Was my home purchase in 2006 frugal?
Joe
dropped 4.8% from 2006-2007. I purchased my home in Aug 2006 and knew
prices were going to drop but our situation left me very little choice
so I justified my purchase at the time thinking the worst case
scenario is that my house value will drop around 5% a year, well it
did, but I still figure that I'm ahead of the game considering 5% of
my purchase price is still less than I would have paid in rent for
2007. That money would have been thrown away never to be seen again
anyway. Now I know I am still on the hook for taxes and upkeep of the
house but my quality of life is drastically different than living in
an apartment so I consider that expense a wash. Am I wrong in
justifying my purchase this way? Can anyone point out if my thinking
is off on this?
Joe
http://biz.yahoo.com/cnnm/080214/021408_home_prices_fall_for_year.html
Rod Speed
The main area you are off on is the upkeep of the house. You
pay that when you are paying rent. And you pay the landlord's
taxes too unless the property is being rented out at a loss by
the landlord. That last can happen, but it isnt very common.
So the basics in your logic are correct.
rox
"Joe" <joe...@gmail.com> wrote in message
news:dd07afed-9e4e-49b7...@u10g2000prn.googlegroups.com...
If you bought it to live in, don't worry about it. Prices will rebound over
time and you are building equity. If you don't plan to sell in the next 5
years you'll be fine. I live in the Northeast too and while prices have
dropped the demand for housing overall hasn't. It's just shifted because
marginal buyers are no longer able to find loans that they really can't pay
on houses that were overvalued to begin with.
skar...@gmail.com
frugal. If you bought the house as an investment, stop reading right
here as all investments come with some risk.
If you have a family, and your family felt that they need a house
(instead of living in an apartment), then you bought the house for the
family, and just don't worry about it.
Think of it as something similar to a TV or a car. You buy things for
entertainment or need. You do your research and buy something that you
perceive as best value. Loss of house value doesn't come into picture
unless you want to sell it and right now.
Renting Vs buying has been discussed a number of times before. My
conclusion is that renting is cheaper if you compare ONLY the costs.
Once you put in "investment" or "providing a stable environment for
family" into the formula, it becomes quite complex.
clams_casino
If taxes, mortgage interest, higher insurance, etc are negligible costs,
then the 5% drop is probably similar to paying rent.
Seerialmom
If you like your house and can afford it, why do you need
justification? If you bought on the hgh end of the price scale, you
might have to stay there for a few more years to increase the value
again. The ones who made a mistake were the ones buying the cookie-
cutter tract homes in markets that were overinflated price wise.
Lou
I think you're wrong in even thinking about it until, when, and if the
occasion arises where you again must make a choice to buy a house or not.
What's done is done, you can't go back and not buy the house, and fretting
over past mistakes or gloating over past triumphs won't change the present
and say nothing about the future.
For what it's worth, I bought my present house a little over 18 years ago,
at pretty near the top of the last real estate cycle, and within a year the
market price of the house had dropped around 20%. If I had sold within a
year or two of buying, I would have taken a beating, but I didn't and prices
recovered and then some even before the recent boom.
One result of that experience is that I don't see that a price drop of 5% is
any big deal - maybe tough on someone who bought recently and must sell for
whatever reason, but in terms of normal market fluctuations no big deal.
Do you like living there more than your last rental? Is the after tax cost
more, or less, or the same than it would be if you were a renter instead?
If you can answer yes to the first and less or the same to the second, you
have all the justification you should need. Even if the answer to the
second is more, you still have all the justification you need provided
you're not having problems paying the bills.
hchi...@hotmail.com
Yeah, what he said. If you were a highly paid investment manager,
supervising other people's money, and you lost in a stock market dip,
then maybe it would be worth beating yourself up a bit.
In a case like this, you lost a teeny bit of paper equity but still
have the use of the property. Bottom line is, unless you sell, you
haven't lost anything. If you have ever invested in a stock, or
personally invested in a business, you realize that valuation has some
fluctuation and just wait it out or assess whether the trend will
continue enough to be concerned..
Ron Peterson
The rule of thumb is that your house should rent for 1% of its
purchase price.
--
Ron
clams_casino
Reminds me of my first home. When I bought during the high inflation /
recession mid 70's, everyone though we were nuts - especially to have
6% mortgage. That home doubled in price within 7 years - one of my
better investments (sold it in 81 to someone glad to find a 16% mortgage).
It's probably not wise to justify a home solely on investment. If
investment is your primary objective, you are probably not ready for
home ownership. There will always be more costs than you can ever
anticipate.
Lou
"Ron Peterson" <r...@shell.core.com> wrote in message
news:f4fd3b80-6681-4065...@s37g2000prg.googlegroups.com...
per day? per week? per month? per . . .
Lou
"clams_casino" <PeterG...@DrunkinClam.com> wrote in message
news:Lwgtj.189$QC....@newsfe20.lga...
6%? I felt I was lucky to get a mortgage for only 10.5%. (My daughter had
to walk 5 miles to school too, barefoot in the snow, uphill both ways.) My
parents, especially, thought we were crazy, insane, had more money than
brains. It nearly tripled in price in 10 years.
Ron Peterson
> "Ron Peterson" <r...@shell.core.com> wrote in message
> The rule of thumb is that your house should rent for 1% of its
> purchase price.
> per day? per week? per month? per . . .
Per month, of course. So, if you can rent something for $2,000 per
month, it isn't a good idea to buy it for $400,000.
--
Ron
Joe
> Per month, of course. So, if you can rent something for $2,000 per
> month, it isn't a good idea to buy it for $400,000.
>
> --
> Ron
This cannot be true in the Northeast. If so no home would be a good
investment.
Dennis
wrote:
It probably varies in different locations, but my realtor here in NW
Oregon said basically the same thing. When we sold our apartment
building a couple years ago, he suggested 100 times the total monthly
rent as a reasonable selling price.
Dennis (evil)
--
My output is down, my income is up, I take a short position on the long bond and
my revenue stream has its own cash flow. -George Carlin
Ron Peterson
> On Feb 15, 11:38 pm, Ron Peterson <r...@shell.core.com> wrote:
> > Per month, of course. So, if you can rent something for $2,000 per
> > month, it isn't a good idea to buy it for $400,000.
> This cannot be true in the Northeast. If so no home would be a good
> investment.
The way I see it is that you need to spend about 6% interest expense,
2% depreciation, 1% maintenance, 2% taxes, and 1% for realtor expense
giving a total 12% per year cost for the value of the house.
--
Ron
clams_casino
Why the 2% depreciation if you include the maintenance.? Homes (in
most locations) tend to appreciate, not depreciate (over the long haul).
Furthermore, a significant portion of the taxes & interest are usually
offset by tax deductions.
rick++
> The rule of thumb is that your house should rent for 1% of its
> purchase price.
That rule was in the era of 8% mortgages 1980 - 2002.
It can be lower now since money has been 5-6% most of this decade.
Ron Peterson
wrote:
> Ron Peterson wrote:
> >The way I see it is that you need to spend about 6% interest expense,
> >2% depreciation, 1% maintenance, 2% taxes, and 1% for realtor expense
> >giving a total 12% per year cost for the value of the house.
> Why the 2% depreciation if you include the maintenance.? Homes (in
> most locations) tend to appreciate, not depreciate (over the long haul).
The 2% depreciation is relative to the cost of new construction. It
usually costs more to remodel an old home to the standards of a new
house than to build a new hoouse from scratch.
Usually as a house ages, maintenance costs go up and it will
eventually pay to tear the house and build a new one.
> Furthermore, a significant portion of the taxes & interest are usually
> offset by tax deductions.
I am just trying to illustrate what is a reasonable amount to spend
for housing. YMMV depending on your financial conditions and location.
--
Ron
John Weiss
You haven't "lost' anything. You won't "lose" anything unless you sell the
house for less than the purchase price.
If you plan on staying in the house a while, you're likely to regain any
temporary paper loss.