The Home Ownership Thread

[venividivicibj]

If your mortgage payment is roughly the same as your rent payment would be, I’d still say you’re better off in the long run buying, especially if you’re going to stay put for more than a few years. You’ll get something back when you sell, unless home prices tank.

But the renter wouldnt have to pay land tax, fix any potential home issues, home insurance (could be huge depending where you are), etc etc etc

 

[Fueco]

you are suggesting that SPY will perform ~30% annualized ? ok . let's help you out .

firstly , it's not a math thing . you do realize that money is not fungible over time ? that's what the concept of time-value-of-money is really about . today's dollar is not tomorrow's dollar etc . let's begin :

the market is paying 9% for mortgages , that's tomorrow's money .

if I have today's cash ( like fueco ) I can forego 9% . so who is paying me ? the market is paying me . otherwise my *cash* is costing 9% out the door ( this is the very point that you were making I think ? ) .

anyways , let's consider the value of the asset that we are paying for in these same terms . iow if we put down a large portion of the purchase price , we are then in this example foregoing 10.35% annualized ETF return ( that's the average ) for 9% back over the mortgage term in foregone interest .

now we are hunting 2.35% or better for our asset over the remainder of the mortgage to come out even , that's the stream of money that we have given up other opportunity for . that's really what is being discussed here . if you can't grok the idea of the market giving 9% on a down payment I can't help you . it's market terms .

and imho @Fueco is right ; when the fed decides that money is expensive enough they will relieve rates and there will be an opportunity to renew terms . in the meantime , he's made 9% on his down payment .

the same is true if you had gone the other way and chased the ETF . let's say that that happened , you paid 9% on the mortgage and got 11% or whatever in the market . so your money is making 2% and then you are renting at market rate , with no basis and no horizon . if you say so .

***

we bought our first place 5 years ago ( 2019 if my maths are right ) and got a screaming price ( basically got a 2nd tier home for an entry level price ) and then refi'd at a screaming rate .

today's market rent for this place would be ~25% more than yesterday's mortgage + insurance ( I live in a college town , rental value is very much a baseline ) . I feel pretty good about beating the mortgage terms as an investment in this place and it's developable in terms of both use and capital investment . I would not choose to rent .

Thanks for that. I just got home from the kid’s baseball game (he went 3 for 4, so good times) and have just had a chance to settle down to important things like arguing online.

That 9% savings is also guaranteed, so perhaps it’s better to compare it to a money market checking account at 5%?

 

[brokencycle]

I'm so confused, @Fueco, are you getting paid 9% or are you paying 9%? Your first post mentioned 9% interest rates. I asked where you're seeing 9% rates because they are much closer to 7%. Now you're saying you're guaranteed 9% savings?

 

[gettoasty]

This video?

 

[double00]

I'm so confused, @Fueco, are you getting paid 9% or are you paying 9%? Your first post mentioned 9% interest rates. I asked where you're seeing 9% rates because they are much closer to 7%. Now you're saying you're guaranteed 9% savings?

in this example he is saving ( or earning ) 9% .

 

[Fueco]

This video?

Yes, making extra payments makes a huge difference. Every bonus and a few stock option sales has gone into this very thing over the years.

As for the 5% thing? If we hadn't done the maintenance on the house, we'd never have been able to sell for 53% more than we bought for. Obviously not all markets have skyrocketing prices...

As an aside, my parents had a choice between a $35k mobile home in San Jose and a $60k home in Cupertino in 1982. Can you guess which one sold for $40k a few years ago after they paid $1500/month in space rent for decades?

 

[gettoasty]

The 9% thing my just be for a shorter term all in one loan.

Money sitting in the account reduces interest. We might be paying 9%, but only on around 30% of the principal of the loan.

And when interest rates on fixed loans get reasonable, we can refi.

@Fueco Right, now it make more sense...You just moved into a new home that was mentioned a couple of pages back. I assume the 9% is rounded number or as you put it "all-in-one" loan. Of which 30% is going into the principal. Or some may see it as building equity. And if you live in the SF Bay Area that makes even more sense given how home values here are more volatile e.g., higher upside. Hence, you see it as a "locked in" 9% compared to say another cash equivalent or fixed income investment. And if you're offloading stock options I can only conclude you're a bit more risk averse per se as related to the stock market, or looking to divest and avoid concentration risk in stocks.

 

[Fueco]

I'm so confused, @Fueco, are you getting paid 9% or are you paying 9%? Your first post mentioned 9% interest rates. I asked where you're seeing 9% rates because they are much closer to 7%. Now you're saying you're guaranteed 9% savings?

Yes, interest rate is around 9% on this loan. All in one loans are a bit different than traditional loans.

It's an adjustable rate loan, which has an interest rate higher than a 30 year fixed. It seems to be around 1-2% higher. But you have an account tied to the loan that functions kind of like a money market checking account. Whatever amount of money is in that account you don't pay the interest on while it's in the account.

So if your monthly take home pay is $20k, and you deposit that into the AIO account, you don't pay the interest on that amount for however long the money sits there. Each month, your mortgage payment is taken from the account and applied to the loan.

It seems to me that this sort of arrangements functions very much like making extra payments on a loan, but still having access to the money if necessary.

 

[Fueco]

@Fueco Right, now it make more sense...You just moved into a new home that was mentioned a couple of pages back. I assume the 9% is rounded number or as you put it "all-in-one" loan. Of which 30% is going into the principal. Or some may see it as building equity. And if you live in the SF Bay Area that makes even more sense given how home values here are more volatile e.g., higher upside. Hence, you see it as a "locked in" 9% compared to say another cash equivalent or fixed income investment. And if you're offloading stock options I can only conclude you're a bit more risk averse per se as related to the stock market, or looking to divest and avoid concentration risk in stocks.

I live in Boulder, CO, which isn't quite as nutso of a real estate market as the Bay Area. But yes, being, ahem, not young and having a family; I might be more risk averse than others.

 

[Piobaire]

10 year SPY average return is 12.30% and I'd use the last decade vs. the last three decades. In the last 10 years the average mortgage is far lower than 9% making the delta far more substantial.

Current conditions are it's pretty easy to get 5% in a savings account so you're foregoing even that 5% assured return to save 9%, and from the start of 2023 to YTD SPY is up around 40%.

IDK, as I always say, personal finances are different than "finance." This is why I paid off my mortgage years ago.

 

[Fueco]

10 year SPY average return is 12.30% and I'd use the last decade vs. the last three decades. In the last 10 years the average mortgage is far lower than 9% making the delta far more substantial.

Current conditions are it's pretty easy to get 5% in a savings account so you're foregoing even that 5% assured return to save 9%, and from the start of 2023 to YTD SPY is up around 40%.

IDK, as I always say, personal finances are different than "finance." This is why I paid off my mortgage years ago.

What year did you buy?

Also, you’re glossing over the aspect of having cash available that’s helping pay down the interest.

We have plenty of money invested elsewhere. No one’s going to starve if we take this route, and the kids will go wherever they want for university. I’m guessing that you also diversified your investments and didn’t put everything into SPY?

 

[Piobaire]

I'm not sure how I'm glossing over having cash available, I mean, it's not like you can't both pay off your mortgage and have six figures in cash in an emergency fund, right? Then also a nicely padded operating account, i.e. checking, then other buckets of assets that have differing levels of liquidity, then also some form of LOC in place just in case TSHTF...

I didn't say you don't have money invested elsewhere; it's a discussion of choices and the reasoning behind them.

BTW, SPY = definition of diversification. It's like, its reason for being. Yeah, there's other asset classes, but the whole concept of index funds is diversification, be it within a sector or a cross section of sectors.

 

[Fueco]

So what year did you buy?

As I said early, choices would be made differently if it was just us two or if we only had one kid.

Everything looks clearer in hindsight. If I’d invested $10,000 in AAPL the month I graduated from high school, it’d be worth $7.9 million now.

 

[Piobaire]

I'm not sure the significance but we bought in 2012.

If had 10k the month I graduated high school, I'd have been worth more than my parent.

 

[jbarwick]

Who the hell would dump their housing money into the S&P? Isn't the better comp Interest Rate vs. Money Market return?

For instance, our 3% mortgage rate is lower than our 4.4% from Marcus so we have cash idle.