bahurd

iTrader: (8)

Tough call...

I've lived by the thought that owning property is preferred over renting/leasing but that's a mindset from being in a place for 5yr at least. If you're planning on moving soon you'll give up 6% in fees and the tendency with companies today is to not pay to relo (unless it's within the same company).

Another thing I followed is to never own the most expensive house on the street/neighborhood. Zillow isn't the best at this but do some work on true comps. With that house (nice house btw), you're paying dearly for someone else's sweat. If you're buying with the intent to flip in a yr or two I doubt you can time the real estate market so you need to be prepared to live with a house worth less in the short term (realtor fees to sell + potential down market at the same time).

With that particular house, and it's underlying age, I'd really look into the basement water control before I sunk that kind of money into it. Nothing helps to drop a house value more than a wet basement that's been "upgraded".

There's something about owning vs paying someone else that satisfies the mind though. Good luck!

z31maniac

Oh definitely not a deal breaker, it was really the only thing I could nitpick because everything else about is spot on.

We are trying to get prepared to sell this place in a 1.5-3 years, even though I just bought in September. We are hoping with the rate that homes are being purchased and fixed up and flipped like mine was, we will be able to just sell and break even soon.

Then it's do we stay in OKC, or do we move to Austin where my company just opened a massive new "hub/campus."

Joe Perez

iTrader: (8)

That is precisely what's kept me a renter since I sold my house in Cincinnati and moved to San Diego in 2004. Lack of a feeling of job security. And, to be fair, since then I've moved:

• From San Diego to North Carolina
• From North Carolina to Florida
• From Florida to San Diego
• From San Diego to Santa Clara
• From Santa Clara to Hoboken, NJ
• From Hoboken to Poughkeepsie
• From Poughkeepsie to Manhattan
• From Manhattan to Chicago
• From Chicago to North Carolina, and
• From North Carolina to Chicago.

Now, a few of those moves could have been avoided. But it's been a long time since I really felt "planted" in any one job.

Lately, I've been feeling like I might be stuck in Chicago. But a part of me wonders if my feeling "stuck" is what normal (non-nomadic) people interpret as feeling "secure."



That's just a fact of life in major cities. Homes newer than 75-100 years are rare, and quite expensive.




Well, with a property in this price range, the first many years would have me paying in interest more than I pay in rent now. So there's that.

y8s

iTrader: (8)

warning: yuppies dont exist anymore. now they're poor millenials.

I saw a lot of 20 year old trucks and vans. Maybe that's just Chi-town.

Joe Perez

iTrader: (8)

Pretty much.

Seriously, I know this neighborhood well. It's a few blocks from where I live. Unless you're down in River North, this is as upscale as it gets.

I'm more worried about the fact that the housing market in California is looking a tad iffy again, and we know how that turned out the last time. I lost upwards of $100k (actual cash, not fictitious equity) in '08, and am terrified of making a similar mistake.

bahurd

iTrader: (8)

IIRC, Zillow put the structure "age" at 1898 which means old shitty foundation and **** poor drainage especially in those heavy rain periods you may find. Couple that with really bad storm drain problems most mid-western city have and you would be looking at a pretty substantial repair bill to repair a wet basement. That would significantly reduce the "value". Overall the house looks really well done but my yankee practicality tells me to discount anything below grade as when it happens not if it happens.

Feel your pain although I've never lost real money on property. The recent news about CA really stemmed from the fact the new inventory has been sold off and there isn't enough new stock to make up for it (if I remember the stats). Housing downturns do seem to happen more frequently then when I got into the market. Sucks to be underwater and owe the bank.

Braineack

iTrader: (62)

correct.

Joe Perez

iTrader: (8)

That's just how things are around here. Any single-family home built after World War I is considered "New Construction." (The high-rise condos by the lake are a different universe altogether.)

Chicago is an old city. Hundred year old foundations are considered normal.

bahurd

iTrader: (8)

codrus

It's kind of funny how Americans think a hundred years counts as "old".

--Ian

Joe Perez

iTrader: (8)

While having spent some time living in Germany makes me agree, I fully appreciate why this is so, given the relative youth of the country as a whole.

I expect that it is much the same in Canada and Australia.


Unrelated: I made some poor decisions today. Nothing that affects my finances, but my stomach is in full revolt right now.

rleete

iTrader: (21)

Gas station sushi is never a good idea.

Joe Perez

iTrader: (8)

The math just isn't adding up here...

Assuming a $625k purchase price, a 20% downpayment, and ignoring closing costs, I'd be paying approximately $2,800 a month just in interest and property tax alone. That's $1,000 more than I pay in rent at present.

So the question becomes: Do I expect this property to appreciate in value by more than $1,000 per month?

The real-estate market in this area is so unpredictable that I really can't answer that question.

Enginerd

iTrader: (1)

Godless Commie

iTrader: (2)

I may be mistaken, but when you pay rent, you just pay it away to someone.
Home payments, on the other hand are largely a tax write off.
You get to deduct all interest at the end of the year, and actually come ahead - depending on the specifics of the region, etc.
And, since interest makes up of about 90-95% of your total house payments in the first half of your loan's life, you pretty much enjoy the house and the financial benefits.
Bu the time the principal starts making up the majority of your payments - meaning, there is little to deduct - inflation will have caught up already, and you will end up paying less than those around you who are renting.

Or, I could be wrong.

Joe Perez

iTrader: (8)

Property values in this area seem to be relatively stagnant. As an indicator, the apartment on the other side of my building, which is exactly identical to mine, is presently listed for rent at $1,800 per month. That's the same as what I'm paying for my unit, and my lease is up in two months.

And, for me, portability is valuable. As I said, this job feels like one that will be relatively stable, but then, I've moved twelve times in the past 20 years. My Amazon.com addresses page is hilariously long (largely because it also contains a bunch of hotels.)

Real estate tax, state income tax, and mortgage interest are deductible from income when computing Federal tax, as itemized deductions on Schedule A. Since my income tax for IL already puts me very near the minimum Standard Deduction on form 1040, we'll assume that 100% of real estate tax and mortgage interest are deductible. Mortgage interest and real estate tax are not deductible when computing Illinois income tax, so we'll focus just on Federal form 1040.

Assume a $625k purchase price, 20% downpayment, and a 30 year conforming loan at 4.6% APR.

We'll assume that the following things all increase each year at a certain rate, for which I'll have a cell in the spreadsheet called "property inflation" that allows me to plug in different percentages:

• Market value of home
• Cost of real-estate tax
• Cost of rent

My net effective federal tax rate for 2017 (gross income / total tax) was 18.7% So that's the amount by which mortgage interest & property taxes offset my tax burden.

We're also going to explore the opportunity cost of using the downpayment to buy a home vs the average S&P 500 composite return, which is about 6.5% over any period of the past 10, 20, 30 or 40 years. (Range = 6.45 to 6.76)

And, in the end, we'll have to factor in a realtor's commission, which is generally 6%.

I'm gonna make a spreadsheet. Because that's what engineers do.




In the end, it's all coming down to cell B37. Making a 1% adjustment in that cell swings the break-even point by five years in either direction. And, of course, I'm completely ignoring the costs of maintenance.

codrus

5 years for breakeven on buying vs renting is actually the rule of thumb I've heard for a long time.

How close to each other in functionality (size, quality, location, etc) are the two properties you're comparing?

--Ian

Joe Perez

iTrader: (8)

Size = 3x (which I don't need.)

Quality = 1.25x (one block in from the nearest major road, so slightly better quality of sleep due to noise.)

Location = -0.2x (same neighborhood quality, somewhat longer walk to work.)

bahurd

iTrader: (8)

When you really want to own that Tesla S but currently lease a Kia Rio it's hard to justify on a spreadsheet....

codrus

Ah, so you're comparing renting an apartment vs buying a single-family house?

Can you buy a condo that's more equivalent? Seems silly to pay for the house if you don't need/want the space.

--Ian