Can I afford a house?

[davidfmayerphd]

@tongdtbds4 Truly. It burned a dime-sized hole THROUGH a metal non-stick skillet I had just put on the burner to fry an egg in. I had just added a little olive oil to the pan. Turned on the burner. Burner started going out and sending out huge sparks, and it somehow burned the hole. The weak spot in the burner is right where the heat concentrated and made the hole in the pan. The noise it made during the sparking and burning through the metal was also incredible. I’m so shocked it didn’t cause a fire. Sparks were flying everywhere for about 45 seconds. I grabbed the fire extinguisher but didn’t have to use it! It stopped on its own.

There’s actually more to the story, I was just trying to keep it short before. But I know someone will say a burner going out doesn’t meant your range can’t be fixed. The first thing that happened with it is that the heating element in the oven burned out, also super dramatically with lots of sparks flying out of the vents in the oven door. It’s from the 80s and after the tech replaced that part, the oven would never get up to temp after that, and they came back and said that the other parts needed for that issue (temperature sensor, possibly a new control panel) were no longer made. We kept using the stove for a few more weeks (tech said it was safe to) until the stove had the burner issue I described. Haven’t touched it since, and we even flipped the breaker switch to it.

It’s also a 27” unit and the standard now is 30” so we have been waiting awhile to figure out what to do and we are going to have to do a fun little kitchen reno to make the new one fit! Fun stuff. We knew about the size issue when we bought the house but had planned to update the kitchen in 2-ish years and figured it would last that long since people assured us those old appliances last forever. They do, but when parts are no longer made then that’s all you can do. We could probably hunt down a part but two situations where the unit nearly caught fire is enough for me. I love vintage stuff, and I think the range has an awesome aesthetic, but I’m out.

 

[tongdtbds4]

@aprilranta I know everyone says that they “want equity” but I strong advise against that attitude. Homes are generally going to be your slowest appreciating asset and also have a ton of liabilities attached to them. You are nearly 100% of the time better off with your money in a different vehicle. People treating their primary residence like an investment or a piggy bank drives me wild, it’s just so fiscally stupid.

Never ever think of your primary residence as an asset. It’s a residence first and should be treated as such. Never ever rely on a home for any kind of return on investment. Consider anything you get from a sale a windfall only.

 

[lexi0903]

@tongdtbds4 Realtors have driven this idea of building equity so hard that everyone believes it. But if someone has never been a homeowner, they wouldn’t know it takes a long time to get in the black, if ever.

Everyone seems to think their house is gonna value at 500% in 30 years and also not account for the 30 years of maintenance and renovations.

 

[lostandconfused90]

@lexi0903 Annnnndd forget that even if you wanted to cash out on that “investment” you’d still need somewhere to live

 

[tongdtbds4]

@lostandconfused90 And don’t forget to pay those capital gains taxes unless you qualify for an exclusion!

 

[ngoc1993]

@lexi0903 and the buying power of the dollar year over year.

 

[tongdtbds4]

@lexi0903 Exactly. You should be expecting to pay something like 2-4% of a home value (not what you paid for it) just on repairs alone each year. People always forget this one - that is more than the average increase in value YoY. For a home in the range they are looking at, that is $8K-$16K annually they are probably not accounting for in their budget.

 

[utcool]

@tongdtbds4 That hasn't been my experience in 12+ years of homeownership.

I do think it's important not to buy more home than you need. Because that means higher utilities, higher taxes, and higher maintenance costs, in addition to a larger down-payment and monthly mortgage payment.

 

[tongdtbds4]

@utcool Well I has been in my decade which is why anecdotes aren’t considered evidence.

It’s an average and it’s all in what most financial planners recommend accounting for, especially to avoid the house needing more serious needs taken care of later.

Lawn service? Basic plumbing? Need to replace the driveway? Squirrel problem? All of that adds up. No landlord is coming to save you. Never mind when you have a big one come due like the roof or replacing a boiler.

 

[peter96]

@tongdtbds4 If anecdotes aren’t evidence, why are you presenting yours as such?

This whole argument overlooks the quality of life improvements owning a home vs renting an apartment can bring to your life. If you look at owning a car on paper, obviously you’re going to lose money. But the fact is you still need to get places.

 

[tongdtbds4]

@peter96 I am not - 2-4% is what financial experts recommend so fine go read up about it yourself.

And maybe learn with a anecdote is while you are at it because you used the word wrong.

 

[utcool]

@tongdtbds4 Here's the counter-view. (And why I personally think a home is the best single investment most people can make.):

1. Most people aren't good with complex financial decisions, or investing in general.
2. A home will always have value as a roof over your (or someone else's) head. Most other investments have the potential to lose most or all of their value.
   
3. Having a paid-off home in retirement is crucial for most people, who will have lower incomes then than they did while working, and will therefore be greatly benefitted by not having a monthly rent bill.
4. A house payment represents forced monthly savings. Most people would otherwise have difficulty disciplining themselves to set-aside this much every month.
   
5. Homes generally increase in value. While they may not always appreciate as fast as other investments, they have generally done better over the last few years than the stock market. (My Jan 2020 Condo buy has increased by over 33% since then.) And that general tendency to appreciate means that you can generally sell or rent your property out if you need to move somewhere else, and not lose money.
6. Rents can sometimes skyrocket, like they have in recent years. If you own a home, this has not been an issue. If you do not, it probably has been. If this happens in retirement, when you're on a fixed income, it could become a major issue.
   
7. You can borrow on your home in emergencies. (So it is an asset in that sense.)
   
8. If you become seriously short of cash in retirement, you can do a reverse mortgage, borrow on your home, and not have to make any payments until you die, as long as you remain in the home. Not a great interest rate, but you won't generally have to worry about payments or foreclosure as long as you stay put. If you unexpectedly have to move into assisted living, you can sell the home and pay off the loan then.
   
9. So yes, as a speculative investment, real estate can be highly speculative, especially on a large scale. (Because it doesn't go up in value every year, and can sometimes hit extended slumps of 5+ years.) But if you're talking about small-scale flips or rentals, it can be a very solid investment, because such real estate is unlikely to lose most of its value, if any, and it can generally provide steady income. And as a personal residence, the benefits are even more basic, secure, and fundamental. It's not something you have to think about much, and it's not something you have to worry about much.
   
10. The alternative, of course, is to simply rent your entire life, sometimes paying as much or more as you'd pay for a mortgage, and hope your other investments appreciate enough to cover your rent in retirement, even if rents skyrocket.

 

[tongdtbds4]

@utcool No one is arguing against owning a home. The argument is against acting like a good reason to own a home is “get equity”, none of which is addressed in your post.

Borrowing against your home in an emergency is an awful idea FYI, this is why you have emergency funds. You should only ever borrow against your home to invest in the home itself. You should never expose yourself to the risk of losing your home like that.

Reverse mortgages are literally the dumbest investment you can possibly make. Extremely bad advice.

A house payment does not represent forced monthly savings, it is quite literally an expense. This is a argument people that doesn’t hold water. The amount of equity you are building early one is far lower than the return you could get with those same dollars elsewhere and it’s completely illiquid, which isn’t the savings most people need.

Diversified investment don’t “have the potential to be fully lost” whatsoever. What hogwash.

The market right now is not typical and should NOT be used as a gauge of anything relative to being better than the stock market. The market wins in the long term.

These arguments of yours are simply bad.

 

[tongdtbds4]

1. Look up what an amortization table is. You are acquiring very little equity over the first 10 years of a mortgage.
2. It is not free money. Again, I provided a link showing how reverse mortgages actually destroy equity over time through fees. RM are considered predatory and honestly should be outlawed.
3. If you have an emergency so large it exceeds a properly funded EF, you have far bigger issues, like a disaster, medical emergency etc. But that isn’t what people mean when they say they “want equity.”
4. You can do those thing but they are not considered prudent. You should not leverage one asset to acquire another - it’s a great way to lose two assets. Just because you can do something doesn’t make it a good idea.
5. There has never once in the history of the entire market where a diversified portfolio lost half its value permanently over time. Congrats if you are that bad at investing that you invested everything in a single stock. Perhaps you would like to buy a bridge in Brooklyn?

 

[utcool]

@tongdtbds4

1. A house payment is clearly a form of savings, because you are in fact accumulating equity. The fact you can sell that home later and receive a ton of cash is proof of that. Only the interest involved is really an expense.
   
2. A reverse mortgage late in life is basically free money. The only person really hurt by it is your heirs, if you have any. You're basically selling your home in advance, with the right to stay in it for the rest of your life. Not a bad deal at all under certain circumstances. No monthly payments, never any rent, cash in hand.
3. Most of the facts (not arguments) I note reflect the fact that you are accumulating equity in your home as you pay it off.
4. Sometimes emergencies will exceed your emergency fund. Backtracking on your mortgage slightly if needed is better than not being able to get the funds at all.
5. Depending on the circumstances (and interest rates involved), it may make sense to borrow on your home to buy another home, or invest in something else. A lot easier to borrow when you have an asset like a home.
6. The stock market can potentially lose half its value in a major crisis. Any individual company can go under completely. Including GM.
7. Didn't say the current housing market is typical. Just that it sometimes outperforms other investments. And usually has less downside risk.

You're certainly welcome to your personal, subjective opinions. However, if you don't think buying a home is a good investment, especially for the typical, unsophisticated person who generally has trouble saving money every month, or making good/informed investment choices, please pray tell why anyone should ever buy a home? Or do you think people should simply plan on paying rent indefinitely? (Note that the accumulation of equity is also reflected by the fact you no longer have a large monthly housing payment once the home is paid off.)

 

[zephcom]

@tongdtbds4 So with rent getting higher and bills doing so at everyone and the landlords whim what would you suggest when older nowhere to stay.... this lady on her own would be OK I am an engineer with thp of 2900 and the bills and mortgage means I'd be living on fresh air or have to have a lodger....or 2 to just survive. I seriously thinking at some stage I will end up on the street when I can't afford rent .... rents includes services atm at 630 a month.... so if I paid a mortgage I'd have something but with rent it just seems to be running away. Last year rents gone up 3 times

 

[victoria94]

@zephcom You’ve got to use punctuation, this is really difficult to read. Not ellipses.

 

[softspokenlamb]

@aprilranta Good idea to wait.

Start saving the up to 3000/month you would be spending on mortgage (+other housing expenses) now. Pay off debts immediately and try to save an additional 30,000 by the end of the year. Have your husband set up an automatic transfer of 1,500/month of his pay to a savings account. Set up systems to help with his executive function issues.

 

[papaduck]

@aprilranta Settle that collection ASAP! It’s going to take some time for that to drop and heal his credit score. Also, whatever emergency fund you think you need, double it. I had a 6 month emergency fund after closing on a brand new build and the amount of things I had to buy for the house was staggering. It’s things you don’t even think of until you’re in the house. Remember, you are the maintenance man now!

 

[catdamir]

@papaduck Seriously y’all are not ready for a house if you can’t close out a $600 collection.