100% Down Plan

[littleroc02us]

I must admit, you are the most tenacious (patient? stubborn?) person I've met! I gave up long ago. As you said: 8% > 5%. End of story.

Mathematically yes, but that doesn't account for risk...

[jpg7n16]

I must admit, you are the most tenacious (patient? stubborn?) person I've met! I gave up long ago. As you said: 8% > 5%. End of story.

Probably all 3 honestly ... but mainly stubborn

[LivingAlmostLarge]

How does it reflect the math when the $200k isn't saved up but comparing the $50k down payment and $200k mortgage versus saving $200k?

dcz or jpn, if you could run numbers because I was thinking something NOT brought into this conversation.

If a person is saving $200k but ALWAYS plans on having a mortgage (like myself and my DH), then we would be investing the $200k in a taxable account while saving it and gotten the mortgage the moment we saved $50k = 20% DP.

So assuming it takes the 6 years, I'd say life is unpredictable so say 7 years to save the extra $200k to pay cash, is there a benefit to buying with a 20% mortgage versus 7 years later and cash?

Can you run the numbers please?

Thanks

[littleroc02us]

to answer the question of the OP: i paid cash last year for a house, but it was my 3rd home and im in my mid-30's. my finances, as well as my financial planning/ethos, is more unorthodox than anyone i know(it's also panned out to be more fruitful than anyone i know, but that's another story for another day).

i wouldn't necessarily suggest a hardline approach against a mortgage PERIOD, but your general aversion to debt is, IMO, very much along right track.

i can open up more specifics, and talk through some more approaches, if you care to discuss further.

You must be one of the only ones in the forum that has done this, how did you do it? It's always fun to hear from someone who has actually paid for a house in cash to hear their story.

[khosta]

Kudos to you! Not many people your age able to start a life shortly after college debt free. Sounds like you have it together and you have a plan for yourself! Don't fall off track!

[rj.phila]

You must be one of the only ones in the forum that has done this, how did you do it? It's always fun to hear from someone who has actually paid for a house in cash to hear their story.

in a nutshell, here are the main talking points:

-around 18-20 yrs old, i found a "passion job". anyone who has done this knows that you instantly go to a 12-14hr work day thats not actually work at all.
-i grew up frugal, and never outgrew it. i still take the soap from the hotels i stay in, but i make 6 figures. instead of living on a "spend x%, save y%" model, i lived on a "spend what you need, save everything else" model.
-1 vacation in the last 10 years. but remember-i love what i do, so this is not a "suffering for the work" thing.
-i have never risked ANY principal savings in a financial instrument since i was 18-20 years old. never. fixed income investing. period. 10 years now advisors/bankers trying to sell me on the inflation boogeyman. never bit.
-the first 2 houses i bought were bought like this: i have 175k in the bank. buy 160k house, mortgage 50k of it(cause i wasnt confident of my financial future). pay off mortgage ASAP. w/in 1 year, mortgage=toast. 2nd house, same deal. by the time i bought my 3rd house last year, i had the confidence in my future earnings potential and savings to pay cash. at a point, i started to see ANY interest payment as inherently evil. so i avoid them at all costs now(but i also have given myself that luxury, and know alot of people DONT have that luxury).

i will say that closing on a house in cash was one of the most surreal experiences of my life, especially one that was over the national median rate(i dont mean this with any braggadocio, just being frank).

the biggest advice i can give anyone thinking about buying a house is to take a long hard look at mortgage amortization tables. do projections. see what happens when you pay X amount at year 2, vs year 17. just start adding up the interest.

as an aside, this idea that "mortgage interest is good, cause you can write it off!" is utter horse****. interest is bad. there are lots of things you can write off. what do you like better, solar panels or your banks balance sheet? bottom line is i applaud the OP for thinking outside of the box, and being cognizant of things that arent said on msnbc or whatnot.

[littleroc02us]

Wow, I'm amazed! Exactly what you have said I am in the process of working as we speak, but I have started 15 years later then you did and with 95k a year, it's a goal of my wife and mine. What's funny about the taking the soap idea from hotels, my wife is always storing that stuff at home like it's candy. You are an inspiration to us all.

[rj.phila]

Wow, I'm amazed! Exactly what you have said I am in the process of working as we speak, but I have started 15 years later then you did and with 95k a year, it's a goal of my wife and mine. What's funny about the taking the soap idea from hotels, my wife is always storing that stuff at home like it's candy. You are an inspiration to us all.

thanks. thats awesome, 95k a year is fantastic. there are tons of homes out there, depending on your location, that can be had in "sleeper"(undervalued) neighborhoods in "sleeper" condition, i.e. poor cosmetics+good fundamentals. i think this year is a great time to buy, wherever you are. remember, the jan-april season is the highest buying time. from summer-dec, owners are staring winter carrying costs in the face, and are looking to unload more than they are spring-summer. not that you should wait, per se, but EXISTING housing sales are looking strong right now, compared to last year. depending on how the next 5 months shakes out economically, you could be in a fantastic position to be putting offers in this year. i'd be thrilled with a solid recovery, i just dont see the numbers for it right now, personally.

[littleroc02us]

thanks. thats awesome, 95k a year is fantastic. there are tons of homes out there, depending on your location, that can be had in "sleeper"(undervalued) neighborhoods in "sleeper" condition, i.e. poor cosmetics+good fundamentals. i think this year is a great time to buy, wherever you are. remember, the jan-april season is the highest buying time. from summer-dec, owners are staring winter carrying costs in the face, and are looking to unload more than they are spring-summer. not that you should wait, per se, but EXISTING housing sales are looking strong right now, compared to last year. depending on how the next 5 months shakes out economically, you could be in a fantastic position to be putting offers in this year. i'd be thrilled with a solid recovery, i just dont see the numbers for it right now, personally.

The goal is to be in a position to get the mortgage paid down and save up money for the summer of 2012 to offer on a foreclosure for fix up here in Minneapolis where you can buy in around 100-125k in a undervalued neigborhood. Just getting ourselves in a financially strong direction so that we aren't relying on credit for the downpayment and rehab.

[rj.phila]

The goal is to be in a position to get the mortgage paid down and save up money for the summer of 2012 to offer on a foreclosure for fix up here in Minneapolis where you can buy in around 100-125k in a undervalued neigborhood. Just getting ourselves in a financially strong direction so that we aren't relying on credit for the downpayment and rehab.

that makes alot of sense. the market is apparently flooded w/ foreclosures right now, and they are increasing, as well as getting sopped up via cash.

gonna come clean here: i have a sneaking suspicion that liquidity in the US(and maybe abroad) is going to go into US housing HARD in the next year or two. i just lost out on a local multi-unit investment prop this week that's 4 blocks from me. the buyer? SINGAPORE. yes, i know, thats probably an anomaly, but ive been crunching the numbers, and in the right areas, the returns appear to be there to do 8-20% ROI. on an asset that i consider MUCH more stable than a stock, i wouldnt be surprised if investors start coming in flocks. ive seen several cash flow no-brainers go off the market within 2 weeks or so.

in short, if foreclosures are your game, the field is looking very good for hard money over now-end of 2011. depending on your current carrying costs of living, i'd consider moving that up. start LOOKING now, for sure. if your rental costs are negligible against the right mortgage, it could make sense. i appreciate the stat guys in here, they are all RIGHT, but all this theoretical talk only goes so far compared to real listings in real markets.

[LivingAlmostLarge]

rj phila, are you married and have a family? I get that you love what you do, have you cut back to spend time with them?

[rj.phila]

rj phila, are you married and have a family? I get that you love what you do, have you cut back to spend time with them?

no kids, live-in "partner"/ long term girlfriend. i am cutting back now. eventually, i will be home most of the year, within 1-4 years or so. i work from home M-F, out on work some weekends. its not always as easy of course w/ kids and such.

[jpg7n16]

i appreciate the stat guys in here, they are all RIGHT, but all this theoretical talk only goes so far compared to real listings in real markets.

I hope you're not suggesting that stocks are not real assets, or that the stock market is not a real market. Stocks are pieces of legitimate businesses.

Owning a piece of a business is just as real as owning a piece of property.

as an aside, this idea that "mortgage interest is good, cause you can write it off!" is utter horse****. interest is bad.

This seems to be a common misconception about the pro-mortgage side of the argument. It's never that the interest is somehow 'good' because of a tax deduction. The tax deduction only makes it better, because it lowers your interest cost - and therefore increases the spread between investment earnings and interest cost.

Both sides would prefer 0% interest costs.

there are lots of things you can write off. what do you like better, solar panels or your banks balance sheet?

If the solar panels lower my electricity costs enough, and a tax deduction reduces my purchase price enough - over time, the solar panels could benefit my bank's balance sheet more than not getting the solar panels.

For instance, if somehow I found a $10k solar panel that would reduce my energy costs by $50/month. That would take 16.66 years to break even on the deal, and then would save $600/year for the rest of the time I owned the home. Which would add to my bank account every year after that.

And if I get a tax deduction for the $10k, it effectively reduces my cost of the panel to $7500 (25% bracket) - and let's me break even on the deal in 12.5 years, over 4 years sooner.

But if the solar panels cost $10k, and only save $10/month - even a tax break wouldn't make it worth my time. (as it would take 62.5 years to break even, even after the tax break)


My point is, you should consider the return on your investment in comparison to the costs of that investment. And if the costs are reduced by tax breaks, it may be worth the risk to invest (assuming you can tolerate the risk). This holds true for both solar panels and mortgage interest.

[littleroc02us]

[QUOTE=jpg7n16;285698]


This seems to be a common misconception about the pro-mortgage side of the argument. It's never that the interest is somehow 'good' because of a tax deduction. The tax deduction only makes it better, because it lowers your interest cost - and therefore increases the spread between investment earnings and interest cost.

it is a fallacy to carry a mortgage because of the tax deduction, because how is it a better deal to pay the bank $7,946.39 in interest to only get back 1,986.60 from the IRS. So in a 30 year time that's around 149k in interest payments and 37k back from the Gov't. That is horse crap!!! The example used here is only in regards to mortgage payments to the bank and a tax deduction from the IRS, nothing else. These are numbers from your early post that I'm using. Pays 10,306.98/year towards his mortgage (858.91 * 12), in year 1, $7,946.39 of that is interst, with 2,360.58 going to principal.

[littleroc02us]

My point is, you should consider the return on your investment in comparison to the costs of that investment. And if the costs are reduced by tax breaks, it may be worth the risk to invest (assuming you can tolerate the risk). This holds true for both solar panels and mortgage interest.

I don't think someone who is living with his straight cash methods successfully and not leveraging himself to the hilt like everyone else does just to meet investment strategies, needs to change anything.