Questions about Real Estate

**scfr** · 09-28-2006, 07:29 PM

Re: Questions about Real Estate

Okay then ... let me ask this another way: What do you all think about having 25% of one's net worth in real estate? Too much? Too little?

**sweeps** · 09-29-2006, 03:14 AM

Re: Questions about Real Estate

25% is not unreasonable. But honestly more information is needed to form a better opinion:
- What is your total net worth?
- What return do you expect to receive from your real estate investment(s)?
- How risky is your real estate investment(s)?
- What is the rest of your net worth invested in?
- What are your short-term and long-term goals?
- etc.

**LuxLiving** · 09-29-2006, 04:10 AM

Re: Questions about Real Estate

I tend to think of it as two separate things. I own my home because I need a place to live. And I think too many people think when the powers that be, the ubiquitous 'they' who say we need to have no more than 25-35% of our income in our housing cost that folks think that means the entire 25-35% covers the mortgage payment, when a more realistic goal is perhaps 20% in mortgage costs and 5% for other housing related expenses, like taxes, insurance, upkeep, utilities. The latest thing I read said 38%! Grrrrrrrrrrrrr inflation!!!

Any other real estate purchase besides my home would fall under my 'investment' category. I have another 2.5% of my investment portfolio in REITs, but that may change shortly if the housing bubble comes into further play. I also own a timeshare which some consider to be a real estate play. I don't. It is merely a forced vacation device for me. The Hubster simply would not take vacations if we did not already have good money invested in this manner. He needs his play time too!

Since you'll likely be paying cash, I'd say it DEPENDS. How do your retirement accounts stand? If you're fully prepared for retirement, have lots of cash sitting around in emergency funds, your IRA and 401-Ks are being fully funded each year - then you buy as much house as your proceeds will buy you that suit your upcoming needs and keep as much cash out of the house as possible. AND, depending on just how fat your net worth is and future income prospects are, you might even go for another 30 yr mortgage and leverage your money in investments for a higher yield. THAT said from someone who hates debt and is quickly trying to get out from under my own mortgage! Ha!!

How long do you intend to live in this new house? Is this going to be it? The retirement housing? Or is it a short term stop before the last purchase?

Some people have been doing a lot of 'trading up' in a wealth building capacity the last few years and you may think of your home purchases in that manner as well...just take CAUTION because we don't know how long before the bubble bursts though!

Truly I think Sweepsplayer has it correct - need more input to actually give you advice on what will in the end be a truly personal decision. Ohhh and congrats on moving to a less expensive area!

**Fern** · 09-29-2006, 08:30 AM

Re: Questions about Real Estate

do you have plenty set aside in an emergency fund, as $ tied up in real estate is illiquid in the case of an unanticipated medical emergency, car accident, act of God possibly not covered by homeowner's insurance and so on.

**scfr** · 10-01-2006, 08:43 AM

Re: Questions about Real Estate

Thanks for the replies. Here is some additional information:

"Emergency" Reserves: Yes, fully funded plus some.

Retirement Savings: Yes, completely on-track. Every calculator we have done says at our current rate of savings with our current investments,
we will have what we should have saved at retirement plus a bit extra. Retirement Savings are invested in a diversified & very conservative mix of stocks and bonds (mostly through mutual funds).

Net Worth: Ummm.... We're satisfied with the current figure.

How we look at our primary residence: It's a hybrid purchase, as it's both a place to live and an investment. It's the one and only material thing we will buy that we expect to at least hold it's value against inflation and hopefully appreciate even more. We don't expect to make a killing on it, but we don't expect it to lose value either. [On another post, someone mentioned that you should ask yourself before buying something if it's a "trinket or a treasure"? A home purchase is a treasure.] The next house we buy will not be our "forever" house; we estimate we will live there 7-10 years.

So, do you all think 25% is a reasonable figure? Thanks!

**Ima saver** · 10-01-2006, 08:52 AM

Re: Questions about Real Estate

My two cents. when I was younger I worked for a small building and loan. (think of the movie , it's a wonderful life) I saw houses being bought and sold all the time and thought it would be wonderful to buy a house, rent it out and let the tennents make the payments. I was stupid enough to buy 3 small homes.
It was a disaster. The tennents were forever calling with something to fix. They could not pay the rent. The homes became over run with roaches. I finally manged to get them all moved out and put the houses up for sale. I lost a lot of money on all of them.

I think your primary home is a good investment. I also think it is good to buy desireable land, on a lake, river, creek or mountain view property. We do have one piece of property with an outstanding mountain view.

**scfr** · 10-01-2006, 09:04 AM

Re: Questions about Real Estate

Originally posted by Ima saver

My two cents. when I was younger I worked for a small building and loan. (think of the movie , it's a wonderful life) I saw houses being bought and sold all the time and thought it would be wonderful to buy a house, rent it out and let the tennents make the payments. I was stupid enough to buy 3 small homes.
It was a disaster. The tennents were forever calling with something to fix. They could not pay the rent. The homes became over run with roaches. I finally manged to get them all moved out and put the houses up for sale. I lost a lot of money on all of them.

I think your primary home is a good investment. I also think it is good to buy desireable land, on a lake, river, creek or mountain view property. We do have one piece of property with an outstanding mountain view.

Thanks so much for the input!

**LuxLiving** · 10-01-2006, 10:44 AM

Re: Questions about Real Estate

Wow - 25% of networth??? Hmmmm...I just reread the question. No, I don't think I would go that far as to say that. I was thinking you were talking about percentage of CURRENT INCOME.

For some people 25% of networth would be very little. For others it could be gigantic!

I'd just buy a house I could support on current income...as in even if you pay cash, can you EASILY afford to heat, cool, repair and maintain, pay the taxes, etc. on it? That's how much house I would buy. Of course my mind doesn't normally go to thinking 'this purchase is equal to what percentage of my net-worth'...but it does think 'Can I meet the tax bill? Can I keep up the property? Can I pay the utilities?'

That being said our house is currently about 35% of our current networth - at least according to Zillow.com which doesn't yet know about all of our improvements and does me absolutely no good if prices are fallen at the time I want to sell.

**Ima saver** · 10-01-2006, 10:50 AM

Re: Questions about Real Estate

I am sure that my house is 30% or more of our net worth, and I am going just by the appraised value that the tax man gives. I feel sure I could sell it for more. My house is paid for, so that is a large part of our net worth.

Questions about Real Estate