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Career Resources
Don't.do.it. Wait til the first kid comes out.
why?
Because once you have kids, your priorities that you look for in a house change. All of a sudden schools, proximity to daycares and pediatricians, etc. matter.
I've done it. If you're in a market where it is cheaper to buy than rent it's a pretty good option because you can get an extra bedroom or two and get some roommates in there and make a healthy profit. Not sure if you guys use these terms in banking, but I was able to get about a 30% first year cash on cash return based off the amount I put down versus what I made in rent from having a roommate. After I annualized my expenses and backed out what my roommate pays, my monthly is equivalent to market rents but I get to benefit from the interest tax write off. Only trouble is that I'm basically stuck in this city now, but I like it.
Did it. Twice.
Bought our first place while the Boss started her MBA (and I was working). When we moved back to Boston, we bought our place here, too. We saved like fiends and were fortunate enough to have been able to come up with the down payments, and our mortgage payments ended up being less than rent would have been.
We are stuck were we are now, though (not that I really want to have to move again).
I think you should wait for a while before you go with this decision.
Do it. Beats the hell out of paying crazy high rents and it works towards an eventual 0$ monthly payment of rent/mortgage.
If you look at a mortgage table, your first bunch of years you're pissing the majority of your monthly payment away in interest fees anyway just like you're renting, and given the transaction costs associated with buying and selling a house, if you don't stay in the property for 5-7 years you can lose money buying. This is of course ignoring factors like maintenance/property taxes & the offsetting effects of possible capital appreciation.
coreytrevor is absolutely right. Mess around with a mortgage style amortization schedule and take a look at what portion of your mortgage payment is used to pay interest and what portion is used to pay down the principal. You will quickly see that the majority of your payments are going towards paying down interest over the first 10 years (assuming 30 yr. mortgage) while the principal is reduced heavily on the back-end. Additionally, it makes sense to look at the various market metrics to determine where in the housing "boom and bust" cycle your market is (i.e. median income to median home price ratio).
Yes but the government doesn't subsidize rent with a 30%+ tax break.
I own a duplex. Mortgage is $1800. Rent from bottom half is $1500. When I hit 20% equity and get PMI off, mortgage is going to be $1500. Bought it off the market from a rehabber. I'm 3/4 tests into having my broker license and then the next step is to buy a HUD home, do the rehab, rent it out, refinance out. Then probably going to move to buy a house in the burbs (I hate the city), rent out my duplex fully, and do more rehabs.
Damn they're killing you with the PMI, I split the down with my parents and pay them back at the same rate I got from the bank but on a 15 year schedule ( trying to have them paid back in the next couple years though). I was still able to hit the equivalent of market rates doing this so renting is obviously way over priced in my city.
Quantitative approach: Is It Better to Rent or Buy? Calculator from NY Times
In New York it does not make a whole lot of sense to buy unless you are paying cash. Residential cap rates are around 3% in Manhattan - by far the lowest in the country.
Taxes and maintenance are more than half of my rent. Even with the interest deduction I'd have to put 75%-80% down for maintenance/taxes/mortgage to equal my current rent. I don't think it makes a lot of sense to tie up capital for an asset trading at 30x-35x
Op Are you thinking about having a roommate to help cover the mortgage?
My S.O. until we are married.
Whats his name
Still resisting so that I could buy it all in cash.
I was just joking. It's more for bad ass effect purposes where you bring a cart full of cash and execute the transaction. But yeah, give me 2% fixed rate on my mortgage any day of the week.
why wouldn't you want to own it right away and have no liability in between? there is no better feeling
Good/Bad Time to Buy a House? (Originally Posted: 06/16/2017)
Piggybacking off of the "Market is turning rapidly..." CRE and MF post, I'd be interested to get RE professionals' thoughts on single-family real estate prices over the next 1,3, & 5 years. I'm in the market for a house but some of the prices that I've been seeing are absurd, in my opinion, and they go quickly. This isn't even in the new, hot areas of the city, as I'm seeing this trend in certain suburbs as well. Thoughts?
Give it one year of working at the same job before buying. Pay off your loans and/or build up some down payment, or at least know that this is the company to stay at and city to stay in.
I know, interest rates are going up. But the mortgage is only 1/2 of the cash cost of the home, and only 2/3 of the mortgage is interest, the interest is deductible, and if you buy like me, the plan is to pay off something like 10-20% of the principal each year. So the actual after-tax cost of the interest is something like only 30% of the actual home payment; a 50 basis point increase in mortgage rates might increase your cost of ownership by 5%. And if you work in finance where the career beta is high, you're going to buy small relative to your take-home pay and pay off the mortgage quickly.
So this really comes down to your balance sheet and transaction costs IMO, which are substantial. You can mitigate some of this by using a discount/rebating broker, using negative points to cover some transaction costs, and getting the seller's attorney to agree to use non-ridiculously expensive title insurance (EG Entitle Direct or Silk), but bottom line is that the round-trip transaction cost to buy and sell a home is at least 5% in most cities.
In Chicago, cap rates on Class A-/B+ real estate are about 5%. The kind of high rise that was amazing 40 years ago and still pretty darned nice today (Partial park, lake, or city views Indoor pools, sundecks, etc.) But property tax rates are 1.8% and you get a deduction for that. You also get a homestead rebate in most cities and states. so you're really getting a 5.5-5.7% return after-tax on a fairly boring investment that you kinda need anyways; that's ~8% pre-tax.
Let's talk about the cap rate some more, especially in the context of NYC. If you are an owner-occupant, it's important to add the benefits of the tax deduction and the homeowner's exemption/rebate onto the cap rate. Cap rate assumes that you pay the property tax and deduct it against the rental income, which eventually translates into taxable income. But under the homeowner model, you pay the property tax, and the rent you avoid paying is tax-free, but you still get the deduction. You also get a homeowner's exemption or other property tax benefits for being an owner occupant in your primary residence. The difference between an investor cap rate and a homeowner cap rate is that the homeowner gets to add the benefits of the tax deduction and any property tax exemption onto whatever the numerator would otherwise be in the cap rate. Furthermore, the homeowner's cap rate is a post-tax figure while the investor's cap rate is a pre-tax figure. (To be sure, depreciation allows for a deferral on some of the rental income to the investor, but it isn't tax free at the end of the day)
In New York, my understanding is that the property tax rate is based on the rental value but for Class A stuff it sorta roughly works out to 0.7-1%. You should add the value of the deduction and any homestead exemption onto the cap rate an investor in the same property would get. Finally, it's important to remember that this is an after-tax yield, and it's (probably, roughly) going to scale with inflation over the long run. So a 3.3% after-tax cap rate translates into a ~5% pre-tax post-inflation return, which is comparable to a lot of MLPs out there. It's not generous like many markets, but NYC has always been priced rich and has always had low cap rates. (It was like this in 2007, too, as well as 2009)
So yes, if you're buying small, if you're not competing with foreign buyers, if you're buying something you can afford, a 3% cap rate for everyone else that translates into 5% pre-tax for you may be a little rich, but it may not be unfair (especially compared to the SPY at 24x earnings). If everything else in your life says a home makes sense, and if you're not paying more than 2-2.5x your income (yes I know my hard rule is difficult for many people in Manhattan, but there is JC, Hoboken, Brooklyn, etc), then buying still makes sense.
Meantime, if you were IBD Analyst -> IBD Associate, there's a decent chance you can fully deduct your MBA tuition (limited by AMT but the tax benefit is substantial) as a business expense, which is a much bigger tax deduction than a home. You were established in industry prior to your MBA, your MBA improves existing work skills, and you resumed work in industry. This may qualify.
http://www.jamesdance.com/education.htm
You're deducting property tax and condo association fees right?
Typical Lakeshore East 1 BD Condo: $1900/month (pool, cable, elevator, doorman, partial views) Typical Lakeshore East 1 BD Condo price: $250,000 (pool, cable, elevator, doorman, views) Property Tax on That: $4500 per year/ $375 per month Rough HOA rate: 70 cents per square foot (pool, cable, elevator, doorman) 700 square feet * HOA fees: $490/month
Ownership cost: $865/month Rental value: $1900/month
Net per year: $12,420 Cap rate: 4.9-5% (actually slightly lower if you want to maintain interior)
Example buildings: Park Millennium, 400 East Randolph, The ParkShore, Harbor Point, The Buckingham, River Plaza, 200 N Dearborn.
Personally I am waiting a few years, about 3-4, before potentially making a purchase. Prices since 08 have risen astronomically, a colleague of mine is selling his house for 2.1x from when he purchased during that time and is selling primarily for the profit, and including other various reasons. More and more realtors are flooding the market because of all the 'high commissions' people having continued to rave about. When prices have gotten so high and more people are choosing to become realtors, I like to step back and see a few things unfold.
However, one thing to keep in mind though are the rising interest rates.
Commenting to reference back to this at a future date
The best time would have been like 2012, but that's in hindsight.
Buying a house that you plan to live in is not an investment, regardless of what your Homesmart agent says, if you're taking a mortgage on the place, between that, expenses and taxes, you're probably not going to net much more than a few % per year by the time you sell it. A 30 year T Bill would probably be a better investment. That being said, if you're planning on staying in an area long term, and plan on living in the house for a while, it doesn't really matter what the prices today are doing so long as you can afford it. I'm in commercial and only own my primary residence, but I am under the impression that you need to live in a house for about 5-7 years before selling, otherwise, renting it a probably a better option. Also expect to spend about 8% or so of the house price when selling.
That being said you can expect to 'save' more of your money versus renting. The mortgage interest deduction can help with your taxes, and the equity gain from the principal section of your mortgage payment helps in the long run.
Hope this helps.
bla bla bla... Do you like living with your parents? Yes? then go on and stay. No? Buy yourself an apartment, at least you will be paying for your own place and you will be able to sell it/rent it if it's necessary.
Buying a house (Originally Posted: 06/11/2010)
I am thinking about buying a house after my first year at a BB. (EDIT: I am working in Houston, so this is definitely more doable than NYC.) The first year I'll be staying at home with my parents and saving my money, so I'll have a good amount of savings. My girlfriend would be living with me as well, and she makes about $50k a year. I have three questions:
(1) Is buying a house a good idea if I am still considering (only considering, not decided) going to B-school in 3 to 5 years? (2) Would the student loans during B-school help cover my housing (therefore, my mortgage payment)? (3) Do you know any analysts who have bought a house? How did it work out for them?
Addition
I'm renting my own place right now.
To be sure, city in question is NYC, right?
Don't do it.
1.) Houses cost more than apartments. 2.) You will have to mow the lawn, fix the roof, etc. 3.) 1 year's bonus is not an adequate downpayment for most houses in NYC suburbs. 4.) Might be wise to get married before you settle down like that.
I should have been more specific... I am working in Houston. I am engaged (getting married in a little over a year).
what market? i've never bought a house, but obviously buying a house in houston or la is probably different than nyc or san fran
also, you missed 1st time homebuyer credit
Houston. I edited my original post to include that info.
Yah, it sucks that I missed the homebuyer credit, but all of the research says that the credit just inflated houses prices and created unsustainable demand. So I'm thinking I'll end up getting a better deal.
You're gonna force me to write a post I've been putting off a long time because it's going to be unpopular but sound advice.
Cliff's Notes: anything you do at this stage of the game that limits your options in life (i.e. living with a chick, getting married, buying a house) is a bonehead move of colossal proportions. Don't do it, man.
On a side note, I know a little about the Houston RE market (I have family there). Pretty overheated. Proceed with caution.
Edmundo, true-er words have never been spoken. If I learned anything in my derivatives class, it is that options are always valuable. DONT DO IT MAN!
I understand where you are coming from, but just because your personal experience with marriage has been a disaster, doesn't mean it holds true for everyone. I might not buy a house, but I am certainly getting married. You can say buying a house is a bonehead move, but you cannot generalize and say the same for marriage. Yes, it might be a bonehead move for some, but for others, it might be the best move they ever make.
I don't want to get off-topic, so what's the indication that the Houston RE market is overheated? My family is in the construction business, so there's a good chance I would be getting a house built for me, and won't be paying the "market" price.
1) Do you plan on going to B-School where you want to buy this house? 2) Robbing Peter to pay Paul (paying existing debt with more debt) = bad idea. Can you pay your mortgage on your own when you and your girlfriend break up? 3)No
I don't get why you would contemplate buying a house if you are even remotely considering grad school. The upside is nonexistent while the downside is unlimited. I cant speak to your personal situation but in general, I would not do it. Apartments are cheaper, actually nice ones are dirt cheap in Houston, and you don't have to worry about anything maintenance-wise. Plus, you are very young, and whichever house you end up buying, your taste will change and you will always want something nicer that what you can currently afford. There is no downside to renting.
2nd Edmundo's take. Had I bought a condo when I moved out to NYC, I would be kicking myself right now. I can't stand this frigging city. It's just that every time I've had a viable escape plan, something better makes me want to stay.
If I had a house to pay for, not only would I not be able to escape- but those better things that made me want to stay wouldn't need to get thrown at me.
Do you both plan on staying in Houston? One thing I've found is that wherever you get married is where you tend to stay.
Lived in Houston my whole life and I plan on staying. The only thing holding me back from not buying a house is the fact that I might go back to b-school. If at some point I make the decision not to go back to b-school, then buying a house would be a no-brainer.
Don't do any of that until after you finish B-School, marriage or buying a house
At this stage of your career, you should be ready to jump on the first great opportunity that lands in your lap. DOn't have anything tying you down.
FYI: I bought a place and it was a good move for me. Let me give you a tip that you won’t find in a buy/rent calculator: As soon as you get married and buy a place, your wife’s nesting instinct will kick in big time. She will spend a lot of time and money setting that place up. You will have a hell of a time convincing her to leave her house and job when that PE shop comes knocking. Trust me - the house will anchor you in ways you don't yet understand.
Yah, I believe you. That's what I'm worried about. I guess I'm just too focused on the possibility of not wasting money on apartment rent and reducing my taxes through mortgage interest deductions. But keeping my options open is probably more valuable.
I'm assuming you work in finance, it's a relatively easy calculation.
If (Interest+Taxes+Insurance+HOA Fees+Maintenance) - (Tax Benefit+Estimated Price Appreciation)
I 100% agree with Illini. I think homeownership is one of the most overrated, bullshit lie that people take as gospel. It is great for society that so many people drink the kool aid, but if you are smart and mobile then just rent. Houses are full of problems and unused space. I guess you cannot price in a wifes nesting factor or the personal satisfaction that comes with owning a home, but you also cannot price the utter pain in the ass factor owning involves. Just wait until your job asks you to move and you have to unload that house ASAP. Or when you make an improvement and you have your assessment increased so you have to pay more taxes to some useless town. Enjoy the routine and not so routine maintenance that comes with owning that sucker.
Do yourself a favor, rent close to work, tell your GF or wife to nest the apt and shut up. Put the money you save in the bank and save the headache. Get ready to smile when your job needs to send you or the dude who owns a house to another city and you get the promotion because the house guy can't get rid of that albatross.
Just so you know, the interest tax break you get is an utter fallacy. You pay so much more in interest over the course of a year than you will ever reap in tax benefit over 5. It's one of those bullshit working class myths that has been perpetuated for 3 generations now.
As far as marriage goes, best of luck to you. Sincerely. I'm in a great marriage now (my 3rd) and I love being married, but there was no way I could stand it when I was young and swinging the bat in finance. If you marry a career girl (which I never have), keep in mind you're going to face an uphill battle if she ever has to sacrifice her career for yours (transfer to another office, etc...).
Good luck, bro.
Bullshit working class lie ----> Could not of thought of a better way to say it!
I mentioned the interest tax break simply because it reduces the actual cost of owning a home, not because the tax benefits outweigh the interest paid. My thinking was more along the lines of: "Mortgage payments are $1500 per month, but tax benefits effectively reduce that amount to $1350..."
And thanks for the marriage wishes. She's not a "career girl," but an elementary teacher... probably the most flexible job there is.
People also forget the hidden expenses involved with ownership. Landscaping, exterminators, upkeep, painting, all kinds of shit.
The biggest problems: worries & hassles. I used to fuck up apartments without remorse and now the slightest scratch or leak or hole in the wall is a cause of stress and a cash outflow.
And dealing with HOA’s? Oh god, is it awful. Fucking horrible. Worse than apartment landlords because you have to stay there long term. I would love to crack my property manager’s head open.
If you are 23 and working 80 hours a week, “You don’t want none of this shit.”
If you want to 'own' a house do this:
Convince your parents to buy a house/apartment. You then make "rent" payments to them to help payoff the house (that way your contributing money to a real asset) and when it's all said in done you either inherit or buyout the house from them when you are ready to.
This assumes your family can afford this. -The way I see it is you would be living in TX and renting paying an arbitrary $9,000 a year on rent yes? So why not pay that $9,000 to your parents. Assume you live in TX for 4 years, that is 36,000 towards a house rather than rent. Yes, you do not 'own' it yet, but the payments can go on hold if you relocate and your family has a new asset.
Buying as a first year analyst seems like it carries more risk than would seem wise. As a first year analyst you have essentially zero job security, if the market relapses you could easily find yourself out of a job. Do you have enough savings to pay your bills plus a mortgage for the 6-12 months or more it could take to find another job? What is the rush to buy a house now anyways? As a first year you are not going to be home much to enjoy it anyways.
At the very least wait until you've finished B-school.
No.
Live in the city. Taking chicks home to a house is far less impressive that a nice loft in center city.
You are a little slow unfortunately, I would have considered one if I if you could have gotten the 8k AND a good deal for a house you can easily afford.
If you are certain it will be at least three years till school and confident in the market you are buying, its really not too bad of a decision still. You always have the option to rent it out in three years, and with the minimal amount you need to put down for FHA loans, plus very very favorable interest rates you can lock in for 30 years, i dont see it being a terrible investment if you buy a house well within your means. **Dont buy one unless you are sure about your girlfriend tho!
I dont know about the houston market, I would assume it has been going down, and that it will slide more with the expiration of the tax credits. Interest rates are still great if you find a good deal on a house that has decreased in value
*** If you are uncertain, dont buy it because its a fun exciting investment, its a lot better to make the mistake of not buying!
ok I live in Houston, married and doing b school applications..
if you want to buy a house... buy it... but buy it for you and for what you want... not for your wife...future wife.. dont let your friends or her friends push you to be "married" meaning house, suv, etc etc
i leased a townhouse for 3 years and it was the best.... I could afford a house but wanted to find something I liked and explore my options... both with career and grad school... in those three years i had job offers from NYC, Chicago, Kansas City, San Diego and Paris... i know for a fact I would not be able to just get up and move owning a house. I also did not want to let my nuts fall off and ask mama and daddy for help. So I leased.
Ended up marrying my gf and we now have a home together... looking at b school in Houston so I am fine in our home and been saving so I dont have to worry about my families home.
I should lease and start building a little savings. If your folks are in the biz they can build you a house in a few years when you have a better idea where you and your wife will be career wise.. it may not be houston and Rice is only school you may want to attend for MBA...
and buy a house for the right reasons not a tax credit
in all honestly those bonus checks for the first 3 years went to ME ME ME... not US US US
my wife is in education too but on the admin side so helps when your mate brings home the bacon too
The tax credit only applies to homes under $800K anyway.
I am going to make a blanket statement. Unless you are very shy or very religious you should wait until you are in your mid to late 20's to get married. You really do not know yourself or how to react and deal with other people at a younger age. This is not an attack or dig and I probably would of disagreed with my own statement when I was 21-23, but I am telling you. Long lasting marriage is about compromise, being able to deal with things, loving someone for who they are, not how they look or how much fun you have with them at any moment.
Besides, you are going into a prestigious and high paying career. The world is your oyster man slut. Do not cock block yourself and then regret it later.
+1,000,000
I respect your opinion and see your point, but the purpose of this post was not to get marriage advice. I find it a bit strange that people can tell strangers on the internet whether or not they should get married.
A couple of things, and keep in mind I'm 23 so this is a mixture of advice that I've picked from to help me figure out how to lead/what to do with my life:
1) House: A house is almost always a solid investment. That being said, I won't even think about it until I am probably around 30. Why? It is a shitload of responsibility, as far as debt, maintenance, etc. See next points...
2) Marriage: Why get married in your early 20s? If you are truly in love you can wait a few years and she ain't gonna go anywhere.
3) Attachments: You're young. What's with this need to be attached to stuff? I mean it's find to have a gf, maybe even a fiancee, but attachments hold you down. I personally don't want these things until Im sure I will be settled in a place for at least 5 years. You're already talking about going to bschool (most likely within 5 years), how is buying a house and getting married going to help that? And what about when you grad top of your class from a bschool and get a job offer for 300k/yr from Carlyle? Do you really want to be stuck in Houston?
Just some thoughts. I'm not judging, it's your life. You're either gonna fuck it up, or be successful, we can't change that.
i know a ton of people making more then 300k with a BA in Houston. Lets keep in mind that this kid is 23
I know, but my point is there are less opportunities to make 300k/yr in Houston then, say, NYC.
I take home 83% of my pay check...GAME.SET.MATCH
300K Houston = 715k NYC
First Year Analyst Houston = 70k NYC= 70k
or Houston = 166k Base in NYC Dollars
http://www.bankrate.com/calculators/savings/moving-cost-of-living-calcu…
can you buy a home in NYC at $62/sf? I did in Houston
This is one of the main reasons I intend to stay in Houston...
Well shit, if you intend to stay in Houston why not just get your MBA at Rice? Then buying a house wouldn't be as big of a deal. Just don't get married. :-p
Uh, you asked for advice and gave us these facts to work with. Did you expect for everyone to agree with your thought process? Especially on the internet? And furthermore do you have to be an ass about it? These guys didn't post here to make themselves feel better, they posted here to try to help you.
Now I shall cover the part about being ready for marriage.
-There is some truth to the idea that someone is no more ready to be married in their late 20s then their early 20s, something to do with genetic code where some guys just always have to be spreading their seed. -On the other hand a study has shown that attraction lasts 4 years, so if you really just love your wife for her looks, you'll be ready to drop her ass in a few years. -Yes, you are more mature, knowledgeable, etc when you're 27/28/29 then when you're 22. Just think about the difference between 18 and 22. You learn to live on your own. Between 22 and 27 You learn how to live on your own AND support yourself AND do your job. -Sure I can hop on the internet and tell someone they're not ready for marriage because they just graduated college. I just did it.
Sorry for being so defensive. I guess its just natural to defend my decision to get married so adamantly. I really do appreciate all of the input... I understand they're just trying to help. I was jsut a bit caught off guard about how much marriage advice I was getting after asking about buying a house.
And to your point about attraction lasting 4 years: We've been together 4.5 years and the attraction hasn't gone anywhere. And yes, you CAN tell a stranger they're not ready for marriage, but it doesn't mean its true.
GTFO!
72 degrees for $200 a month? That's unreal.
I'd be a dick about it and leave my front door open...
hahahaha.. keep in mind if you take a trip on a long weekend in Jan you may miss winter in Texas
50% divorce rate. Remember that bra
Yah, I know. People just don't know how to commit. A successful marriage takes alot of sacrifice, and people just aren't willing to do that anymore. I've been with my fiance for 4.5 years and its been the best of my life... we're ready to take the plunge.
even money.... flip a coin... means? NOTHING
The only house I would ever think about buying before the age of 28 is the house I grew up in and if my parents are looking to sell it off. Can't imagine losing such a monumental piece of personal history to strangers..
so you would not buy a home for yourself or family until 29 unless its a place you dont want others to live at?
I don't know, I am a huge fan of the movie Up in the Air. Not saying that you should be as spartan as that guy, but things are things and if you let them own you then you will be chained to them.
Churn'em and Burn'em baby. Get an Apt, rent the furniture, be ready to roll 24/7.
Haha, take my advice with a grain of salt. I moved to Philly in week without ever visiting the place. Brought a suitcase full of clothes and an army cot to sleep on haha.
Hahaha, I was like this in the past. Been on travel a lot for the last 2 years. I'm actually tired of moving. 3 places in last three years. I've very much lived the nomad life in the past and my parents also moved around a lot.
Now living with my gf and been very happy. I actually never saw Up in the Air, but I can imagine what it is like. It's fun traveling for awhile and I still love traveling just not so much for work. At the end of the day, it's nice having a place to come back to and call your own.
lol why would you even consider buying a house....................
I think we have a lot of NYC'ers with biased opinions. You guys don't want to live anywere but Manhattan, of course you can't buy a property in your 20's. And then when you guys get married you want to move to some uppity part of Long Island or Westchester County. Typical NYC douchebags.
I agree that there's definitely a bias. It's not a stretch for an analyst to consider buying a house in the south... that's not true for NYC.
from a financial point of view sometimes it does make sense...if you are in a big liquid market like NYC you shouldn't really have to worry about selling/renting it out (except for the possibility of loosing your principal to market adjustments, which is very very possible) the thing is in a place like NYC capitalization rates are really low (I attribute this largely to people wanting to buy apartments for principal growth and just people wanting to buy in general) which make the rent vs buy decision favor renting.
Other places have higher capitalization rates near the point at which renting vs monthly costs (mortgage payments + CC/taxes) converge--the only thing is I'd imagine selling a house in Houston could take more time etc.
Then there is also the attachment to the house you have which (along with fiancee) could be substantial.
Honestly if I were in your position (I know ZERO about Houston) I would look into buying a condo in like the downtown area if there is one. That gets a lot of the benefits of owning a home without a number of the headaches and would make leaving it (sale or rent) substantially easier.
the marriage is def a PLUS in terms of buying a house. marriage is def a NEGATIVE in terms of limiting your options.
since this post is about buying a house, i'll ignore the latter mentioned in 1. the money you would spend on rent goes to your mortgage, which all works to equity/interest payments. def a PLUS
if you do go to bschool, you'd obviously take out private student loans. the money you borrow from your mortgage is def going to have a lower rate than your private student loans. thus - using your private student loans to pay your mortgage is a stupid idea. how would you pay for bschool if you did use the private student loans to pay the mortgage? the money you get from BB will be put toward mortgage anyway...
if you do go to bschool, can your gf really pay the mortgage by herself...?
the only reason you go to bschool is you want to change careers. perhaps you couldn't land a pe gig after BB, so bschool would be a helpful next step. what if the bschool is not in houston?
you go to bschool and try land a pe gig. you'd be limiting your options to the houston area... it's already difficult to find a job in pe and to be limiting it to the houston area would mean you have big balls or you haven't thought this through
my 2c.
limiting it to houston would be in his best interest as all the energy related bb;s are in houston thus most of the leading energy focused PE firms are also in houston
I agree with all of your points. Here are some responses to your questions:
I was really wondering whether the loans for bschool take into account housing costs. For example, most people don't work while they're doing they're MBA, so I assumed that people usually take out loans in excess of bschool tuition in order to pay for housing. I know that paying off debt with debt is not ideal, but the loans (if they cover housing costs) would be used to pay rent anyways.
Yes, she could, assuming I stay within a certain budget for the house. I'll also have savings to supplement her income.
This is really the crucial question... When I figure this one out, I'll know whether or not I should buy a house.
I intend on staying in Houston. But things change.
btw, illiniprogrammer - your hang gliding signature kinda creeps me out.
I would say that never buy any immobile before marriage AND you have at least one child. Rent an apartment that is close to your company.
Reasons: 1. You will move a lot during first 5-10 years of working. Considering the effort you have to pay for buying/selling several houses, let alone the possible financial lost.
You don't need a house for just two people.
Buying a house/apartment will drag you down to the depth of debt. Consider this a dire warning. Anything unexpectable might ruin your life.
Good luck.
I wouldn't buy as a newly minted post-MBA associate. Fact is, many first year associates don't make it to a second year. Or they get a shitty bonus and are shown the door before their third year.
If for whatever reason you leave your initial post-MBA job, then you're tied down to a specific geography and less likely to pursue good opportunities in a different city.
Wait a year or two. Save money / pay down debt.
Anyone Own A House? (Originally Posted: 09/30/2013)
I know this forum is mostly filled with college kids, but do any of you senior bankers/corporate mages own a house? If so, how do/did you finance it?
I'm asking because I think most of us can at least agree that taking a mortgage is a very bad investment. How do you get around it? Save up until you're 40 then buy a mansion?
The only house I can afford to buy is the picture I posted.
What is that, a house for ants?
A mortgage isn't an investment. Perhaps the first step for you is learning the difference between a liability and an asset.
So what are you asking here exactly? Any person with a tiny sense of financial knowledge knows that a mortgage actually costs money. But to say that owning your own home is strictly a bad investment is not really correct either. There are far more social and national economic costs associated with a massive swath of society being life long renters.
I've owned many properties and am currently constructing a primary residence. Original real estate acquisitions were financed through some savings plus some parental help.
A mortgage is actually a great "investment". Most of your gains in real estate is through appreciation. Even if you're putting down 20%--which few people do--the amount of leveraged returns you get is phenomenal. For example, if you put down $20,000 on a $100,000 house and the house appreciates 3%/year, your return is $3,000 on $20,000 = 15%. Then you've got the forced savings through required principal payments and the tax write-off for interest and property taxes. Assuming you didn't buy in 2005 or 2006, taking out a mortgage is generally a pretty smart play.
What I did though is buy a place and then found a roommate to float half the mortgage so I'm generating a little bit of cash flow to help amortize the debt. I felt that we'd never see rates this low again so it was worth going for.
It depends on your holding period. If your holding period is under 5 years you aren't guaranteed to come out ahead. If you're in a large, wealthy metropolitan area and you have a primary residence for 7+ years then you're more likely than not to come out ahead substantially. Most move-up buyers can move up not just becuase they make more money but also because they have a large chunk of cash from the appreciation in their house.
I just spent 2+ years running a retail bank branch that I had partial ownership interest in (I've also done investment banking and worked with 2 elite real estate organizations, so don't laugh...). I've seen thousands of various loan applicants for different types of loans (commercial, multifamily, investment, primary residence, etc.). A 35-year-old with kids simply cannot save enough money to put down $150,000 on a move-up house. In nearly every case move-up buyers have owned a house for 7-10 years and now have a ton of equity in a house they are selling. I saw this time and time again. You want to own a $750,000 townhouse in a really nice gated community with pristine location? You do it by buying a starter house, paying your mortgage on time, getting some promotions and selling your starter house in 7-10 years. It's a formula that I've seen a hundred times.
4% capital appreciation on a $350,000 house for 10 years = a sales price of $518,000. Take away selling cost of 7% and your net sales price is $482,000. If you put down 10% on your $350,000 house at 5.5% interest rate then your principal payoff is $260,000. $481 - 260 = $221,000 or so in cash for a down payment on your next place. It's a formula used hundreds of thousands--millions--of times. Very few people can earn and save enough to have a $221,000 down payment in their mid-30s.
I like idea of borrowing some one else's money (bank), to buy an asset that has inflation-hedging characteristics. You pay the bank back a fixed amount...adjusted for inflation over 30 years...That $1,500/mo. mortgage payment and $300K mortgage may look pretty cheap in real terms in 2035.
The rent you can charge to live in your house, and thus the value of that house, should at least trend higher w (good) inflation
First time home buyers (Originally Posted: 01/09/2018)
I personally think it's better to buy your home first, than an investment property. What are your thoughts?
Remember-- RE inflation depends on net household creation and population pressure. The population trend has to be working in your favor.
If you want to bet on RE inflation, bet in Nairobi, not Detroit.
What about rising wages leading to higher rents? Increasing rents outstripping fixed debt cost to bank? What do you think the average rent cost was 30 years ago when purchasing power of USD was twice as much? Fast forward 30 years, dollar has cut in half, wages have doubled in nominal terms (not real), but that fixed mortgage payment is still the same!
Also, the supply side of that equation plays a big factor in home price appreciation. Established U.S. markets that are unable to add significant supply due to land/zoning restrictions may be positioned favorably long-term for house appreciation, even with less robust demographic drivers.
Also...I cant borrow 30 year fixed money to buy a house in Nairobi?
prove it! build a model with some basic assumptions.
It's completely dependent on what your goal is. I bought a SFH first, but it's only because it would have been tight for me to buy a duplex+ and make the payments in the event I didn't find a renter. I went with the SFH as an alternative so I could build equity, rent out the extra rooms within the place if I had to, and then flip it into something like a duplex if I'm able to take advantage of a sizeable amount of price appreciation. But if I could have done the investment property first, I definitely would have done so.
Buy multi-family, let tenant pay off your mortgage, buy another multi-family, repeat.
Does it make sense to buy a place (Originally Posted: 12/05/2010)
I'll be starting as a new analyst in IBD in silicon valley in july next year. I was thinking if I should buy a house/condo/townhouse instead of renting. I've been reading some books on homebuying but they focus mainly on loans and mortgage calculations. I'm thinking of paying for it in full, would like to know if that's a good idea too. Seems like housing prices are down and silicon valley is a good neighborhood with high resale value and good schools.
Thanks for your insights.
what if you dont like your new job?
what if you lose your new job?
I would rent and see how the place is and how everything is working out before I buy
Zuckerburg is a billionaire in the valley and he still rents a place he found on Craigslist.
If you're a new analyst, are you sure you can afford property taxes, insurance, and maintenance until you get your first bonus? The mortgage is only one part of the expenses. Also, are you planning on staying in CA for five years? If not, you should consider renting instead.
Not to hijack this thread, but has anyone in NYC bought a place? If so, what level were you at? I realize it might be pretty aggressive, but at the same time, if you see yourself in banking for the long run it seems like it would make sense to buy sooner than later.
thanks guys... i think craigmcdermott pretty much hit the nail on the head... would welcome any other viewpoints though... thanks again
unless you are certain you want to live there for at least 5 years, DO NOT BUY. just rent dude. at least give yourself a few years to start cranking on a career. as an incoming analyst i think buying a home would be a very poor idea. it would seriously limit your ability to do things like a) go to bschool b) move anywhere outside of your immediate area c) change jobs etc etc etc. Broker fees are absurd and if you sell you'd basically be writing a $50k check to some dimwit.
Seriously, don't buy. It could seriously limit your future potential. Think of how much your life will change in the next few years. You won't want to be locked down. Renting will likely be far cheaper and way less of a headache than just renting someplace cheap.
I don't know how strongly i can say this, but DO NOT BUY A PLACE COMING RIGHT OUT OF COLLEGE. especially as a new banker who has a 2/3 year stint followed by lord-knows-what.
^ +1 to the above. Don't pigeonhole yourself with buying a home during your first analyst gig. As mentioned above, who knows where you will end up after(b-school, buyside gig on eascoast) - the home will only be a liability at that point. Furthermore, you will rarely be there for 2 years since your new home is the office. Rent a nice apt / condo close to work, and use it for what it is - a place to sleep and relax when you have the time.
i think ZIRH should look at a few things. first, as mentioned before, how long you are going to stay in that area. As others have said, if you aren't going to stay there for at least 5 years, it is probably not worth the hassle (selling expenses may be 7%). If not sure paying in full would be the smart thing to do either. First, with really low mortgage rates - less than 5%, I'm not sure you should. Also, the interest expense on the mortgage payments is tax deductible. This means, assuming that you would itemize deductions on your tax return, your effective interest rate is actually less than 5%, possibly 4%. Think of it this way, do you think you could earn more than a 4% after tax return in some other asset class with the money you would be investing in the property? If you think there is not a relatively low risk asset that can yield a 4% after tax return for you, then you should probably pay in full. make sure to model out the loan to make sure you are getting the best deal and shop around for rates, points, etc.
im not 100% sure i would do the two bedroom though. i might go for a one bedroom or studio. it somewhat depends whether you want a roommate and a couple other things. also, you would run the leasing risk/rollover and longer potential selling period with a two bedroom. however, sometimes its nice to have the company.
i would say the hassle is probably slightly higher with the owning, although renting can be a bitch depending on your property management/landlords as well.
one basic way you might want to think about the analysis is the delta between the rental payments (all in - fees, base rent, expenses, etc) vs the payments for owning all in (payments, expenses, selling expenses, etc.). If you think the return on this delta between these payments (diregarding other non-financial issues being equal) is greater than you could earn in some other asset class given the risk (illiquidity, housing market swings) and how it fits into your financial portfolio, then you should buy. or in your case, if you are still going to pay in full, then the risk adjusted IRR of the your lump sum payment, future expenses, and seling prices, vs another investment of equal risk, also taking into account your financial portfolio.
in the end, from a purely financial standpoint, more or less it just matters whether would get a higher return plowing your money into a house vs. into some other asset. whether your net worth is derived from a stock or house, who gives a shit (it really makes no difference whether you plow that pretty little slut from the bar at your house or you apartment).
just my two cents, but i may be talking out my ass at this point, its getting deep.
Was going to buy a place in NYC but when the time came, thought, isn't worth it YET. I think you should give it a year or two before you get it. Think about it, as the owner of the house, you need to deal with bullshit like leaks, repairs, etc not even from a monetary standpoint but from a time perspective.
On the otherhand, you get tax deduction from mortgages paid, so it might be a good financial decision.
thanks guys, really great input... my parents have been asking me to buy a place and the whole home hunting thing has been stressing me out, plus i don't think i'll have the time to fix up the house with analyst hours...
appreciate the help :)
Buy home is not an antifragile behavior.
I want to buy a new home but i don't know what i want to have but this? (Originally Posted: 10/31/2017)
Hi all,
Sorry, title should read "Equity from investment property for buying first home (to live in)" but that's a bit long.
I recently finished building a house in Australia (I'm living overseas), which we have just started renting out.
We owe: $486,000 It just got valued by the bank at: $700,000
Am I right in assuming I have: - $214,000 equity - $74,000 equity available to use as a deposit on next property - Maximum total spend on Property 2 including all fees (without kicking in extra savings): $370,000
Trying to figure it out. We are moving back to Oz next year and I'm wondering whether buying a house to live without having to chuck in a lot of savings will be possible.
Do those numbers look right?
Neither is living but I'm gonna keep doing that as long as I can.
Your current title is actually longer:
Equity from investment property for buying first home (to live in)
I want to buy a new home but i don't know what i want to have but this?
Buy a house right now? (Originally Posted: 11/27/2007)
My parents are thinking about buying a house soon. I live in an area where the houses are overvalued. Would now be a good time to buy a house? or should they wait till next year since the subprime mortgage mess will get worse?
It depends on the person/family. For my wife and I we were able to double our space by buying. Overall, we are paying about $100 more than our rent. In terms of utility it is very worth it - for us. The only thing we need to worry about going up is property tax. Prior, to getting married rent was going up every year.
The one thing that you have to remember is that you are your own maintenance man when you buy.
You mean you live in the US? Every market is extremely overvalued as asset prices have risen to unsustainable heights due to cheap credit (Greenspan and 1% Fed rates). If you live in an area where speculators drove prices even higher (i.e. Phoenix, FL, etc.) you may be in line for even more significant declines in home values.
The problem with buying a house right now (assuming your parents are selling their current home) is that they will likely have to take a significant hit in their selling price (although you could argue that the longer you wait the further home prices will decline until they reach more sustainable levels).
You would have to be more specicic to get any real insight. For example, where do you live, are your parents near retirement, do they own other properties, how long have they lived in the area, are they wealthy, etc.
I live on Long Island, NY. According to Smart Money (the magazine), the houses on Long Island are overvalued. We rent right now so we wouldn't be able to sell any property.
I hear interest rates are at the lowest they've been in years. How long do you think they'll stay low?
If you don't have a house to sell now, this market is great. Assuming you can get financing (lenders have really tightened up), you could end up getting a good deal. However, you have to be willing to shop and really negotiate the price down. Look for people in danger of foreclosure (your realtor can find these properties) or for homes on the market 8+ months. Vacant homes are also a decent target since those investors are losing money every month.
With long island im concerned prices will drop even more over the next 5 year period (many communities are aging populations that will continue to flood the market with new houses). Priced at an average price of something like 450-500 its out of range for most younger individuals and seem comparatively overpriced as compared with some of northern NJ. It might even work better to wait a little longer to see if rates go even lower, and to see if prices drop further as most of the market is inundated with houses (houses which still seem a bit overpriced).
"I hear interest rates are at the lowest they've been in years. How long do you think they'll stay low?"
were lower in 03.
Just be greatful that we weren't homeshopping when rates were 15%+ . I wouldn't worry about rates. I just bought a condo with a 30 year fixed for 6.25%. If rates drop signficantly it would be no problem for me to refi the loan and if rates go up I am still locked in at a very respectable fixed rate.
The fact that you currently rent is a very compelling reason to buy but I would wait another 6 months, getting your finances in order and scouring the market for potential deals. There is no harm in getting a realtor to begin working for you (as you don't have to pay them unless you close on a deal). At the end of the day there are few better tax-shelter alternatives than homeownership and your parents would be prudent to take advantage. The next two years will present significant opportunities to purchase properties at reasonable prices as prices return to more sustainable levels.
Going the foreclosure route is another alternative as well but make sure you hire a realtor who specializes in these types of properties. Good luck
I just heard that Goldman estimated that the Feds will lower the interest rates to 3% by the middle of next year. How will this effect mortgage rates? I assume they would decrease as well since banks can borrow at a lower rate.
That's likely a true assumption, but read junkbondswap's post above: if rates drop significantly, your parents can just refinance the purchase. Don't focus on the rates alone, but also the current market posture. Get your parents working with a lender and get them pre-qualified. Next, work with a realtor and find a deal. Now is a good time to buy. Protect yourself from future drops by buying at a discount from a desperate seller.
SO and I bought once we were sure that we were staying here for 5+ years. Realized that we could save $1,000k/month by switching to owners vs. renters. Cost savings would have been less meaningful if we didn't previously live in a recently built Class A high rise, though would still likely work out to at least $500/month. Math and situation worked out for us, but would advise that knowing how long you can commit to the specific city is crucial.
Buying a House with a friend (Originally Posted: 10/09/2012)
Would like some experienced advice-
I'm 24 working at a asset manager in a midwestern city. I've been here for 1.5 years. Now, a friend of mine wants to buy a house...WITH me. This means we will both be on the mortgage. He's the entrepreneurial type and so we'd be getting a 4 bedroom, rent out half of it, live in the other half. The goal would be to live for free. In 7-10 years when the place is paid off I could get a nice $1000 check every month from renters. We've prequalified for a 3.25 30 yr fixed conv. I make significantly more money than he does now but he has a little bit saved away and I do trust him.
The problem is that I'm not sure I'll be in the same city for the next 3-5 years. He assures me that he will and will manage the property himself when I leave(and I'll throw him $100 each month for doing so). The down payment is an ass load of capital and theres always the very real possibility that the house has some big problem w/ it or the state raises its taxes. Price range for house is ~300k.
I'm currently renting for $450 a month and will make ~$100k this year. How it is the midwest, monkeys.
So, even at these low rates, is this just too much risk too young?
$450 a month? that's a typical night out. holy fuck.
dude i would recommend you steer clear of trying to own property, esp if rent is that cheap. why is saving $450 a month (living rent free) worth giving up the freedom to pick up and move in the matter of weeks? is it worth having to maintain the property? the financial risk of something major going wrong in the house and you having to fix it because your friend may not be able to afford it. i.e. pipes, major appliances, etc?? imho, i'd stick with paying the $450, which is essentially nothing, and having the financial freedom, less risk.
owning real estate is a bitch
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