city annoyances. At that point, I could live off the income from my one paid off rental alone."

The previous posts seem to contradict a bunch of the stuff you've said here (your area is a bubble but you are expecting 10% appreciation going forward?)

-W

LOL! How do they contradict what I've said here? They were strategies I was pondering.  Yes, 1K a month is all I need to retire. That's not contradictory to anything I've said here. Yes, I considered buying cheap out of state real estate and using it to finance my retirement while I put other cash in index funds and let it grow. How does any of that contradict what I said here? Be specific. I didn't say I need 1K to retire in a 3K log home that I just posted about yesterday, more than a week after the other posts. You're really reaching for straws bud.

The fact of the matter is that I never said anything that is contradictory to what I posted here. Those posts were evaluating what options I have. Just as this post is evaluating what options I have.

You sound like you're just a jealous detractor trying to tear me down. Welcome to the ignore list.
« Last Edit: June 29, 2014, 10:22:19 AM by Bearded Man »

Suit

  • Bristles
  • ***
  • Posts: 273
Re: Thinking of buying a 500K house...
« Reply #19 on: June 29, 2014, 10:20:28 AM »
OP, it seems like you've made up your mind on this place and aren't willing to reconsider. If that's the case then go for it. My two cents is that it's HUGE and it seems like your heating/cooling/property tax, etc would be very high and it would take a lot of time to take care of the property and house. But if you have the time/money and you really want it then do it just do it with your eyes open to what you're getting yourself into. Maybe ask the current owners how much their utilities are and find out what the property tax is, how much time they spend taking care of the lawn, etc. so you can factor those things into your decision.

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Thinking of buying a 500K house...
« Reply #20 on: June 29, 2014, 10:25:48 AM »
OP, it seems like you've made up your mind on this place and aren't willing to reconsider. If that's the case then go for it. My two cents is that it's HUGE and it seems like your heating/cooling/property tax, etc would be very high and it would take a lot of time to take care of the property and house. But if you have the time/money and you really want it then do it just do it with your eyes open to what you're getting yourself into. Maybe ask the current owners how much their utilities are and find out what the property tax is, how much time they spend taking care of the lawn, etc. so you can factor those things into your decision.

Property tax is just ove 5K, but again, this is not a buy and hold forever purchase. It would be something I would flip in a few years.

Again, I welcome any factual arguments against purchasing it, but have not seen a single one. If you have one, I would LOVE to hear it. THAT is what I came here for, not to have people put me down with straw man arguments about things I never said, or (lol), supposedly contradictory statements.

I guess if I post about buying several out of state properties and putting some money in index funds as one possible retirement strategy, then post about buying a single more expensive house as a flip for an investment, I've somehow contradicted myself. Some world walt lives in.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3238
Re: Thinking of buying a 500K house...
« Reply #21 on: June 29, 2014, 10:28:30 AM »
Good luck with the scheme of the week, then.

-W

matchewed

  • Magnum Stache
  • ******
  • Posts: 4319
  • Location: CT
Re: Thinking of buying a 500K house...
« Reply #22 on: June 29, 2014, 10:31:08 AM »
Bearded Man, you did ask a very specific question. "Any reason I should NOT do this?" You are specifically asking for detractors. So relax when people are giving constructive criticism towards your plan. You asked for that. Waiving people's comments as non-factual is dismissive and disingenuous, they don't have all your facts so cut them some slack for not being able to know every detail of your life and your plan. :)

That being said I agree that is a large residence. You claim it is a QoL upgrade. In what way would your quality of life improve in this place?

How sure are you that the appreciation will be 9% over your time frame? 40% of your income tied up in house payments is a bit tough to swallow IMO, even if you can knock that down a bit with renting what is your guess for how much you'll be able to knock it down? How does this purchase fit in with your financial plans for the future?

Daleth

  • Handlebar Stache
  • *****
  • Posts: 1201
Re: Thinking of buying a 500K house...
« Reply #23 on: June 29, 2014, 10:54:09 AM »
How is it wasteful? The house is already built; the materials have already been used. I guess I just don't see WHAT is being wasted by having two people and a tenant (or tenants) move in. I mean, how do you "waste" floor space? It's just sitting there, not wasting anything. And presumably its existence will permit the OP to do things a smaller place doesn't allow, such as host tons of family and friends for holidays and other visits, have an art studio or workshop or home office or whatever floats his boat, provide housing for elderly parents at no extra cost, and so forth. The only potential waste I can see is in utilities, but Mustachians can solve such problems with zoned heating/cooling, reasonable temperature settings, solar panels, yada yada.

Idle resources are wasteful. Just think about it as if it was a business decision and I think you'll come to a similar opinion. Sure, you can get some use out of a large house by hosting large networking parties and things like that, but we're very quickly getting away from the Mustachian ethos of relatively simple, low-key living.

We're just going to have to agree to disagree. I don't think Mustachianism requires "simple, low-key" or low square footage living; it just requires rejecting consumerism and living well below your means so that you don't become a slave to your job--so for some people that means an $8000/yr budget while for others it could mean $100k/yr.

DMoney

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Thinking of buying a 500K house...
« Reply #24 on: June 29, 2014, 11:11:41 AM »
Yowsa. This got nasty.  Sounds like you really want to buy it and don't care want other people recommend.  So do it.  Why even ask for opinions? 

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27773
  • Age: -999
  • Location: Traveling the World
Re: Thinking of buying a 500K house...
« Reply #25 on: June 29, 2014, 11:19:00 AM »
How is it wasteful? The house is already built; the materials have already been used. I guess I just don't see WHAT is being wasted by having two people and a tenant (or tenants) move in. I mean, how do you "waste" floor space? It's just sitting there, not wasting anything. And presumably its existence will permit the OP to do things a smaller place doesn't allow, such as host tons of family and friends for holidays and other visits, have an art studio or workshop or home office or whatever floats his boat, provide housing for elderly parents at no extra cost, and so forth. The only potential waste I can see is in utilities, but Mustachians can solve such problems with zoned heating/cooling, reasonable temperature settings, solar panels, yada yada.

Because even though it's already built, someone else could use it who doesn't know better. 

If you, as a Mustachian, use it, you're purposefully wasting.

You say it's already built.. fine.  But your use of it requires another one to be built. 

Say there's a family that wants 5,000 sqft place.  You choose to live there, in one that's "already built" - they gotta build a new one for that family.  If you chose to live in a smaller place, that place that's already built could be used, instead of building a new one.

It'd be like saying buying a new car every year doesn't waste resources because the car is already built.  That's true, but irrelevant.

We're just going to have to agree to disagree. I don't think Mustachianism requires "simple, low-key" or low square footage living; it just requires rejecting consumerism and living well below your means so that you don't become a slave to your job--so for some people that means an $8000/yr budget while for others it could mean $100k/yr.

Fundamentally MMM (himself) is about not wasting resources to save the planet (e.g. giant trucks to haul you one mile to your grocery store).  5k sqft for two people is the opposite of that.

Now, I actually think Mustachianism and what MMM think are two separate things (yes, I think it's larger than him), but I'm not sure how relevant that is in this circumstance.

I certainly think one could spend 100k/year, and do so without wasting resources.  This is not a case of that.

If OP wants to buy a giant house.. okay.  I don't care.  But it's very likely a poor investment, and it's not a Mustachian thing to do, in general.
« Last Edit: June 29, 2014, 11:21:37 AM by arebelspy »
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 2982
  • Location: WDC
Re: Thinking of buying a 500K house...
« Reply #26 on: June 29, 2014, 11:39:57 AM »
I can only offer my recent experience of buying a house that is not consistent with what most readers of MMM would find to be frugal.
I bought a too-large-for-my-needs home in a quickly appreciating, walkable, close-to-everything neighborhood.  It cost 350K more than your dream home and the high monthly mortgage makes me very nervous, so my goal is to pay it off, or be able to pay if off quickly, without taking money out of retirement funds.  Can I afford it?  Yes, so long as I have a job.

 It has been pointed out to me that I could retire now if I sell the house, move out of the high COL, and change my lifestyle. This is where my struggle starts, because it requires self-reflection.  Well, it turns out that my priority is not to retire as soon as possible, because if it were, I would do it now.  But I love my life now that I live here.  I spend more money because I'm in a neighborhood where there are more people with similar interests and I've made friends.  We go to the theater together and we do a lot of free things together too.  I have entertained more in the past year than I have in the past 20 years.  In short, my life is immeasurably better and happier now, and it's worth it to me.  I do want to get back to a point where I have FI and don't HAVE to work, but living in this house, in this neighborhood, at this point in my life is important enough to make me wake up and go work in a crappy cubicle while I count the dollars until I get to FI. 
So i think what everyone is trying to say to you is that you need to figure out why you want to buy the house and whether that fits in with your priorities.   
 

AlexK

  • Bristles
  • ***
  • Posts: 327
  • Age: 45
  • Location: Sparks, NV
Re: Thinking of buying a 500K house...
« Reply #27 on: June 29, 2014, 11:47:59 AM »
OP you want facts that support the point of view of not buying this house:

Housing values don't always go up, sometimes they go down, and you cannot accurately predict which will happen in the short term. It is purely speculation. A coworker of mine bought a $600k house in 2005, the biggest he could afford because he wanted the best possible investment (it was obviously going to keep going up). That didn't go so well. If you buy based on income from rents the risk is much lower. How well does this house yield in terms of ROI based on rent? Usually huge luxurious houses are poor ROI compared to cheaper houses.

Unless it's zoned for multifamily it probably isn't legal to rent the downstairs. Tenants get upset and report, so do neighbors. More risk.

You said you don't like noise from other people nearby. How about downstairs where you will hear everything. They will hear your bed creaking. It is illegal to discriminate against people with families, age, ethnicity, etc. Your tenants may drive boom cars. They might smoke outside and it will drift into your windows.

What would happen if you lost your job and all your liquid money is tied up in this house and you have that $3k mortgage, and the value went down so you can't sell? That scenario happened to a ton of people in my area in the 2008 crash.

There are positives too and it could be a huge money maker. It's important when evaluating potential investments that we use numbers and logic and not emotions. That's very hard to do when it also involves where we will be living.

Thedudeabides

  • Stubble
  • **
  • Posts: 242
Re: Thinking of buying a 500K house...
« Reply #28 on: June 29, 2014, 11:59:50 AM »
How much do you think you could get a month for the basement?

I know other posters have questioned the legality. I know in my area, it would not be legal to rent it as a separate space unless it's zoned as a duplex. However, it would be legal to rent the space in my area if it were classified as a roommate situation. I don't know if your area is the same in this regard. It seems as though it would be difficult from preventing people from having roommates.

Villanelle

  • Magnum Stache
  • ******
  • Posts: 2646
Re: Thinking of buying a 500K house...
« Reply #29 on: June 29, 2014, 12:00:43 PM »
Are you being realistic about the rent?  It's 200osqft, so it likely isn't going to be a quite little elderly couple. 

Also, you keep mentioning 50k in appreciation.  What if we hit point in the cycle like 8ish years ago, and you lose 10% a year?  That's about equally likely as your $50k per year appreciation.  So you need to take the appreciation entirely out of the equation.  A house is not in investment, or at least not in that way.

Did you read the post? I never gave a dollar ammount for rent, it was 2K square footage of space that I would be renting out, not for $2,000 dollars. Not sure how you arrived at that figure. Besides, is that a straw man argument with the elderly couple comment or a red-herring? And how do you know it won't be an elderly couple?

You make an awful lot of assumptions based on things that I didn't say, such as $2,000 a month in rent and a quiet elderly couple moving in. I'd almost say you are purposely detracting to try to dissuade me. If you can make a logical argument with facts, that's one thing, but to try to make up logical fallacies to try to dissade me? Hmmmm...

It's a logical fallacy, that a house (actually, the saying goes, PRIMARY residence) is not an investment. That's true if you intend to live in the house for life as a consumable good, but it is not if you intend to flip it some day and eventually downsize.

But if you really still think that a house in the above scenario is not an investment, I guess I better tell the bank the 100K I made due to one primary residence in 2 years doesn't really exist because someone told me it is impossible because it is not an investment or the 100K off another primary residence in 2 years prior to that. Or my colleague who made 100K in 2 years off his primary residence for that matter. The fact that I can rent out the basement with seperate entry makes it even more of an investment than just selling it with a profit does.

While I appreciate the detractors and naysayers since I did afterall ask for opinions, I have not seen one factual argument presented against buying that holds water. The "a house is not an investment" mantra is great...until you actually check the facts and numbers.

Heck, there is a thread on here from a guy who makes 36K a year but in 14 years managed to become a millionaire just buying and selling primary residences, upgrading along the way by using the gains from sales to buy more expensive houses that appreciated even more. Better tell that guy he didn't really make a million since a house is not an investment.

Did you read *my* post?  I said "2000sqft" not dollars. 

But whatever.  In the end, I don't give a damn what you do.  Good luck with your McMansion.  Not sure why you bothered to ask for advice though, when you clearly have your mind set and didn't actually want to hear contrary opinions.  It's a waste of everyone's time.

Daleth

  • Handlebar Stache
  • *****
  • Posts: 1201
Re: Thinking of buying a 500K house...
« Reply #30 on: June 29, 2014, 04:43:31 PM »
Because even though it's already built, someone else could use it who doesn't know better. 

Someone who doesn't know better? You mean someone who doesn't care about keeping utility usage low, who has no intention of renting out 40% of the living space to help pay for the mortgage, and who perhaps has an absurdly long commute? How exactly does THAT help the world, the environment etc.?

If you, as a Mustachian, use it, you're purposefully wasting.

Nope. Gonna have to disagree there. There are Mustachian ways to use large spaces.

You say it's already built.. fine.  But your use of it requires another one to be built. 

Say there's a family that wants 5,000 sqft place.  You choose to live there, in one that's "already built" - they gotta build a new one for that family.  If you chose to live in a smaller place, that place that's already built could be used, instead of building a new one.

That's a little absurd, no? There is no shortage of 5000 sqft homes in this country for whoever wants them; sometimes it's just one person or a couple, BTW, not "that family." And by NOT buying a small place you're leaving that small place available for someone who wants it. And your car analogy doesn't work...

It'd be like saying buying a new car every year doesn't waste resources because the car is already built.  That's true, but irrelevant.

...I wouldn't agree that that's true, since for the most part cars are--at least compared to houses--pretty disposable (depending on the manufacturer they may not even be built to last 10 years, much less 100), and buying a *NEW* car every year or three supports that incredibly wasteful "build 'em crappy but good looking and move 'em off the lot" mentality.

But even if it were true, note my emphasis on NEW. The new car does not exist now; it's going to be built sometime in the next 12 months to feed that idiotic consumerist urge to "get something NEW." But the OP is not talking about buying a new home at all, much less a new home every year.

Fundamentally MMM (himself) is about not wasting resources to save the planet (e.g. giant trucks to haul you one mile to your grocery store).  5k sqft for two people is the opposite of that.

It would be the opposite of that IF you kept the whole place heated and cooled as if someone were living in every room, and did so with the usual American thoughtlessness (setting the AC at 66 or 68 and the heat at 73 instead of dressing appropriately), and filled the place with TV's, and so forth. That's wasteful because it is actually USING UP resources and spending money unnecessarily. Moving into an existing house is not "using up" anything.

If OP wants to buy a giant house.. okay.  I don't care.  But it's very likely a poor investment, and it's not a Mustachian thing to do, in general.

Here's why I disagree: when we moved from Small Single-Family House to Large Multi-Unit, our out-of-pocket mortgage expense went from just under $2000/month to $0 in fully rented months and $1200-ish when there are vacancies. And get this: the portion of the multi-unit that we occupy is well over twice the square footage of our entire Small Single-Family House and definitely what most folks on this forum would consider excessive. But who cares? It's saving us $2000 a month, most months! And it's a much more "us-friendly" neighborhood, in other words, we're happier here... which as I seem to recall is another Mustachian goal.

I just think we could use a bit more tolerance on this thread and a bit less in the way of absolutist judgments, a la "if your home exceeds X square feet per person, I'm going to judge you as inferior to me." I mean, come on, people.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27773
  • Age: -999
  • Location: Traveling the World
Re: Thinking of buying a 500K house...
« Reply #31 on: June 29, 2014, 05:04:32 PM »
You're missing my main point: when you use a giant home, there is one less giant home out there for a consumerist suckka who also wants one that size, so a new one needs to be built to replace it.  Maybe not today, maybe there is some surplus, but you're just shifting those costs to the future.  By using a larger place than is needed, another place needs to be built.

I just think we could use a bit more tolerance on this thread and a bit less in the way of absolutist judgments, a la "if your home exceeds X square feet per person, I'm going to judge you as inferior to me." I mean, come on, people.

Please quote where someone said that, or anything close to that.

In fact I'm pretty sure what I said was if they wanted to do it, I didn't care.  I'm not sure how that's judging.
« Last Edit: June 29, 2014, 05:06:09 PM by arebelspy »
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

taekvideo

  • Bristles
  • ***
  • Posts: 264
Re: Thinking of buying a 500K house...
« Reply #32 on: June 29, 2014, 11:23:15 PM »
Since your stated motive is "asset appreciation", I'd have to say don't do it.  Real estate only tracks inflation long term... if it's in an area growing at 9%/year then it's probably a bubble and anything could happen (2008 wasn't that long ago, are people forgetting it already?).  You don't want to gamble the majority of your net worth on that.
If you want to get into real estate for investment purposes, look into cheaper places that will have positive cash flow at a double-digit cap rate by renting them out... don't even count appreciation.  If you go for lower cost properties you can grab several of them and spread out the risk a bit.
You shouldn't count anything you own as an "investment" unless it's cash-flow positive.  Speculating on appreciation at 2-3 times average isn't a good way to go.

Daleth

  • Handlebar Stache
  • *****
  • Posts: 1201
Re: Thinking of buying a 500K house...
« Reply #33 on: June 30, 2014, 09:12:47 AM »
Again, ARebelSpy, weíre going to have to agree to disagree. I absolutely donít buy the concept that every time someone buys a house, an equivalent new house needs to be built. I think we can both agree that thatís clearly not true today (i.e. a new house does not need to be built now), and itís also not true in the future for several reasons, not least of which is that the house you buy today is unlikely to be yours for the rest of your lifeóin other words youíre going to sell it at some point, so it will be available again. Of course new houses are built every year, but thatís because the population is growing and, to a lesser degree, because the population is shifting (some parts of the country are attracting or repelling people). Itís not because you bought whatever house you bought.
 
As for who was intolerant, perhaps GreyGhost was more guilty of that than you, and Villanelle referred to the OPís potential house as a ďMcMansionĒ (surely a deep insult here on MMM). But I do find it intolerant, or perhaps just unimaginative, to insist that a 5000 sq ft home is inherently, innately and always a non-Mustachian purchase. I gave an example of how large homes can be Mustachian (the example of my/my husbandís home) and no one commented on that at all, which is interesting.
 

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27773
  • Age: -999
  • Location: Traveling the World
Re: Thinking of buying a 500K house...
« Reply #34 on: June 30, 2014, 10:00:02 AM »
Again, ARebelSpy, weíre going to have to agree to disagree. I absolutely donít buy the concept that every time someone buys a house, an equivalent new house needs to be built. I think we can both agree that thatís clearly not true today (i.e. a new house does not need to be built now), and itís also not true in the future for several reasons, not least of which is that the house you buy today is unlikely to be yours for the rest of your lifeóin other words youíre going to sell it at some point, so it will be available again. Of course new houses are built every year, but thatís because the population is growing and, to a lesser degree, because the population is shifting (some parts of the country are attracting or repelling people). Itís not because you bought whatever house you bought.

You don't have to buy it for it to be true.  It's a zero sum game.  There's a certain number of people who want large houses.  There's a certain amount of those houses.  If you take up one of those houses, at some point down the line another will have to be built.

Think about it on a larger scale: what if 200,000 people across the country suddenly decided they wanted very large houses, and moved into a bunch of them?  Higher demand would drive the prices up, meaning builders are incentivized to make more.  Every person contributes in a small way to that.  Even if you're just one of them, you're contributing to that.

As for who was intolerant, perhaps GreyGhost was more guilty of that than you, and Villanelle referred to the OPís potential house as a ďMcMansionĒ (surely a deep insult here on MMM). But I do find it intolerant, or perhaps just unimaginative, to insist that a 5000 sq ft home is inherently, innately and always a non-Mustachian purchase. I gave an example of how large homes can be Mustachian (the example of my/my husbandís home) and no one commented on that at all, which is interesting.

Calling it a McMansion is your idea of intolerant?  I think you need to chill out a bit.  It sounds like you're just being super defensive about your own house.  If you're happy with your home, you don't need to feel insecure about it.  Just own it.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3238
Re: Thinking of buying a 500K house...
« Reply #35 on: June 30, 2014, 10:03:07 AM »
People only started mocking the OP after it became clear that he came here to brag about (I presume that was his goal, anyway) his potential purchase, not actually hear about why it might be a terrible idea. I don't think anyone is being intolerant of anything except posting a question you don't want to hear the answer to and then getting angry about it.

Now the OP has flounced, presumably. Hopefully he's happy with his decision, whatever it ends up being.

-W

DoubleDown

  • Handlebar Stache
  • *****
  • Posts: 1989
Re: Thinking of buying a 500K house...
« Reply #36 on: June 30, 2014, 10:57:06 AM »

You sound like you're just a jealous detractor trying to tear me down. Welcome to the ignore list.

My estimation is that waltworks has provided some pretty sage R/E advice on this forum in the past. I don't recall specifics, but I think he/she has been pretty successful in R/E, at that. Calling him/her a jealous detractor is a bit laughable to me, maybe like me calling Warren Buffett a jealous detractor if he questioned my plan to put 100% of my life's savings into Apple stock. Ignore his/her experience and advice at your own peril, but good luck.

This is not the worst plan I ever heard, but it clearly has a helluva lot of speculation built in (10% year over year appreciation in the next several years???).

Daleth

  • Handlebar Stache
  • *****
  • Posts: 1201
Re: Thinking of buying a 500K house...
« Reply #37 on: June 30, 2014, 12:57:50 PM »

My estimation is that waltworks has provided some pretty sage R/E advice on this forum in the past. I don't recall specifics, but I think he/she has been pretty successful in R/E, at that. Calling him/her a jealous detractor is a bit laughable to me, maybe like me calling Warren Buffett a jealous detractor if he questioned my plan to put 100% of my life's savings into Apple stock. Ignore his/her experience and advice at your own peril, but good luck.

This is not the worst plan I ever heard, but it clearly has a helluva lot of speculation built in (10% year over year appreciation in the next several years???).

Bad assumptions about appreciation, overpaying, lack of liquidity, overestimating rent, etc. are all totally valid critiques. I don't take issue with *financial* critiques at all. My only concern was with the assumption that the size of the house alone signified that it's a bad idea and/or bad for the environment/the world.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3238
Re: Thinking of buying a 500K house...
« Reply #38 on: June 30, 2014, 03:58:01 PM »
I think it would be more accurate to say that I have made some of the mistakes (or, ok, most of them) that the OP is thinking about making.

-W

DoubleDown

  • Handlebar Stache
  • *****
  • Posts: 1989
Re: Thinking of buying a 500K house...
« Reply #39 on: June 30, 2014, 05:51:56 PM »
The very definition of sage advice ;-)

mooreprop

  • 5 O'Clock Shadow
  • *
  • Posts: 85
Re: Thinking of buying a 500K house...
« Reply #40 on: July 01, 2014, 09:15:43 PM »
What do you plan to do with your other 2 houses?  I am thinking that if you are able to rent them out for enough to pay the mortgage on your new larger house, then you have improved your current situation.  That said, I think all Mustachians struggle with the issue of how much space for personal use when the extra money could be invested to accelerate FI.  My own rule of thumb is that more than 400 square feet per person is luxury.  My husband and I built a 2400 square foot house for our family of 6 and had plenty of room.  If you want the luxury of more space per person, then that is fine.  It is an individual choice.  I really enjoy the blog because everyone is encouraged to define their own values and then achieve FI by making their own decisions.  I think this is a decision that you should give some time.  Right now, you have "house fever".  You have fallen in love with a house, which makes it hard to think objectively.  It sounds like a really cool house, but does it fit into your long-term goals?  Only you can answer that question. 

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 1850
  • Age: 40
  • Location: Kauai & Denver
Re: Thinking of buying a 500K house...
« Reply #41 on: July 03, 2014, 08:48:41 PM »
If the numbers make sense without the appreciation, I'd say do it. If there is another housing crash the more expensive houses tend to depreciate the most. However, all real estate is local so I can't say that specifically applies to your situation. 

SDREMNGR

  • Bristles
  • ***
  • Posts: 324
Re: Thinking of buying a 500K house...
« Reply #42 on: July 12, 2014, 07:55:48 AM »
Size and use considerations aside, financially, things are priced too close to perfection for comfort.  Believe me, I like to hope for the best and make things work, but I think a worst case scenario analysis is needed here.  In worst case, if you lose your job, how self sustaining is this home? 

Renting the downstairs should be fine.  You can even discriminate all you want in roommates, totally legal with roommates in a primary home.  But with the whole house rented, will it sustain itself?   Will the other homes?  Real estate is nice because it has cashflow.  If it doesn't cashflow then you should look at what may happen.

It is clear that you want to buy this as a consumer decision and lifestyle decision.  It most definitely is not a frugal purchase no matter how much you defend it.  It is also not a purely investment purchase.  You can only get a good deal in real estate relative today's values not future appreciation. No matter how good you may be at picking out possible future appreciation locations, just like stocks, high appreciation is priced into the homes already.  You just can't count on it as a real estate investor.

soccerluvof4

  • Magnum Stache
  • ******
  • Posts: 4986
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: Thinking of buying a 500K house...
« Reply #43 on: July 12, 2014, 09:37:15 AM »
At the end of the day you can talk or Justify yourself into buying or not buying anything despite what anyone says.  Weather your just looking for people to talk you into a decision you already have made or talk you out of it.  There seems to me that a lot of questions you need to get  answered before you should consider buying the place and imo haven't really given us any hard facts just assumptions on what you think you might be able to do. I have been looking for an investment property for 6 months and with diligence but #1 keep emotions out of it and go buy the numbers.  The math and facts are your friend. If they don't align don't buy it! if they do then good luck to you! There have been numerous books posted here on MMM as well on this subject. I don't have the link but maybe someone can provide.

Cwadda

  • Handlebar Stache
  • *****
  • Posts: 2182
  • Age: 25
Re: Thinking of buying a 500K house...
« Reply #44 on: July 12, 2014, 09:55:38 AM »
Would you be able to split the square footage into 2 rentals and then have a spot for yourself? Two 1600 square ft rentals and then an 1800 square ft place for yourself? Or would that cost too much...

Or doing the 2000 on the ground floor, then splitting up the 3000 on the top floor.
« Last Edit: July 12, 2014, 09:59:10 AM by Cwadda »

JoJoP

  • Stubble
  • **
  • Posts: 160
Re: Thinking of buying a 500K house...
« Reply #45 on: July 12, 2014, 08:47:18 PM »
Size and use considerations aside, financially, things are priced too close to perfection for comfort.  Believe me, I like to hope for the best and make things work, but I think a worst case scenario analysis is needed here.  In worst case, if you lose your job, how self sustaining is this home? 

Renting the downstairs should be fine.  You can even discriminate all you want in roommates, totally legal with roommates in a primary home.  But with the whole house rented, will it sustain itself?   Will the other homes?  Real estate is nice because it has cashflow.  If it doesn't cashflow then you should look at what may happen.

It is clear that you want to buy this as a consumer decision and lifestyle decision.  It most definitely is not a frugal purchase no matter how much you defend it.  It is also not a purely investment purchase.  You can only get a good deal in real estate relative today's values not future appreciation. No matter how good you may be at picking out possible future appreciation locations, just like stocks, high appreciation is priced into the homes already.  You just can't count on it as a real estate investor.

I think these are valid points-- as rental, you can be very picky about who you get in, because it is your primary residence and could be considered a roommate.   If you are able to swing it with your income, why not take a little risk for a place that clearly has you excited for the possibilities of living there.  It sounds to me like the place appeals to you emotionally-- in other words, you love it and you'd like to figure out a way to make it work.  So go for it!  Get it under contract and don't look back.  With that kind of passion to own it and live there, I suspect that you will make it work.   

Real estate, in the form of the home that one lives in, was and is the way millions of people have made billions if not trillions of dollars.  There's no rule that says your home can't be an investment, too, and one that is practical because you actually use and enjoy it every day.



Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Thinking of buying a 500K house...
« Reply #46 on: July 12, 2014, 08:51:21 PM »
Are you being realistic about the rent?  It's 200osqft, so it likely isn't going to be a quite little elderly couple. 

Also, you keep mentioning 50k in appreciation.  What if we hit point in the cycle like 8ish years ago, and you lose 10% a year?  That's about equally likely as your $50k per year appreciation.  So you need to take the appreciation entirely out of the equation.  A house is not in investment, or at least not in that way.

Did you read the post? I never gave a dollar ammount for rent, it was 2K square footage of space that I would be renting out, not for $2,000 dollars. Not sure how you arrived at that figure. Besides, is that a straw man argument with the elderly couple comment or a red-herring? And how do you know it won't be an elderly couple?

You make an awful lot of assumptions based on things that I didn't say, such as $2,000 a month in rent and a quiet elderly couple moving in. I'd almost say you are purposely detracting to try to dissuade me. If you can make a logical argument with facts, that's one thing, but to try to make up logical fallacies to try to dissade me? Hmmmm...

It's a logical fallacy, that a house (actually, the saying goes, PRIMARY residence) is not an investment. That's true if you intend to live in the house for life as a consumable good, but it is not if you intend to flip it some day and eventually downsize.

But if you really still think that a house in the above scenario is not an investment, I guess I better tell the bank the 100K I made due to one primary residence in 2 years doesn't really exist because someone told me it is impossible because it is not an investment or the 100K off another primary residence in 2 years prior to that. Or my colleague who made 100K in 2 years off his primary residence for that matter. The fact that I can rent out the basement with seperate entry makes it even more of an investment than just selling it with a profit does.

While I appreciate the detractors and naysayers since I did afterall ask for opinions, I have not seen one factual argument presented against buying that holds water. The "a house is not an investment" mantra is great...until you actually check the facts and numbers.

Heck, there is a thread on here from a guy who makes 36K a year but in 14 years managed to become a millionaire just buying and selling primary residences, upgrading along the way by using the gains from sales to buy more expensive houses that appreciated even more. Better tell that guy he didn't really make a million since a house is not an investment.

Did you read *my* post?  I said "2000sqft" not dollars. 

But whatever.  In the end, I don't give a damn what you do.  Good luck with your McMansion.  Not sure why you bothered to ask for advice though, when you clearly have your mind set and didn't actually want to hear contrary opinions.  It's a waste of everyone's time.

So why don't you address the fact that I've made a lot of money, as have others on this very forum with this very strategy, as I clearly noted earlier? Oh, that's right, all you have is straw man arguments, red herrings, and ad hom attacks.

I really don't care what your OPINION is, because it's clear you have nothing useful to say other than just that, an OPINION based on nothing other than jealousy, which you've clearly demonstrated. And now you attack me saying I came here to brag? Hahaha. Come on man, show some numbers, some hard statistics specific to the strategy I posted is not only working for me, but made someone else a millionaire.

No facts, no valid arguments. Just ad hom attacks, red herrings, and straw man arguments about how elderly couples wouldn't rent the basement.  lol, you're not even worth my time.
« Last Edit: July 12, 2014, 09:10:27 PM by Bearded Man »

JoJoP

  • Stubble
  • **
  • Posts: 160
Re: Thinking of buying a 500K house...
« Reply #47 on: July 12, 2014, 09:13:31 PM »
My husband considers our house and our (now sold) cabin in the woods to be the best investments we've made, precisely because we can and do use them and enjoy them.    You can look at your stock portfolio, but you can't enjoy it like you do a front porch swing. 

I use my home every single day... and love it.  It's a big, non mustachian home that's 100 years old, and every single day I consider myself blessed to be here.  I love my home and am glad to be out of the cramped 1200 sq foot place that we moved here from.  And, aside from my daily enjoyment of this quirky old place, we've got about 200K in appreciation equity.   So far it's been win-win-win.

Villanelle

  • Magnum Stache
  • ******
  • Posts: 2646
Re: Thinking of buying a 500K house...
« Reply #48 on: July 14, 2014, 07:14:30 AM »
Are you being realistic about the rent?  It's 200osqft, so it likely isn't going to be a quite little elderly couple. 

Also, you keep mentioning 50k in appreciation.  What if we hit point in the cycle like 8ish years ago, and you lose 10% a year?  That's about equally likely as your $50k per year appreciation.  So you need to take the appreciation entirely out of the equation.  A house is not in investment, or at least not in that way.

Did you read the post? I never gave a dollar ammount for rent, it was 2K square footage of space that I would be renting out, not for $2,000 dollars. Not sure how you arrived at that figure. Besides, is that a straw man argument with the elderly couple comment or a red-herring? And how do you know it won't be an elderly couple?

You make an awful lot of assumptions based on things that I didn't say, such as $2,000 a month in rent and a quiet elderly couple moving in. I'd almost say you are purposely detracting to try to dissuade me. If you can make a logical argument with facts, that's one thing, but to try to make up logical fallacies to try to dissade me? Hmmmm...

It's a logical fallacy, that a house (actually, the saying goes, PRIMARY residence) is not an investment. That's true if you intend to live in the house for life as a consumable good, but it is not if you intend to flip it some day and eventually downsize.

But if you really still think that a house in the above scenario is not an investment, I guess I better tell the bank the 100K I made due to one primary residence in 2 years doesn't really exist because someone told me it is impossible because it is not an investment or the 100K off another primary residence in 2 years prior to that. Or my colleague who made 100K in 2 years off his primary residence for that matter. The fact that I can rent out the basement with seperate entry makes it even more of an investment than just selling it with a profit does.

While I appreciate the detractors and naysayers since I did afterall ask for opinions, I have not seen one factual argument presented against buying that holds water. The "a house is not an investment" mantra is great...until you actually check the facts and numbers.

Heck, there is a thread on here from a guy who makes 36K a year but in 14 years managed to become a millionaire just buying and selling primary residences, upgrading along the way by using the gains from sales to buy more expensive houses that appreciated even more. Better tell that guy he didn't really make a million since a house is not an investment.

Did you read *my* post?  I said "2000sqft" not dollars. 

But whatever.  In the end, I don't give a damn what you do.  Good luck with your McMansion.  Not sure why you bothered to ask for advice though, when you clearly have your mind set and didn't actually want to hear contrary opinions.  It's a waste of everyone's time.

So why don't you address the fact that I've made a lot of money, as have others on this very forum with this very strategy, as I clearly noted earlier? Oh, that's right, all you have is straw man arguments, red herrings, and ad hom attacks.

I really don't care what your OPINION is, because it's clear you have nothing useful to say other than just that, an OPINION based on nothing other than jealousy, which you've clearly demonstrated. And now you attack me saying I came here to brag? Hahaha. Come on man, show some numbers, some hard statistics specific to the strategy I posted is not only working for me, but made someone else a millionaire.

No facts, no valid arguments. Just ad hom attacks, red herrings, and straw man arguments about how elderly couples wouldn't rent the basement.  lol, you're not even worth my time.

Are you posting drunk?  Where on earth did I say you posted to brag?  WTF?  I also didn't call you names, or make arguments agains things you never said, so I'm not sure what you are talking about with ad hom attacks and straw men.  You're delusional if you somehow got all that from, "
Did you read *my* post?  I said "2000sqft" not dollars. 

But whatever.  In the end, I don't give a damn what you do.  Good luck with your McMansion.  Not sure why you bothered to ask for advice though, when you clearly have your mind set and didn't actually want to hear contrary opinions.  It's a waste of everyone's time."  Bizarre.

TheHouseStache

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Thinking of buying a 500K house...
« Reply #49 on: July 14, 2014, 10:47:05 AM »
I'm not going to tell you not to do this, but as someone that deals with homes every day as my job, I'm going to offer my input.

I own two houses, worth close 400K. One paid in full, the other with enough cash on hand to pay it off, though I don't due to the low 3.25% interest rate. I am a high income earner, and make more than 120K a year.

I've been contemplating buying a house in a nicer area, and was looking in the 300K range, for a sub 2K square foot house. I got to looking at higher priced homes just to see what I could afford and found a nice property with 2 acres, 5 THOUSAND square feet (3K upstairs, 2K downstairs basement with seperate entry). It is a custom built log cabin that is just WoW!!!! I am in love!!! If you could see this place!!!

Even a lot of cash tied up in other real estate, I still have enough cash on hand for this 500+K house with 20% down. Mortgage payment would be about 3K a month including taxes, insurance, etc. I could even rent out the 2K square foot basement and would intend to, though the 3K a month mortgage is not even half of my take home pay, though it is about 40% of it, not counting any money I would receive from the 2K downstairs basement that I could rent out (seperate entry).

Even though it would be my primary residence, I can't help but consider that at 9% appreciation in the area, the house is basically adding 50K a year to my networth. The area is VERY desirable and just continues to be more so. At the peak of the market the house was worth 700+K.

Have I lost my mind? Any reason why I should NOT do this? It's not like I'm buying a 120K mercedez. At the end of the day, it is still real estate. I am not doing it for lifestyle inflation, more for asset appreciation. The quality of life thing is just a side benefit.


Daleth is touching on the points I had made in my OP. I would be renting nearly half of it out. This is the kind of house I could entertain the c suite in for networking. Plus, The house would be appreciating at 50-60 k per year. 2 acres could be subdivided and sold. 

I don't invest in the stock market, so real estate is pretty much it for me. Right now my cash is losing value every year to the tune of thousands jhst sitting in the bank.

Is the mortgage 3k, or the entire PITI payment?  Also, don't forget closing costs (roughly 2-5% of the purchase price depending on a number of factors).  You'd be looking at an extra $10 to 25k just for those.  Never, ever count on appreciation to add value.  Yes, chances are that it will, but the market does cycle, so be prepared for when things take a dive again.  9% year on year is not necessarily a sustainable return in the long run.  You also mention that you don't have the other property paid off.  Depending on the lender, you may not be able to get a loan for less than 25% down, if you can't get them to accept it as a primary residence.

Do not count on being able to rent it out either, unless you've already confirmed that you can.  Certain municipalities have strict rules (zoning) on what can be used as a multi-family.  Same goes for subdividing it.  This also may effect whether or not you can use it as a rental/ multi-family, since many zoning laws specify a minimum lot size for multi-family properties or minimum lot size for subdivision.

This is aside from any covenants that run with the deed. 

So basically, to sum this up:

Don't assume you can rent it out or subdivide it to offset the payments.
Expect 2-10% additional costs for closing costs and increased down payment if it cannot be listed as a primary residence.
Never assume that you'll make money off the market.