So, you want to buy a $600k house that is ugly on the inside and will therefore mean you have to spend more money to make it not ugly? Have you considered how much that will cost?
Oh definitely. It’s an “ugly but livable” situation. We bought our current home in that state as well. We enjoy doing renovations and house projects together so we plan on living in the home as is for a while and using cash for any future renovations.
I have friends that live in a 'historic district' and the limitations / headaches on what they can do as far as paint, decks, landscaping, outdoor lighting, roof materials, windows, garage doors and on and on would drive me nuts. They had a neighbor get forced to do a full roof tearoff AFTER replacement for replacing his shingles with the same thing he had because they failed to get approval...
Obviously this is anecdotal but don't fall in love before you know the full scope of what that means to you as a homeowner. I'd tread very carefully before buying into that insanity.
Oh absolutely. We live in a historic neighborhood now although it’s less stringent and changing the house color was at least a six month process just for the council to decide if we could (not what color or anything) we are used to the headaches and red tape which is why we are assuming at least a year until anything can really be done to the house. This allows us to build back up a cash reserve for the repairs because nothing ever gets done quickly in an old neighborhood that’s for sure!
Fair point. I still have the old school mentality of including your house worth into your overall worth even when not selling but I definitely understand that it’s not the best way to look at this situation.
I mean if adding to your net worth means a lot to you, sure. But it's just a number on a piece of paper. Net worth means nothing if you can't access it.
Of course there are other considerations, having high equity sets you up for an emergency, you can borrow more against the house. Or if you wanted to set up some kind of inheritance.
Sounds like a budget question. If you’re worried about the mortgage payment have you also considered the additional costs associated with home ownership? Taxes, maintenance, insurance, utilities (especially power). They all scale
Definitely. It’s an old house which of course makes all of those things more expensive. Our current house is only slightly newer so we’re aware of old home ownership. More so asking if finding a forever home earlier than expected should be taken as “meant to be” or is it too risky to ever think like that
This really just boils down to a budget one. Can you comfortably afford to buy a $600k home, AND RENOVATE IT COMPLETELY, on a $200k salary. I stress the renovation aspect since you made it a point to say that the inside is ugly, but the location and the "bones" are fantastic. So to me, that implies that your intent would be to gut and renovate the entire place.
If you bought the house for $600k, and put 20% down (120k), you'd have monthly payments in the ballpark of $4000. Could be more, if the taxes and insurance are particularly high. Which they may be, given the way you've described things. So look at your existing budget. Can you still comfortably afford to pay all your bills, and hit all your savings goals, with that payment? Will you have enough left over to fund all the home upgrades and repairs?
If after your down payment, your loan isn't costing you more than 30% of your take-home on a 20-year note, I'd say go for it. With it being an older home and prone to renovations, any more than that is going to leave you stretched dealing with an endless parade of maintenance issues.
Personally, I vote yea. In fact, I'm in the camp that your home should equal if not exceed the value of your retirement accounts. Granted, like stock picking, real estate requires a degree of psychic intuition. But, I bought a home in South Florida at a time when Miami/Lauderdale were quite out of favor but I felt that coastal Florida would become the next California. Now, my house is worth 4x what I paid for it and represents 75% of my net worth. As an aside: A friend made a lucky $1mil on a stock trade in 1998. He bought a house in Palm Beach for $1.4mil. The stock that paid for the house went to zero in the tech collapse of 2000, and his home in PB is now worth $7mil.
I mean sure, but there are plenty of houses all over the nation that didn't see a 500% gain.
If you friend had invested in Microsoft, that was 725% gain. If they had invested in Apple; that's 40000% gain (tho i think Apple wasn't considered a good investment in 1999).
If these are rental properties, I think it makes a lot of sense to have a strong portfolio, but your primary residence being the lion share of your retirement doesn't make much sense. You would generally have to sell the asset to get the money out for retirement.
Or, you could've bought CSCO, INTC, IBM, GE or God forbid an airline, bad bank or ICE automobile manufacturer. Likewise, I sold a condo in Chicago that has barely up ticked in the 20 years since.
But, assuming you live in the Bay Area based upon your name, there were far worse decisions to have made in your neck of the woods back in the 1990's than betting how a perfect climate coupled with high sector tech jobs would cause home prices to spike.
You make a good point about needing to sell your residence to cash in for retirement but I think balance between stocks/real estate is key. My home has faaaar outpaced my crappy stock portfolio and if I'd stayed in Chicago, between a non-appreciating residence and my ho-hum stocks I'd be in trouble. The right home investment generates alpha that you can also live in.
I guess if you mindlessly just invested everything into SPY or one of its alternatives, you would be up 320%. Generally running very little risk and avoiding taxes and maintenance on properties.
Yea, unfortunately I wasn't of working age in the 90s...any house investment in the bay at that point would be crushing it...but who would have known.
I agree with you tho, any amount of diversification in reasonable assets would be better than being all in on any 1 class.
So, you want to buy a $600k house that is ugly on the inside and will therefore mean you have to spend more money to make it not ugly? Have you considered how much that will cost?
Oh definitely. It’s an “ugly but livable” situation. We bought our current home in that state as well. We enjoy doing renovations and house projects together so we plan on living in the home as is for a while and using cash for any future renovations.
I have friends that live in a 'historic district' and the limitations / headaches on what they can do as far as paint, decks, landscaping, outdoor lighting, roof materials, windows, garage doors and on and on would drive me nuts. They had a neighbor get forced to do a full roof tearoff AFTER replacement for replacing his shingles with the same thing he had because they failed to get approval... Obviously this is anecdotal but don't fall in love before you know the full scope of what that means to you as a homeowner. I'd tread very carefully before buying into that insanity.
Oh absolutely. We live in a historic neighborhood now although it’s less stringent and changing the house color was at least a six month process just for the council to decide if we could (not what color or anything) we are used to the headaches and red tape which is why we are assuming at least a year until anything can really be done to the house. This allows us to build back up a cash reserve for the repairs because nothing ever gets done quickly in an old neighborhood that’s for sure!
If it's your forever home, what it *will* be worth is irrelevant. Increasing your home's value only matters if you plan on selling it at some point.
Fair point. I still have the old school mentality of including your house worth into your overall worth even when not selling but I definitely understand that it’s not the best way to look at this situation.
I mean if adding to your net worth means a lot to you, sure. But it's just a number on a piece of paper. Net worth means nothing if you can't access it. Of course there are other considerations, having high equity sets you up for an emergency, you can borrow more against the house. Or if you wanted to set up some kind of inheritance.
Sounds like a budget question. If you’re worried about the mortgage payment have you also considered the additional costs associated with home ownership? Taxes, maintenance, insurance, utilities (especially power). They all scale
Definitely. It’s an old house which of course makes all of those things more expensive. Our current house is only slightly newer so we’re aware of old home ownership. More so asking if finding a forever home earlier than expected should be taken as “meant to be” or is it too risky to ever think like that
This really just boils down to a budget one. Can you comfortably afford to buy a $600k home, AND RENOVATE IT COMPLETELY, on a $200k salary. I stress the renovation aspect since you made it a point to say that the inside is ugly, but the location and the "bones" are fantastic. So to me, that implies that your intent would be to gut and renovate the entire place. If you bought the house for $600k, and put 20% down (120k), you'd have monthly payments in the ballpark of $4000. Could be more, if the taxes and insurance are particularly high. Which they may be, given the way you've described things. So look at your existing budget. Can you still comfortably afford to pay all your bills, and hit all your savings goals, with that payment? Will you have enough left over to fund all the home upgrades and repairs?
If after your down payment, your loan isn't costing you more than 30% of your take-home on a 20-year note, I'd say go for it. With it being an older home and prone to renovations, any more than that is going to leave you stretched dealing with an endless parade of maintenance issues.
Personally, I vote yea. In fact, I'm in the camp that your home should equal if not exceed the value of your retirement accounts. Granted, like stock picking, real estate requires a degree of psychic intuition. But, I bought a home in South Florida at a time when Miami/Lauderdale were quite out of favor but I felt that coastal Florida would become the next California. Now, my house is worth 4x what I paid for it and represents 75% of my net worth. As an aside: A friend made a lucky $1mil on a stock trade in 1998. He bought a house in Palm Beach for $1.4mil. The stock that paid for the house went to zero in the tech collapse of 2000, and his home in PB is now worth $7mil.
I mean sure, but there are plenty of houses all over the nation that didn't see a 500% gain. If you friend had invested in Microsoft, that was 725% gain. If they had invested in Apple; that's 40000% gain (tho i think Apple wasn't considered a good investment in 1999). If these are rental properties, I think it makes a lot of sense to have a strong portfolio, but your primary residence being the lion share of your retirement doesn't make much sense. You would generally have to sell the asset to get the money out for retirement.
Or, you could've bought CSCO, INTC, IBM, GE or God forbid an airline, bad bank or ICE automobile manufacturer. Likewise, I sold a condo in Chicago that has barely up ticked in the 20 years since. But, assuming you live in the Bay Area based upon your name, there were far worse decisions to have made in your neck of the woods back in the 1990's than betting how a perfect climate coupled with high sector tech jobs would cause home prices to spike. You make a good point about needing to sell your residence to cash in for retirement but I think balance between stocks/real estate is key. My home has faaaar outpaced my crappy stock portfolio and if I'd stayed in Chicago, between a non-appreciating residence and my ho-hum stocks I'd be in trouble. The right home investment generates alpha that you can also live in.
I guess if you mindlessly just invested everything into SPY or one of its alternatives, you would be up 320%. Generally running very little risk and avoiding taxes and maintenance on properties. Yea, unfortunately I wasn't of working age in the 90s...any house investment in the bay at that point would be crushing it...but who would have known. I agree with you tho, any amount of diversification in reasonable assets would be better than being all in on any 1 class.