Buying A New House... Need Some Advice, Please!

[w0SS]

Been hearing it since 2008.
I guess blowing my money on rent (approx $60 000) since then would have been better?

Hard to say. If there is a house for $560k and we put the 60k towards a downpayment instead, we now have a mortgage of:
$500k

If we are lucky enough to get a 3% avg mortgage for 25 years (avg has historically been 6-7% I think) the costs would be:
$3k monthly (mortgage+property tax+HO insurance)
$200k in interest paid at the end of 25 years
$50-100k on repairs/upgrades over the course of owning the home

So total cost for this house after 25 years is approximately
$860k

Renting at the rate you suggested for 25 years you would have a cost of
$375K

That leaves the Renter with $485k they can put towards investments over the Homeowner. These investments may rise or fall, but so can house prices. It's a crap shoot for both really. The major advantage for the Renter though is that his money is liquid, if his investments start falling he can switch them over to something else in a matter of minutes. The Homeowner on the other hand will have a much tougher time convincing a buyer to take the house when prices are falling. If the Homeowner can afford to keep the house during the price declines then he is fine, no real loss is had until he sells. The worry is that because house prices have been going up so much compared to incomes, when mortgage rates increase the Homeowner may not be able to afford his monthly payments and will be forced to sell at a loss.

 

[crankcall]

I'm starting to hear a lot of arguements like wOSS points out from a variety of respected financial spokespersons, I think the great equalizer is a renter that is actually prepared to put money away in ligitimate investments vs. the guy that has managed to have equity growth in his home.
Its a great theory but it would take real discipline.

 

[BNKN]

I'm starting to hear a lot of arguements like wOSS points out from a variety of respected financial spokespersons

This has been true for a long time. The #'s and best/case worst case scenerios can be worked out quite easily. It always comes down to lifestyle. eg, you can find the shittiest room for $350mnth all in. You're always going to be ahead provided you don't blow your cash on Ducatis and vino. I think they plot this like h.p./torque graphs. At some point they cross and you're better off owning a house in the long run. I guess you have to find the sweet spot.

 

[klr_guy]

Its a great theory but it would take real discipline.

Agreed - it sounds great in theory.

 

[REDD77]

Hard to say. If there is a house for $560k and we put the 60k towards a downpayment instead, we now have a mortgage of:
$500k

If we are lucky enough to get a 3% avg mortgage for 25 years (avg has historically been 6-7% I think) the costs would be:
$3k monthly (mortgage+property tax+HO insurance)
$200k in interest paid at the end of 25 years
$50-100k on repairs/upgrades over the course of owning the home

So total cost for this house after 25 years is approximately
$860k

Renting at the rate you suggested for 25 years you would have a cost of
$375K

That leaves the Renter with $485k they can put towards investments over the Homeowner. These investments may rise or fall, but so can house prices. It's a crap shoot for both really. The major advantage for the Renter though is that his money is liquid, if his investments start falling he can switch them over to something else in a matter of minutes. The Homeowner on the other hand will have a much tougher time convincing a buyer to take the house when prices are falling. If the Homeowner can afford to keep the house during the price declines then he is fine, no real loss is had until he sells. The worry is that because house prices have been going up so much compared to incomes, when mortgage rates increase the Homeowner may not be able to afford his monthly payments and will be forced to sell at a loss.

I'm gonna make this post short.

Couple of things:

1. You're comparing $1000 a month rented apartment to a 500k house?
2. Why not buy a cheaper house, who tells you to buy a 500k house?
3. Why pay for 25 years, when you can pay it off earlier? (if you can't pay it off earlier you should be in a cheaper house)
4. Yes, I'm sure most renters save up all the money they can just to invest, which by the way is no sure thing either.
5. Unknown future- I'm not sure what my house will be worth then as you won't know what your stocks will be worth.
6. Known future- I will be living in my paid off house, while you will be renting where and for how much?

 

[w0SS]

I'm gonna make this post short.

Couple of things:

1. You're comparing $1000 a month rented apartment to a 500k house?
2. Why not buy a cheaper house, who tells you to buy a 500k house?
3. Why pay for 25 years, when you can pay it off earlier? (if you can't pay it off earlier you should be in a cheaper house)
4. Yes, I'm sure most renters save up all the money they can just to invest, which by the way is no sure thing either.
5. Unknown future- I'm not sure what my house will be worth then as you won't know what your stocks will be worth.
6. Known future- I will be living in my paid off house, while you will be renting where and for how much?

I was just trying to portray both sides. Renting and owning both have their pros and cons, how much weight those have will vary from person to person based on their circumstances/personal view.

 

[short stop]

Beyond just the financial considerations - does anyone *really* want to rent a ****** apartment for the rest of their lives? With zero control over renovations, appearance, upkeep, and utilities? Yeah thanks, I'm not 23 anymore and I actually take some interest in my living space.

To each their own, depending on their lifestyle. But buying a house for me was more than just a financial decision. And $1000/mo for an apartment doesn't get you much anymore these days. Try raising a family in something that cheap.

 

[nfq]

Beyond just the financial considerations - does anyone *really* want to rent a ****** apartment for the rest of their lives? With zero control over renovations, appearance, upkeep, and utilities? Yeah thanks, I'm not 23 anymore and I actually take some interest in my living space.

To each their own, depending on their lifestyle. But buying a house for me was more than just a financial decision. And $1000/mo for an apartment doesn't get you much anymore these days. Try raising a family in something that cheap.

You could rent entire houses for 1500-1800/mth.
It's all a matter of preference.

I agree, houses have their place, it's a forced savings vehicle. If we all had financial discipline, then there wouldn't be a retirement crisis looming, or any bubbles in the first place. There's theory, then there's reality.

 

[short stop]

You could rent entire houses for 1500-1800/mth.

Sure you could. And that's an entire mortgage payment that's going down the tubes rather than going towards your equity. Unless renting a house is substantially cheaper (I'm sure some would argue that it is anyways), then it doesn't seem worth it IMO.

 

[Mr.Azim]

^ this.

I would rather pay mortgage than pay rent..... if I had the choice/ability. I'm getting married at the end of the year. If we don't find a place, I have 3-6 months rent on standby for additional time if needed. If not, that'll be additional track/race fees for 2014

 

[nfq]

Sure you could. And that's an entire mortgage payment that's going down the tubes rather than going towards your equity. Unless renting a house is substantially cheaper (I'm sure some would argue that it is anyways), then it doesn't seem worth it IMO.

Granted, but owning a house isn't just 'I have this one and only payment called a mortgage'

as a Renter, you have to pay:Rent. (and depending on how/what you're renting, some utilities).

backed up toilet? not your problem.
mold in the basement? not your problem.
roof replacement? not your problem.
furnace died? not your problem.

As was stated above, pro's and con's.

My biggest pet peeve is when home owner's preach that unless you own a home then you're just "throwing money away". It's right up there with married people preaching "when are you getting married?"

Different strokes for different folks, but you gotta look at it from all sides. My generation is fubar'd so it's best to value liquidity and flexibility, not tied down to one liability that we spend 1/3 of our lives paying for.

 

[short stop]

From a financial perspective, sure those problems aren't technically yours. But if you're stuck with a less-than-stellar landlord, then those problems are most definitely yours until they get fixed at the whim of your landlord. I rented for many years - I know the pros and cons.

If renting works for people, then all the power to them. It is a personal lifestyle choice for many. I can only explain my own reasons and experiences.

 

[Natalia Smith]

Real estate is always considered as one of the best investment. But one must have knowledge about various facts related with it. If you want to buy new house you can take help of real estate agent.

 

[crankcall]

I've followed this thread since I have a 40yr old house right now in a very nice established neighbourhood that we are considering selling, there is ridiculous value in buying a new build on paper. It just costs less. The builder uses your down payment to help finance the project and you get in a little cheaper. But I cant get a 4 car driveway or a pool size lot unless I want to move to zippydoda Ontario. Biggest reason to stay here is no one drives a diesel tractor trailer and lives on my street, no taxi drivers, nobody building a stockcar in the driveway and so far limited crazies. You can check out a neighborhood three times at various times of the day, once its a neighborhood. New builds you get to watch the crazies move in.

 

[raginduck]

Real estate is always considered as one of the best investment. But one must have knowledge about various facts related with it. If you want to buy new house you can take help of real estate agent.

Why would someone pay an RA to "help" buy a new home?
Heck, just as I was typing this, one of the B.S commercials about the BRA came on T.V.
Do people actually fall for the BRA pitch?

 

[mimico_polak]

Why would someone pay an RA to "help" buy a new home?
Heck, just as I was typing this, one of the B.S commercials about the BRA came on T.V.
Do people actually fall for the BRA pitch?

Because the Real Estate agents have made it to seem that they are all fully capable and fully able to help you through the transaction...********...I've met enough of them in the last few years and frankly there are very FEW (VERY FEW!) decent ones. Most of them are fast talkers, and don't know about the process. Lost your job? Become a real estate agent! I recently tried to purchase a house privately and all went through except the financing, mortgage broker promised something he couldn't deliver, so had to cancel. No agent, deal went smooth throughout the process (except the financing issue). They're not needed, you can do everything yourself it just takes some knowledge and legwork and you can save thousands.

 

[K1200RS]

Granted, but owning a house isn't just 'I have this one and only payment called a mortgage'

as a Renter, you have to pay:Rent. (and depending on how/what you're renting, some utilities).

backed up toilet? not your problem.
mold in the basement? not your problem.
roof replacement? not your problem.
furnace died? not your problem.

As was stated above, pro's and con's.

My biggest pet peeve is when home owner's preach that unless you own a home then you're just "throwing money away". It's right up there with married people preaching "when are you getting married?"

Different strokes for different folks, but you gotta look at it from all sides. My generation is fubar'd so it's best to value liquidity and flexibility, not tied down to one liability that we spend 1/3 of our lives paying for.

I agree - there are pros and cons for each approach. What often gets overlooked in the house purchase decision is how much to spend. I think that people generally take the maximum amount that the bank is willing to lend as their target price as opposed to crunching the numbers and determining what they can afford. Another mistake is choosing too long an amortization period. You can pay as much in interest as the original house price if you are not careful. And let's not forget that current interest rates are starting to rise and they will probably return to historical averages (say in the 6 to 10 percent range). A lot of current house borrowers could find themselves unable to make their mortgage payments if we see a 3 to 5 percent increase.

Real estate should be seen for what it is, a choice, and not, as many in the business would say, an investment. We can't eat bricks. Simply put, a balanced portfolio will return about 6 to 8 percent yield per year (in my experience) which is on par with what houses have done for the last 15 or so years. In other words, houses aren't the only means to build wealth.

An advantage I believe of renting is that it allows greater mobility. Richard Florida talks about this. It is a lot easier to move to where the jobs are if you don't have a mortgage tying you down, especially if you owe more than the house is worth as has happened to a lot of Americans. And, in those markets where employment is more readily available, house prices will probably be higher so renting will make it possible to live in a better employment market.

Let's face it, incomes are stagnating, particularly as companies are favouring the rising middle class in the third world and it is only going to get worse for the middle class here in North America. As well, there are many, many boomers who are going to want to (have to) sell properties (that are grossly overvalued) so that they can afford to retire. Who is going to buy these properties, especially if the owners hold out for what they think they should get? People who are emotionally attached to houses can make really stupid decisions.

To me, the smart money is in investing in worthwhile skills and education, and saving for the future. Renting makes that easier.

 

[jennaboo]

What's the deal with Oshawa?
A lot of nice houses there for considerably cheaper than Ajax/Whitby.

The Shwa has some of the highest property taxes in the GTA.

We bought our first home, a new build townhome last August in Pickering - I don't think we'll be getting a new build ever again. It's still not ready...first tentative closing date was set for May 3.
And there likely won't be grass for a while, and the back and front will just look like a mess.

Despite this, it's in an area I think we'll be happy with (neither of us have ever lived in the area). it's removed enough from other communities, but close enough to amenities and the highway.

It was nice to be able to pick our colours and stuff, but it's not like that can't be done afterwards on our own for much cheaper. Changing anything from standard costs extra.

 

[rbjeepthing]

Why would someone pay an RA to "help" buy a new home?
Heck, just as I was typing this, one of the B.S commercials about the BRA came on T.V.
Do people actually fall for the BRA pitch?

Because the Real Estate agents have made it to seem that they are all fully capable and fully able to help you through the transaction...********...I've met enough of them in the last few years and frankly there are very FEW (VERY FEW!) decent ones. Most of them are fast talkers, and don't know about the process. Lost your job? Become a real estate agent! I recently tried to purchase a house privately and all went through except the financing, mortgage broker promised something he couldn't deliver, so had to cancel. No agent, deal went smooth throughout the process (except the financing issue). They're not needed, you can do everything yourself it just takes some knowledge and legwork and you can save thousands.

You can negotiate with them. I didn't pay my real estate agent she made money from the people we purchased the house from 3% to be exact.

When you sell your house and use an agent that's typically when it costs you but once again negotiate that with the new purchaser. We advertised our house over value by 20k and told our agent make it sell and you get your cut. Guess what? She had 3 buyers in a bidding war and it sold in 3 hours and closed in 14 days.

 

[mimico_polak]

You can negotiate with them. I didn't pay my real estate agent she made money from the people we purchased the house from 3% to be exact.

When you sell your house and use an agent that's typically when it costs you but once again negotiate that with the new purchaser. We advertised our house over value by 20k and told our agent make it sell and you get your cut. Guess what? She had 3 buyers in a bidding war and it sold in 3 hours and closed in 14 days.

Of course you paid the agent when you bought the house. Every dollar you spent a portion went to your agent's pocket...the fact that the seller only pays is BS because the buyer's money is the one that pays the commission...not arguing just a fact. And yes you can negotiate, my sister also had a ******** agent who didn't do much to sell the house, then when they threatened her with firing her if she doesn't get it sold the house got sold in 2 days...the agent is there to look out for THEIR OWN best interest, which is financial. Yes, there are great agents out there, I've just not found one that's more interested in helping me find a home than filling their own pocket with my money.