Should I Buy a House?

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Juggernaut Nihilism
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Should I Buy a House?

Thanks in advance for any advice.  Been struggling with this decision for awhile.  Before dismissing the idea outright, please allow me to lay out a few factors.

1) I live in Los Angeles (an obvious mistake, but my job is here and my wife teaches at UCLA).  As such, I am paying $2400 a month for a pretty basic 2 1/2 BR, 1 BA house with a small yard.  I could pay slightly less, but I travel a lot for work and wouldn't want to leave my wife at home by herself in a sketchier neighborhood (the neighborhood we're in now is OK, but not upscale... it's basically the bottom-end of what I'm comfortable with).

2) Our combined income is around $150k, and we have no debt.

3) I served 10 years in the military, finished two years ago.  So I have access to the VA Home Loan.  This guarantees the lowest interest rate, requires no down payment, and eliminates the need for mortgage insurance.

Now, I'm very wary of the possibility that investor demand may evaporate, that banks are holding shadow inventory, and that we may simply see another worldwide credit crunch that can depress prices.  It's why I haven't bought up to this point.

However, considering that I do not have to use any of my own capital to buy, thanks to the 0% down payment required by the VA guarantee, could it still make economic sense?  I am already paying $2400 a month in rent, so when you factor in mortgage interest tax benefits, I could essentially buy the house I'm currently renting for the same monthly payment.  Additionally, a locked in low interest rate on a piece of real estate would seem to be a good thing to have in the event of future inflation.

I think of those factors, and feel like I should definitely buy.  But then I consider the fact that I'm talking about spending a half a million dollars on single-family starter home in a town where the median income does not come close to supporting those price levels, and I can't justify it.  So I'm stuck.  That's why I came here.  Been reading the blog and message board for awhile with only a little participation, but there are a lot of smart people here whose opinions I've come to respect.  So maybe you can help point me in the right direction.

Thanks.

-JN

Edited by admin on 11/08/2014 - 06:27
pailin
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The obvious issues I see with

The obvious issues I see with this idea are:

1. property taxes...whatever they are now, expect them to go up, and when people can't pay, they sell/move or abandon/move...you end up with detroit. the municipalities will do this before they cut union benefits, cops, jobs, etc. everytime. if you think things will get worse, they will...for you too.

2. PMI...until you have 20% equity, you're paying this too in addition to mortgage and property taxes.

3. immobility...as a renter you can walk at the end of your rental agreement...as an owner (someday over the rainbow...), you're stuck in the most illiquid of all assets on the planet...you cannot take it with you...and you cannot sell (even at a loss) if there are no buyers...or none willing to pay what's outstanding to your bank. one of you gets laid off, bad times, and then gets a much better job offer 200 miles away, even worse times. really long commute, or rent an apt in the other city and only spend weekends together. no way to conduct a marriage imo. the only way to really evaluate this is: do you want to live there for 30 years...exactly "there"? (or 15 if you go with that term note). and second: can you GUARANTEE that you'll always be able to afford that mortgage (and add ons) payment every month for 30 years? if not...you're gambling on 100% margin (zero% down!) you've probably read that most buyers in CA are all-cash. that's because they're investors, not living there. and they've got so much money, they don't know what to do with it. they don't carry the same "change in lifestyle" risks you do, but you're bidding against them. ZIRP doesn't change that equation much in your favor, if at all. most that take on ZIRP right now, actually have 100% but it's yielding even better somewhere else. however if they needed to, they could pull funds and buy out the note on the spot. again, that's not you, but you're bidding against that sort of buying power.

4. with non-discreet assets on the books, you're a huge target for those that take (always those that don't have and don't create anything!) so there's taxes, fees, inspections, zoning, on and on, you're subject to every whim of your community neighbors, bank lender, and municipality.

Basically...you're giving up a lot of freedom...to take a Fed handout. And it's not even an even exchange of your labor for theirs, you work for your money...they do not. They just make it up and turn you into a slave. $150k/yr isn't much in my area, and yours is much more expensive.

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Gold Nugget
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LOTS OF QUESTIONS

download this

http://armstrongeconomics.files.wordpress.com/2012/05/manual-models.pdf

save as pdf file.

go to PDF page 57 but on the report it is page  80

easier to find PDF page 57 on your PDF reader.  

there is a chart of Real Estate.  shows.  a rebound of sorts to 2015.   then a super long down in RE  to 2032

the 2015 date is Oct 1.  Just a month before the next election.  then the Economy of USA begins the big fall.  

The problem with RE for you is that you miss the point.  If you go under and the house becomes upside down.  then what.  you can bankrupt.  not a pleasant thing to wind up in bankruptcy when all you did was try to save a few dollars on rent.  Bankruptcy is forever almost.  

I could crack a bunch of jokes but I won't.   I am surprised rent is so high.  It would be much smarter to cut your spending to the bone.  save every nickel and silver dime and quarters.    One of these days you will be out of that town and have enough money to buy a house in another state.  You will be glad you have that nest egg.  

When the next housing crisis hits hard and long you can buy a house for $25,000 or less.  I saw newly remodeled houses on  trout fishing streams going for under $10,000 back in the last crash.  And nice houses in towns for under $25,000.  A lot of those homes never sold.  Banks still hold them.  waiting for prices to go up and they sill sell to you.  I saw lots of 5 unit mansions go for like $10,000 oer unit.  and they had trouble selling at those prices.  your rent pays that in 4 months.    haha.  

If Armstrong is even half correct the prices in the next drop will be amazing.  

You need to sit down with your wife and discuss things.  You need to see how she would like to proceed.   The two of you need to wake up to reality of USA today.  

Bye the way.  your wife as a teacher can get lots of jobs in other countries teaching English.   They are dying for American teachers.  they offer all kinds of incentives like free living quarters.  

California is busted.  I can not see how the RE market in CA can hold up long term when CA RE taxes go through the roof to pay for government corruption for all those years in the past.  

You left off a lot of important info like your approx ages.  are you 25 or 55.  makes a difference.  I assume you do not have kids.  Why not move out of Dodge and to another state.   How much cash or money do you have for backup.  do you have like $100,000 saved up or are you scratching to pay bills every month.   How much do you save every month.  You make over $10,000 per month.  How much of that do you put into the piggy bank for your future.  

What kind of financial discipline do you and the wife have over the longer term.  it does not help much to save $100 this month if you spend it the next month.  and keep going back to zero.  

PERSONAL MESSAGE ME IF YOU HAVE QUESTIONS. 

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