Well I feel that when money gets in your hands, you should send it down a path where it goes to work for you. If I had 100k, I’d stuff 25k in the bank/CD. Then I’d buy as many rental properties with the remaining 75k as I could.
Well my thinking is that another 100k and then some is coming, so I want to enjoy the journey. If all my money is tied up, how do I enjoy it? When do I get to spend it? I mean I have REALLY thought long and hard about this. I buy a 1 million dollar house, I enjoy the house and the lifestyle AND in 20 years I have 2 million dollars maybe 3 million if the house is paid off. And all I have to do is live, and in the mean while I have enjoyed the home, and my kids have a place the call “my parent’s house”.
Now depending on where you live $1million may seem like a lot for a home, but in my neck of the woods its about 4500 square feet, 1 - 3 acres and 5Bed / 4.5 bath, 3 Car garage. And that’s enough house for me, the kids, and an occasional guest for the next 20 years. Currently we are living in a 3 bed town house and the kids are getting bigger and the house is getting smaller.
At any rate I live in the house, and make 2 million. That’s hard to beat…
I couldn’t disagree more with your entire last post…I won’t go into detail but I feel you need to have an outside opinion…Possibly a certified financial consultant…There are so many holes in your thinking it’s impossible to start to answer…I mean no disrespect either…
If buying a house because of the increase in value in 20 yrs. is a good idea, why not buy multiple properties that give you CASHFLOW for the next 20 yrs. When they’re paid off, you have assets that give you cashflow AND equity. It’s your money, the choice is yours.
The bottom line for me is that we will need to move in the next 3 years. No question about it, interests rates are low, housing prices are low, and a house of that magnitude will suite me for the rest of my life. (The house I am currently living in was bought to assure my kids a good public education, and keep me from having to pay private school).
I could buy less house now, and buy something better in 7-10 years but at what cost?
We mainly speak investment, real estate, but what this is really about is life. We are here because we want to live better. Do you live better now and in the future? Or do you sacrifice now and hopefully live better in the future? I used to think the latter, but I am really seeing that when I do the former, I make more money and I enjoy life. The one thing I do that’s different is I ALWAYS save some of my money 10% at a minimum. If I can pay my bills and enjoy the rest so be it. (so if I have 100k to put down on a home, I already have another 10k that’s not going to get touched…)
Lastly, I have always found that my life has worked like this… HUGE HERCULEAN EFFORT, BIG PAY OFF, rest, repeat… Slow and steady is probably good for some, but my satisfaction and greatest profits have come from really big effort.
Just for the sake of argument, let’s say you buy your home for $1MM with 90% financing on a 20 year amortization at 6.5%. If your house doubles in value in 20 years, you will have a free and clear $2MM property.
Your monthly loan payment will be $6710.16. At the end of 20 years, the principal and interest payments alone will have cost you $1,610,438 out of pocket for your $2MM property. If property taxes and hazard insurance run around $15K per year, then that is another $300K out of your pocket over 20 years. If you add the $100K you put down, to the PITI you will pay over 20 years, you will have spent $2MM to own a $2MM house free and clear.
What if you just took that $100K and bought rwo $50K rental dwelling units that each generate a $500 positive cash flow each month. Your taxes, insurance and repair costs are all paid by your tenant’s rent. You pay nothing out of your own pocket and still have $500 per unit income each month. After 20 years, at the same rate of appreciation, your $50K properties will be worth $200K (combined) free and clear. AND, during that same time, you will have collected $240K in free and clear rental income.
Would you rather spend $100K to have $440K in cash and equity at the end of 20 years, or, spend $2MM over 20 years to end up with just $2MM in equity.
I’ve seen this question, in some form or another, come up on this board and others. This is by far the most thorough and convincing argument I’ve seen to date. Kudos for breaking that down so well. :beer
That makes a lot of sense. I will run through the scenarios. But I can’t shake the idea that buying my family home now makes a lot of sense, and it takes one worry off my plate. Its not just a financial exercise its a life exercise.
Here’s a radical idea. Why not purchase enough properties that will buy that home for you with their cashflow. With 25k in reserves and 75k, you could purchase some rental properties that produce cashflow. By using that cashflow to earn more cashflow(more properties). That 75k could be put to work to earn more money, then keep reinvesting the cashflow. By delaying instant gratification for long term wealth, you could have your tenants paying for your instaed of you…
Based upon Dave’s math, it will cost you 330K to “enjoy” the next 20 years. Life is worth investing in - even if you only have memories as a return on your investment. I say go for it!
Keep in mind, it may not make financial sense. Perhaps you could buy a 1MM home that may have been valued at 2M during the housing boom. Perhaps if this house would be worth 4-5M in 20 years, you would get more folks around here encouraging you.
In the best scenario, you would buy your owner occupied home - at the same “discount” and scrutiny as you buy your investment properties. Then you can enjoy and invest at the same time.
I don’t see your logic. Based upon my math it will cost soholingo $2MM to enjoy the next 20 years AND he will forfeit the opportunity to add $340K to his wealth. So I guess you could say that it will cost him more than $2.3MM to enjoy the next 20 years when you total the cost of the luxury house and the cost of the opportunity he has missed.
If soho is considering a $1MM home purchase, then we must also assume that he has the $8000 or so in monthly income that it would take to make the house payment. If he buys a $500K house, does it follow that his housing expense will be $4000? If so, then he has $4K each month in discretionary income to use for real estate investing should he purchase a $500K house.
What if soho rented instead? I bet he could rent that $500K house for $2500 - $3000 per month and have even more money to invest in real estate. While he is renting, he has the bigger house he wants for his family with none of the costs of ownership. His landlord will pay the property taxes, hazard insurance, and the cost of repairs and maintenance.
Maybe soho could get that same house on a lease option for three years. Pay less rent than he would pay to own the house, but lock in his purchase price now. If he also got a nominal rent credit, so much the better.
Funny you mention renting as that was my plane two years ago. Sell my overpriced house, and pocket the cash, rent, and use the windfall for investing. It kills me to think of how much time I have lost because of that lost opportunity, but I am going to leave those thoughts behind.
Tha said, you have a great idea. Rent/lease with the option to own, and I know some of my neighbors are going to feel the pinch soon. That’s a good strategy to keep in my back pocket. In the mean while I have work to do…
I thinks its very admirable how you think of making your family comfortable first…You are what a parent should be, selfless…Its a decision my father would make as well…You will be in that home before you know it…
Ahh, to be young again. To feel invincible and have no doubt that you can and will have the capacity and opportunity to earn money all along the way. To have that irrepressible optimism about the constant appreciation of real estate, the strength of the U.S. economy to consistently employ you and provide you with a source of income. I remember those days. sigh