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cash on hand

June 12th, 2017 at 04:26 pm

So we bought our house. We still have about 1.5-2 years of living expenses in cash. But we are planning on doing some extensive remodeling of the basement. We also have to stash another $15k for 2017 Roth IRAs and college savings. I'm thinking also that we should start $2k for each DK into a 529. That would take our savings to $19k plus $18k into the 401k.

I find myself hesitating because I don't want to not enough cash on hand to do a remodel cash. But it's a strange feeling after sitting on so much cash to be down to a more reasonable number and still hesitating to invest it.

Plus I feel like we have a tentative spending budget but there are a lot of variables we can't account for yet. Maybe by the end of the year I'll feel comfortable enough to invest some of our cash.

What about everyone else? My goal is 6 months cash on hand and the rest is invested. We used to live like this but when we moved without income we bumped it up to as much as possible.

Mortgage Retirement Plan

June 10th, 2017 at 05:41 pm

No way will my DH go along with paying down the mortgage early. It goes against all his brain power. It's an emotional thing and I get it. Paying down the mortgage isn't logical nor mathematically correct. But it feels good emotionally. It makes you mentally happier I think personally. But he's data driven so no way am I getting around him on this.

But being 38 and 39 and starting a 30 year mortgage is annoying. I don't care that it makes sense. I don't care that even after retiring it makes sense to draw from a portfolio and pay our mortgage. I like the idea of not owing anyone on our house when we retire. But marriage is a compromise.

So instead I'm going to track our progress to having enough money in our taxable accounts to pay our mortgage in full. Since every penny and bonus we don't spend we invest/save it's reasonable to assume I might be able to talk him through cashing out and paying the mortgage when we retire.

I also think at that point we'll be really FI. Right now we are can pay off 18.93% of our mortgage.

Do I have any goals? I'd like to have 10% of our mortgage a year saved. That is a very big stretch goal. We are on track with principal paydown to paydown about 2% a year in the beginning. Adding another 10% seems like a lot. That would put us at 10 years until we have enough to pay off our house. Life has a way of happening. Plus having enough to pay off our house isn't enough to retire on. That's just a start.

we bought a home...we'll be rich!

June 9th, 2017 at 06:26 pm

We closed on our house yesterday. Nothing different. Didn't even move. Just said thanks and ate dinner. Little less than 2 years.

Someone said to me "buying a home is the road to being wealthy." I said "I feel more poor because our mortgage is way more expensive than renting." The person rolled their eyes at me.

I said it doesn't matter whether you rent or buy. The person who becomes wealthy is one who can save in either situation. If you can save the difference between the rent and mortgage then you'll become wealthy. Truth is that anyone who saves the difference and invests it will come out ahead.

But owning is nice stability. FWIW renting probably put us behind because of the appreciation of homes in the areas we sold and bought in. But at the same time we did bank all the extra money and in 1 year we're back to where we should have been financially before we took a sabbatical.

So owning is NOT the end all be all to becoming wealth. Saving money is.

Renting can beat homeownership

May 10th, 2017 at 03:38 pm

I was thinking a lot about friends discussing how renting is throwing away money. It's really, really not. I can see how people think buying a home builds wealth. It's an enforced savings plan. Every month you build up savings by paying down the principal of your house.

But here's the truth! If you saved that principal payment and invested it, as well as invested the entire down payment of your home I'm pretty sure you'd come out ahead of the home owner. But the reality is three-fold.

One how many people would actually save the principal difference between renting and owning? So in that sense yes homeowners do tend to build wealth faster because they are forced to. And typically renters don't have the discipline to save. This is usually true as well because renters often times lack the discipline to save the principal for a down payment on a house. So home buying will build wealth but renting often doesn't because of lack of discipline. I see it too often with most of my long term renter friends they say "i could afford the same monthly payment as rent but I have no down payment." My point to them is then why aren't you saving?

Second, usually people's mortgages are more than rent. Renting often is less perhaps due to the fact that many people will rent the minimum space needed but buy a home much bigger because they are stretching the budget. I can attest to that. Our townhouse we sold was 3bd/2.5 bath townhouse 1500 sq ft. We were DINKS without kids. We didn't need that much space but we bought 5 years before kids to "grow" into to. Probably would have been smarter to rent a 1 bd apartment (like we had just sold) and then moved into something bigger 5-6 years later when we had kiddo #1. So for sure we were pretty dumb, but we liked owning and having dogs. I'm sure our rent would have been something like $1600/month (it was $1400 for a month to month studio at the time) instead of our $3k/month mortgage. But we could afford it and enjoyed the space. So if we had invested the $1400/month difference? We'd likely have made more money. Granted out of the $3k we were paying down I think $700/month principal so we were saving about half the difference. But still $700/month = $8400/year for 10 years is $84k and we could have invested that. So renting would have built up our wealth just as well.

Third I've noticed and perhaps I'm wrong when you renter you get a better location than when you buy. Most people have to compromise on something. So everyone I know compromises and has long commutes of 1-2 hours to get a "big" house. This means if they rented they could usually get something closer to where they needed to be but to afford to buy?

Right now if we wanted to save money DH and I could buy the place we're in for $600k. Instead we're buying something closer and more expensive but about the same size. So we compromised on size of home instead of location. We are paying for location. Also the $600k home would probably break even with our rent which we are overpaying because we had a dog. It should have been $2k/month we paid $2400/month for a dog. Our mortgage now is quite a bit more. But we also could have tried to rent in the same neighborhood we bought at it would have started at $3500 and we probably couldn't have a dog. So to us it's a wash.

But I don't think renting is losing money. I actually think to buy a home many times you are paying a premium to own. I think that many renters don't take advantage of the financial side to keep up with savings and match a homeowner. I think if they did it would become clearer how renting can be financial advantageous.

Have you ever considered renting if you own? And have you ever considered buying if you rent? Did you run the numbers?

For us we banked the extra money so renting we easily matched a homeowner. But I like owning with the stability and I like having a dog. I like feeling like we can do something to the house and not worry. Will we be paying a premium? Absolutely but it's one that my DH and I are willing to make because we want to. We know the financial disadvantages and advantages but still want to.

FWIW I think buying property and being a landlord is different. I think it's different numbers and cash flow and it's an investment not a primary residence you live in. I think it's something that can match stocks easily but you have to know what you are doing for arguments sake we aren't talking about RE investing.

What I've been up to?

September 27th, 2016 at 04:15 pm

Getting the kids back into school has been busy. I've been ironing out their schedules and it's pretty crazy. DH has been on the hamster wheel getting up to speed on a new job. It's always a big learning curve with a new job. As for me? Well I started taking the HR block tax prep course 2x week at night. It's until December so we're on a kid handoff at night at the park and ride so I can make my 6 pm class!

I'm trying this out as a way to see if I like tax prep and if I can possible land a seasonal tax prep job. I need something on my resume after 6 years out of the workforce to get back in. I figured this is better than nothing. I'm also hoping that perhaps this is a way to landing a part-time job in bookkeeping or accounts payable I see on craigslist.

I'm not looking to go back full time in my field. I think that 1.5 jobs for our family would be best. I've already gotten push back from DH for taking this job because he doesn't think it's worth my time. But I'm hoping to get back next fall into a part-time work routine when my youngest might go to kindergarten. That's not decided yet.

I also won month 5 of my dietbet! I lost my 10%. Now is the real struggle. I don't know if I can maintain it. I find it easier to lose but it's so hard to keep the weight off. I missed month 3 and month 4 from traveling so i couldn't weigh in. But I kept at it and made month 5. Now can I keep it off is the question?

And we're deep in the house hunt. That's the next post. It's so hard to find something we like and finding the time to house hunt. UGH.

I am also on the decluttering challenge of 465 items in September. It is getting rid of 1-30 items over the month daily increasing as the days go on. I am at I think 380s items. I am going to make it. I have an appointment at the consignment store to get rid of 30 items. And they usually tell me what else they won't take. And I sell 6 items there daily. Apparently I've sold over $100+ there in mostly clothes.

So now back to my regular programming...

HCOLA versus LCOLA

July 20th, 2016 at 06:44 pm

People always ask why do people live in HCOLA versus LCOLA? Does the salary support the difference in cost of living? Absolutely not. The HCOLA usually salaries aren't commensurate with the higher cost of living. I can say that with absolute certainty. Until now I've only lived in expensive cities so I've never experienced anything else. I grew up in HCOLA and started a family in a HCOLA. But now we are able to buy a home.

So people think it's only about the home prices. But there are so many factors involved. Small things you don't think about. Right now we pay for a SFH electric/gas bill a high of $150/month, currently it's $80/month. I was previously paying $250/month for electric alone monthly plus my heating bill was $250/month balanced and during the winter we spent around $600+/month. We pay $125/month for water now and our portion previously was around $200/month. The food bills I think are around the same.

We pay $190/month now and used to pay for the same days $390/month. So double and even if I priced out full time it's around 2x the cost. It even translates to babysitters charging $10/hr here versus $20-25/hr where we were. Private schools are also much cheaper. Average private school costs around $12-15k versus $30k where we were.

All these small things contribute besides the cost of homes to the cost of living. When we were looking at places to live, I admit I only looked at the cost of homes. But the truth is that there is so much more to it.

Should people move from a HCOLA to LCOLA? It depends. If you want to yes. But on the same token should people move from a LCOLA to a HCOLA? It depends.

I can say that people who stay in HCOLA without high incomes do so for other reasons. There are other reasons like staying put to be close to family. Because they prefer the lifestyle. And sometimes because it's the fear of the unknown. The same things go for people who live in a LCOLA and are tempted to move to a HCOLA.

After meeting friends who moved from LCOLA to HCOLA I will say that it's harder to do that than go the opposite way. There are a lot more sacrifices. It's eye opening to see how much more things can cost outside of housing which everyone see immediately. I mean a friend moved from a place where her house cost $300k and is bigger than her rental that costs her $3k.

Do you ever think about moving?

my experience now with realtors so far...

July 15th, 2016 at 10:24 pm

Okay we're house hunting now. Not aggressively but slowly. We're using redfin, but we might change to a regular realtor. I haven't been impressed with the redfin agents but maybe it's because we are using a discount service. I LOVE, LOVE, LOVE the fact that I am able to see homes without pressure. I love the fact that the realtor showing me the home is being paid per house and not there to pressure me into buying. I love the fact it's based on them just being free to tour me on the house.

So what am I having an issue with? Well I've changed agents once with the redfin agent who is supposed to write the offer. Why? The first agent never wrote back to me or contacted me. The market is hot so I suppose he was too busy. Valid point since we weren't in a rush to buy and not interested in a bidding war or closing a deal fast. I actually got an email from him saying that I needed to be faster and put in offers in a bidding war style. He also wrote me an email that I needed to let go of having an inspection or mortgage contingency. He and I obviously did not mesh.

This second realtor has followed up on my tours and asked questions about my preferences. However this realtor as well has made commentary that I need to get in on this bidding war situation. I need to be ready to move.

I'm not ready. I feel like a kid being peer pressured into buying a home I don't want. Hence why I am keeping these realtors at an arms length. I know what I can afford. I know what I am looking for. I know that I am not interested in offering on a house in a bidding war period. We aren't desperate and we don't have to move. We have the financial situation to buy but we aren't going to rush in and buy without contingencies. We aren't doing it and any house we buy will allow us our contingencies or it's not the house for us.

I know this because I know myself and DH. This is a lot of money. This is a big investment and a hefty chunk of change. I am not going to buy a house after visiting it once. I am also not going to buy a place to settle and regret it. If I am buying a place then I better really like it.

My strategy is to see homes that have been sitting a month. This is not uncommon in the price range we are looking at. It also is not uncommon that people in this range are "overpriced" and I've seen many sales below asking simply because they are asking too much. I've watch price per sq foot. I've been watching the market for a year and tracking data on a spreadsheet.

I really am annoyed with these realtors. When I see something I like they'll know. They'll know because I'll drag my DH to see it and we'll see it at least 2x before making an offer. They'll know because I'll tell them instead of them asking me. They'll know because I won't be submitting an offer on an offer review date. I mean I flat out told them I'm not going in on a bidding war. But this second realtor isn't listening.

A friend recently bought a house for $680k and regrets it. It was listed for $675k, they offered $5k over asking and it had been on the market for 24 days! This is in a super hot market where the average days on market is 14. So they obviously listened to a realtor and put in an offer over list price. They say they regret buying a 30 year old house and wish they had bought a newer house. Personally I thought they nuts. I'd have gone in and offered $625k and seen where what they came back with. My DH said it's because they were first time home owners who only saw themselves making another 10% next year. Now they have doubts it'll appreciate that much in 1 year and are worrying if they bought at a peak.

Personally I think the market won't go down. But I think that perhaps appreciation will slow down or stay flat until incomes catch up. I also think for these homes to go up another 10% is a lot to pay $750k for what they bought seems too pricey, but I could be shocked into being wrong. Maybe it'll go up 10% more in 1 year. It will go up I believe, just not perhaps at the rate previously seen. Where it went up about 40% this year alone.

So how do you prevent this from happening? I think staying strong to your plan. Buy the house you want for the price you want. Don't let yourself get emotionally attached to any house. Don't let yourself get caught up on making money on the house. I'm struggling because I want to move and settle. But I don't want to make a financial mistake because I'm feeling impulsive.

I'll keep readers updated. Right now nothing I've seen has been the right house. The location, layout, yard, etc has all been wrong. There was one house but it's been on the market for 6 months since January severely overpriced. We're not ready to move and they obviously are hoping for the moon.

Do you have any more tips on how to find a house? What should we compromise on?

Lifestyle choices

June 29th, 2016 at 03:04 pm

We're in the midst of another road trip so we've been chatting a lot in the car. I'll post pictures if I can figure out how of cool stuff we see.

We're doing our due diligence and starting to focus on areas we'd like to live permanently. Right now DH works around 20 miles from work he'd like to cut it down to 10 miles. I'm all for him having a shorter commute that's in line with our values and lifestyle choices.

But he brought up potentially moving out of the suburbs and moving into the city. He would be within 3-5 miles of work, bikable/fast transit, one car family, convenience/urban and fun. Trade offs are smaller home, not a big deal, postage yard (big deal to me), lack of privacy, and not great schools potentially. So he suggests maybe private school instead for the kids? Something we've never really considered both being products of public schools.

So now I'm torn. Do we shorten his commute considerably and change our lifestyle drastically? Is it in line to be really close to work, 1 car, no yard, I don't mind a small house but hate having neighbors right there, and private school? Is this a lifestyle I want or does he? We're really struggling because this would be permanent.

I know it'd be cost efficient probably to buy a house in the city for less money potentially in a bad school district and do private school. We'd save on time and costs. But I'm really not sure I'd enjoy it.

I have been a huge proponent of living where you love. That people in HCOLA who shouldnt' live there or LCOLA not making much should live where they love. And now we're at that same point.

DH could love the commute and he likes walking to places. But at the same time we aren't sure about living so close to neighbors and doing private school. What happens if he loses his job? While other jobs are in the area and he'll likely find one in the same area we'll be on the hook for private school tuition no matter what. But many people pay for private school even in good school districts for different reasons. Would we consider private school anyway in the suburbs? We have neighbors and friends doing private school now.

I think I'm feeling more pressure because before we always felt we had flexibility and time to make a mistake and correct it. But now the kids are getting older and more settled and I don't want to keep on moving. This is just difficult because it really is a lifestyle decision.

More talking to commence. FWIW we've been looking at houses in the city and they are fine. The parks are cute and walkability is amazing.

Do you like where you live? Do you wish you lived in the city or suburbs or more rural? And do you do private school and why did you choose it?

So it goes

May 14th, 2016 at 11:00 pm

So is there another housing bubble? I don't know but things are nuts. Both the place we left and the place we moved to.

Our old neighbors just listed their house for $849k and over the weekend they got 4 awesome offers, 3 without contingencies. They got three offers above $900k+ without inspection contigency or mortgage contigency. CRAZY. My spiritual neighbor said these people are nuts. They didn't even bother with a bidding war the number was so high that they took it and ran before this person came to their senses she said. She wouldn't give me a final number but will when they closed. Their realtor was in tears over how high it was. For perspective this was a 3 bd/1.5 bath, 1700 sq ft house with detached garage, cute but 1920s arts and crafts home. No inspection is NUTS. Slap some lipstick on the pig. I'm so happy for them because they deserve it. Yeah I came from a very expensive area.

But then where we moved? Well people are apparently crazy stupid here. Had tea and playdate with another neighbor few houses down and she said they went $80k over asking on a house and lost it by $1500! The house was in the neighborhood we were in 3 bd/2.5 ba, 1800 sq ft listed at $550k and sold for $630k also no contingencies. She said they waived the inspection contingency but kept the mortgage contingency. OMG. I nearly died over the bad financial decision making and she doesn't seem like a stupid person.

I actually asked if they get to buy a home if perhaps DH and I could talk to their landlord about renting since they are in a 4 bd house renting for $2600 or $200 more a month than we pay. I might as well take advantage of potentially a cheap place to live if I hear about.

Talking more with DH we're getting more on the fence with buying. His take beside if you buy and hold it doesn't matter if price drops is you have a place to live. But now he said perhaps it's better to keep letting it run up then either price correct or flatten. That way if you buy at that point perhaps it's 10-20% more than now but at the same time you have peace of mind that you've preserved your equity?

I hate this feeling of unknown.

maybe we're renters

April 20th, 2016 at 01:13 am

I know we were hoping to buy and settle in but more and more the signs I think are pointing to renting long term. Maybe even moving into another bigger rental. What brought this on?

Well my neighbors with the 4 bd/2.5, 2000 sq ft home sold today for $712.5k. That makes it $313/sq ft, highest in the area and a record. My neighbors next door in July 2015 same exact layout, same size 4 bd/2.5 ba, 2000 sq ft home bought for $570k. So in 8 months (they bought the 1st weekend of March) the house went up $142.5k in 8 months or 25% in 8 months. The annualized return is 37.5% so the house should be worth in July $783k if the prices keep rising on track.

But I wonder what sort of people participate in a bidding war and end up paying $80k over asking price. Do they have any regrets? Was that always the plan and were they planning on spending more? Did they realize they were setting a new bar for price/sq ft? Do they even care?

But I'm concerned. We left an expensive area for an area that is still cheaper but I'm wondering if in 1-2 years will be just as expensive? We sold around $400/sq ft and but that seemed to be the cap in the sense that it's going up maybe 3-5% a year. Not going 37.5%/year.

So right now I'm not sure it's a sustainable market. Maybe I'm wrong and it's time to buy before it goes up another 40%. But if it goes up another 40% then this "entry" level home will be $1 million.

Thoughts?

peer pressure to spend

March 14th, 2016 at 03:33 pm

My neighbor's house is for sale. Very nice place and I'm sure there will be a bidding war. She's selling it because they want to cash out their equity and move to a cheaper neighborhood with a longer commute. That way instead of having bought their house for $420k with 5% down payment, she can have a bigger home, longer commute but put down 20% or more down payment depending on how much they make on the sale of the home.

The problem? EVERYONE (not me) has been telling them to just buy more home. She said they are doing it because they aren't able to live on her husband's paycheck and are dependent for her to work and cover the bills. Her husband pointed out if they sell and buy with more money down they can live on one income and she doesn't have to work and can stay home with the kids if she wanted. She works part-time as a nurse and makes good money. She isn't sure if she wants to stay at home full time but is sure she wants to live on one income.

She was telling me and asking how the heck we were living with no income. I told her the truth. We saved a lot of money and live cheaply. We've always lived on one income and I think that it's the way to go in today's society.

She said that coworkers, family, even their parents suggest buying more house with the equity they are getting. No one is suggesting they "downsize" and move somewhere cheaper. But she feels that not having the pressure to work and knowing they can afford the car payments, student loans, and mortgage on just her husband's income would be huge. I agreed that is would be incredible to do it. I did say I hate long commutes, but I can see the enormous benefit of living on one income.

What astounded me was when she said they were doing this to "downsize"spending (I mean really I'm not sure most on this board would say they could afford their house in the first place having put down only 5%), makes financial sense. Yet people are encouraging them, friends, relatives, real estate agent, to upsize in price of the home and spend money. Keep the payment the same but go up since you have so much more to put down.

Seems logical but not when the budget was tight to begin with. I think people go a bit crazy with mortgages and student loans. I think that MANY people justify both a larger mortgage and large student loans as "good" debt and don't really look at the big picture. They don't see how tight it could make a budget. Or how it could be useful to try to stay within certain income parameters. People who care about you actually encourage in some ways overspending. $50k student loans? Sure you'll get a job. Housing at 35%? Sure your income will grow.

I find it astonishing because lenders approve the loans and your friends and family support the idea.

I am starting to think we preach financial responsibility. But if our own friends and family encourage "good" debt and stretching ourselves financially, how can people be financially responsible? How can you learn if everyone else is doing the same? Or egging you on?

Real Estate questions

March 12th, 2016 at 03:55 pm

Okay everyone talks about how to pick real estate and we touched on bad house in good neighborhood versus great house in bad. But what factors are involved? What's important in buying a house?

1. Condo versus house? Let's assume you can't afford a house in your chosen neighborhood but you can buy a condo. Which is it? Condo let's say is closer to work but house is farther way? How important is a commute?

2. If you did buy a condo what if you can't afford a 2 bd but only 1 bd?

3. If you could buy a house in your chosen neighborhood what if it were only 2 bedrooms instead of 3 bedrooms?

4. What if the house only has 1 bathroom? It also depends if there is a logical area to add a second bathroom. Or is a second bathroom unnecessary?

5. Do you buy a house in the "right" neighborhood but on a busy road? What if it's not in a neighborhood but a commuting traveled road?

6. Do you buy a home with a bad layout and not easily fixable due to constrained lot size?

7. Is it ever worth to buy a home fixed up or better to always buy a fixer?

8. Is it worth looking for a bigger lot with an older house or newer house on a smaller lot?

9. What about buying next to places likes a little strip mall or gas station? It's nice to have things but at the same time is it less desirable to be next to things?

I heard a quote from my old realtor. The time to buy a house and move up in size/price/location is during a recession. Yes you'll sell your house at a loss but you get a better deal. But the time to sell your house is during a boom. Then all the "negative" faults of your house, too small, one bathroom, busy road is more likely to be overlooked by the buyer and bought without question.

What do you think?

Housing Bubble again?

March 7th, 2016 at 12:37 am

Are we in a housing bubble? So here is some quick facts. Our neighbors are about to list their 4/2.5 bath, 2006 sq ft house for $630k. They think it'll go in a bidding war for much higher $650k+, they are probably right. They bought it in 2012 for $420k and have sunk in $50k probably. She said they only put down 5% and most people they knew were putting 5% or less down. So where are these tighter lending standards?

However the house next door to us also bought 7/2015 last year 4bd/2.5ba, 2006 sq ft for $571k. So in 8 months the same size house, same location, same condition has increased in $60k if not $80k more? That means it's increased 10.5% in 8 months. Right now since 2012 my neighbor's house has increase 50% in 4 years if not more with 10.5% coming in less than 8 months. This seems like a lot.

My neighbor is selling to cash out equity and put down 20% on their next house. Yes she said in 2012 they put down 5% and many people they know are putting down 5% or 0%. When apparently it's supposed to have gotten "tougher to qualify for mortgages." So let's assume people are putting 0% to make calculations easier.

At $400k @ 4% = $1910/month mortgage (they pay $2500 PITI we're going to use $600 TI/month), with a DTI 25% = $10k/month income or $120k.

Last year the PITI for $570k $2721 mortgage + $600 TI = $3321 PITI, with a DTI 25% = $13,284 ($160k gross salary).

Now at $630k = $3008 mortgage + $600 TI = $3608 PITI DTI 25% = $14,432/month ($173k gross salary).

If we go on the presumption that it will grow by the end of this year in 8 months 10% the cost of the same house will be $700k = $3342 mortgage + $600 TI = $3942/month PITI, DTI 25% = $15,768/month income ($189k gross income).

So I guess I can see how housing affordability can go from $120k combined income to $189k in 4 years but it seems like an awful lot be able to afford the same home. Incomes I doubt have grown that much. The needed income had to have risen 57.5% in 4 years to stay at the same level of affordability.

Either people are stretching more. Incomes have increased more. Or potentially we are in a bubble, but when will it pop? Or will it never pop and this is the new level of home prices for the area and it might just stay flat for 10 years until incomes catch up?

I think it might level off and not go much higher because I think incomes need to catch up. I believe it might not drop to 2012 prices, it might not drop at all, but it might stay steady until people are able to catch up affordability. Of course this assumes that nothing during this period causes people to lose income.

I'm nervous about buying. I'm also unsure how long to sit out of the housing market because it's nice to stay put and know your housing expenses. My DH is of the opinion that if you are ready to buy then buy. But what is nothing you like comes on? I wonder if we should maybe rent? Rents are not keeping up with home prices but it would mean moving.

What do you think is going to happen?

My craziest mortgage

February 4th, 2016 at 01:45 am

Did I ever mention the craziest mortgage I ever had? I had a home equity line of credit as our first mortgage back in 2003. It was literally a free standing check book where we had to pay maybe $100/month just the interest on the balance of our HELOC. We owed at the time I think $130k and by paying it off with snowflakes by the time we sold in 2005 it was down to $120k. We used the flexible payments and low interest, the interest on the HELOC was floating and changed monthly. This allowed us to pay as much as we could on good months, and draw on the home equity on bad months.

Looking back I cannot believe the bank let us do this with no assets and no savings. All they had was the home. Insanity. Of course this in turn allowed us to gain equity and turn it into 20% on our next home. But it was a lot of risk and a lot of discipline to pay down our debt instead of taking advantage of spending the excess.

I say this because I was chatting with a realtor recently when I mentioned bubble and froth, he said that don't worry as long as you have a job you'll get approved with good credit. I said it was a bit overextending if we went any higher and his response, most people have no trouble refinancing and affording payments since rates are so low and the houses are appreciating 15% year over year. Um okay.

I said great thanks. I decided I'm getting more nervous buying a house and putting my neck on the chopping blog.

Pay down mortgage or invest?

November 6th, 2015 at 06:26 pm

Does it makes sense to pay down your mortgage or invest? For the most part it depends. Depends on your risk tolerance. Depends on your age. Depends on if you bought too much house. But honestly the numbers support investing first, especially in tax deferred (401k) or tax free (Roth IRA) accounts before you pay a penny in overage to your mortgage. The big reason being you can't go back and put the money from your mortgage being paid off into past years contributions.

What do the numbers say? I use round numbers because it's easier. Assume a couple with a stay at home mom, 2 kids, and an income of $100k and are 35 years old. Assuming Couple A contributes 15% to their retirement and the rest of their money to their mortgage. Couple B maximizes the retirement savings to 401k+Roth IRA and nothing to their home. They have a mortgage for $300k on a home worth $360k.

What ends up happening?

Couple A
$15k retirement/year, pays home in 15 years because they have an extra $10,500/year for mortgage paydown. They then divert $1551/month into retirement/taxable savings for the next 5, 10, 15 years.

Couple B
Saves $29k/year and pays less in federal income taxes. But they don't pay down the mortgage because all their extra money goes to retirements savings.

Couple A - using a 6% Return on Investment (ROI)
15 years retirement $358,462.00
20 years retirement $566,801.00
5 years tax/retirement $107,773.00
25 years retirement $845,365.00
10 years tax/retirement $251,998.00
30 years retirement $1,218,146.00
15 years tax/retirement $445,002.00
Total savings = $1,663,148.00, No Debt

Couple B - using 6% ROI as well
15 years retirement $693,181.00
20 years retirement $1,095,510.00
25 years retirement $1,633,918.00
30 years retirement $2,354,429.00, No Debt

Couple B has $691,281.00 more than Couple A after 30 years and a paid for home as well.

Couple B has been paying less federal taxes because they are using the 401k to lower their taxes. Because of this they actually after getting close a 40% bonus savings rate. How? Well they are saving $29k/year versus $15k/year for Couple A, but Couple A overall only had $10,500 extra to direct to the mortgage for extra savings. So almost a 40% bonus just from less taxable income.

But after 15 years Couple A is debt free. True, but Couple B likely are decent savers having put savings on auto-pilot. And whose to say either couple won't cash out their homes and downsize? In which case Couple B could in theory be debt free as well. But likely not.

Renting is not throwing money away

October 26th, 2015 at 08:59 pm

Renting is not throwing money away. I went to a pampered chef party on Friday and meet up with some new people in the neighborhood. The pampered chef spokesperson just moved from Boulder, CO; the host just moved from Avon, OH, another woman just moved from Pittsburgh, PA, and the rest were from the area but a few had just sold and moved homes.

All I kept hearing was that renting was throwing away money. All of the other three women who were "renting" had come and lived in a hotel for a month because they had attempted to buy a house. But they were unable to do so because the housing market was so hot they were outbid on multiple homes. They were all feeling this pressure to buy a home NOW. All three are currently looking while renting. They ended up renting because they were unable to find anything else. They had come out on house hunting trips but the market was too hot.

I was the only one whose plan was always to rent and possibly rent another year. When I said it was cheaper to rent than to buy right now the rents weren't lining up everyone else said the problem isn't housing prices, it's that I'm flushing money down the toilet.

I ran the numbers and according to a blog about how to tell if a home is a good rental the short answer no. The rents are not 1% of the purchase price of the homes right now. The cap rate of the property right now is 2.5% which is Net Operating Income/Value. The cash on cash return is 13% however which is NOI/Down Payment. So the cash on cash leverage is the only thing going for these rental homes. That an appreciation.

Besides all these women talking about flushing money away, we went to look at some new construction homes as well. Well the builder/seller there said "you need to lock our prices in, because next year it'll be 10-15% higher due to appreciation in the area, and you get the gain. Not the builder! So put down a deposit and get into this market before you are priced out."

This is probably a very typical tactic but I must say if anything this made me feel like running for the door. We're in no position to buy and might not be in position to buy next summer. But I think investigating the situation before leaping even if we had great/stable jobs, income, etc is still a good idea.

If we had moved with jobs I'd still hesitate because what if we ended up not liking the area and moving again? What if the job turned into something we hated? I wonder with all this talk if there is another housing bubble happening. Seems like homes went up 15% a year for the past 3 years. But the fundamentals are different right from the last bubble? Maybe it's because it was flat for so long? Or is it again that people are going nuts?

Utilities - lower cost of living

September 15th, 2015 at 03:00 am

The lower cost of living is SWEET. I am loving the small benefits. Yes housing is at least 25% cheaper, probably closer to 30-40% to be honest when everything is said and done. It's hard to compare because the houses are newer and need less work so where we lived a $800k home was a "fixer" that is about the same size or bigger, but needing new furnace, roof, insulation, lead paint, windows, electrical etc. I mean that this year 2 of my friends bought homes they couldn't move into without getting the electrical upgraded from Nob 2. That was $15k OOP before they moved in, besides it was a safety hazard. Both people also had to tear out bathrooms that had leaks and were rotting and are working on those projects. So though I think house are at least 25% cheaper I think it's much more.

But I can definitely see a difference in utilities however with our first electric bills. Here it is 9.5 cent/kwh, we last paid 24.8 cents/kwh where we lived. Ridiculous. If we used the same amount 921 kwh we should have paid $87.49. Instead we paid $228.40. So around 1/3 the price we paid.

Our natural gas in our new location $1.03/therm used. In our last place we were paying $1.16/therm used and this was summertime. The price in Dec/January was $1.40/therm. Being the frugal folk we only used 307 therms in the winter. So our bill was $430. Our connected neighbors who heated to 70 instead of our 60 was $1200.

Another direct comparison was our property taxes. The property tax rate of our town was $12.12/$1000 of assessed value. Here the assessed tax rate is $10.73/$1000 of assessed value. This is 12% saving on property taxes and that's direct comparison of assessed value.

I'm waiting on our water bill but previously our water bill was $18 per CCF for combined water and sewer. I'm interested in the rate we will be paying. Of course we are also paying $30/month trash service.

Add this all up with a saving of state incomes and lower food costs and I think we could potentially be looking at a lower cost of living around a solid 20%. So a 20% paycut should be fine. The question is where we will land income wise?

I also know that where we moved is not a LCOLA. It's actually pretty expensive for the US comparatively. Perhaps others will chime in about their cost of living. Do you watch what you pay? Do you know what you pay? I know when we moved from CA to the East Coast we had comparable COL. But this is the first time we've ever lived somewhere cheaper for us both. It's pretty sweet.

new neighborhood

September 11th, 2015 at 04:30 pm

The neighborhood we live in is great. People seem less rushed and less stressed. The houses are very middle class and if I had to guess most people are solidly middle class.

But what struck me is a lot of the phrases I'm hearing. Before we lived in a very upper income, affluent area for the country. Average house price was $1M, condos were around $500k+, so you can imagine that the average salary I think was $100k. Where we lived that was scraping by.

Now the area we've moved to the houses are running around $400-500k and it's considered one of the more affluent areas of the city we live in. Honestly expensive compared to many other suburbs. Most people here are 1 or 2 working professionals like where we lived, and I'd guess the average income is also $80-100k.

But I've heard from a lot of people that they are on a tight budget, living paycheck to paycheck, and stretching it. I don't get it.

I know where we moved from people made a lot of money, but I also know there were MANY two income professional couples trying to keep up with the Joneses. But here people don't seem to be driving Audi, Lexus, BMW, Benz. They aren't sending their kids to tons of activities that cost exorbitant amounts or hiring nannies to pick up the kids and chauffer them.

But they are talking about leasing a new Rav4, not affording activities for kids, and being paycheck to paycheck. I am surprised. I thought that they are living so much more modestly they would be saving more. But it seems that no matter what the house price, income, or area, many people aren't saving and struggling.

I thought it was mostly those who tried to keep up with the Joneses at the highest levels of income that were in trouble. Now I think that at all income levels people are trying to keep up with the "joneses" of their level.

FWIW we fit in better in the neighborhood carwise and stuff. We don't seem so frugal. But I wonder if knowing we can afford more might not encourage us to spend more?

The rental equation

August 7th, 2015 at 04:00 am

Will we be saving money by moving? Can we compare apples to oranges? Have we saved? I think unequivocally yes. We just rented a single family house for $2400/month.

The house next to our rental sold on July 31st 2015 for $571k for a 4/2.5 bath in much nicer condition. Our rental was bought October 14, 2014 (less than a year for $445k). We bought our townhouse in 2005 for $575k so we are in the right price range without moving up cost. We also are moving up in size and amenities.

For people who are into real estate based on pure numbers not including maintenance costs over the years we averaged 2.8% appreciation over 10 years. I enjoyed not moving and having stability. But honestly we did better investing in the stock market.

Also for our rental I think our utility bills will be lower I suspect because the house is 2005 built versus 1880s. We were averaging $250/month balanced bill for heat/natural gas and $250/month electric all year. Our heating bills if we had not paid balanced billing was on the worst months $700-800/month. We also paid approximately $150/month per unit in our association for water and sewer. According to the property manager we should pay around $100/month water, $100/month electric/heat, and $30/trash.

Of course we won't have a tax break, nor will we be "saving" money by paying down equity. So that may negate the savings in utilities.

But I think since we've moved to a new area and are uncertain about it renting makes sense financially so we don't leap into a house and make a mistake. What if we don't like the commute? What if we don't like the schools or community? Yes renting is paying someone else's mortgage but you are also buying yourself the flexibility to research the real estate market. You are buying the flexibility to make a mistake on location without losing your shirt and moving.

So yes with two kids and in our 30s we are renting. A lot of our friends and colleagues have said why? Don't waste money. You are going to hate it. But honestly it makes sense.

Renting is a luxury because often times it's cheaper to buy. But renting buys you flexibility. You are buying opportunity (job, school, life changes). And truthfully you are buying not having the headache of repairing anything. I am honestly a little apprehensive at living in someone else's home. But then I think "oh well if anything breaks, it's THEIR problem". And if anything happens they fix it. I can't wait. I've done enough home repair in 3 months to last 3 years.

Home Sale and Debt Free

July 9th, 2015 at 04:19 am

Our home sold on Tuesday July 7th. We officially are debt free and don't own a home. In many ways it's very freeing. Since we've been on the road I'm not sure what fees and will look over when we have a chance. But overall life is GREAT.

I can't explain the relief and lack of anxiety I now feel having finished the sale of our home. Sounds nuts but this home sale was giving me a lot of grief and ulcers.

Besides the fact that the packing moving was very slow and a lot harder than I thought. We had 80% done a week in advance of moving. But that last 20% was so difficult. We got to the point of no return honestly. We just started throwing things in boxes and loading the trailer. We ended up with 15' linear feet, a foot less than estimated.

We did hire movers for 3 hours at $60/hr and it really helped move things along. According to the tracker our trailer is in PA waiting to go to Dayton, OH. Sounds crazy fast.

Plan is still to arrive and find a place and have our trailer stored and then delivered end of August.

FWIW, it's a little weird not being a home owner for the first time in 13 years. It's also weird knowing we owe nobody NOTHING. That we have no big debt hanging over our heads. We also have a nice big cash number in our bank accounts so life is a little more rosie. Now onto our road trip.

Bad financial decisions

May 29th, 2015 at 02:58 am

There is no other way to put it than sometimes good people make bad financial decisions. Had a bbq at my place for memorial day and a few friends over.

Ms C is a school teacher who bought a new house recently for $430k. Her dream home and it's lovely. Needs easily $200k in renovations but they got into a great town. However before they move in they have to rip out the electrical since it's Nobbin 2 and redo the entire place before it burns down. Should cost at least $10kish. They are closing on June 9th to buy and selling their current home June 12th if everything goes to plan. They however to buy the new house had to borrow from her husband 401k for the down payment and said they'll pay it back after they sell their other place. Plus afterwards they'll have money and be able to live again. This house will be able to fit in their budget again and they couldn't afford to close sooner since they can't afford to have a mortgage payment before August.

Writing that paragraph made me cringe. By the same token Ms A is at it again. Though her mother is kicking her out at the end of June from her pretty much rent free apartment, and she hasn't found a place to live, she went with her family away for memorial day weekend. Spending as she put it a fortune on a hotel at the last minute at an extremely expensive tourist area. They needed to get away from the stress of their life. They needed to bond. Sure it all went the CC but she said it was "needed".

Again writing that previous paragraph was tough. I know what can I say? We are throwing away all our income and moving on a whim. And we're living off savings as of right now. But at the same time we aren't borrowing money we don't have and we aren't borrowing in hopes of making it.

We are spending what we save. But perhaps it's just a hair different. Who knows. But there are a lot of bad financial decisions out there. And it's certainly hard for me to button my lip and not say "don't borrow against your 401k or charge stuff on a CC".

Landlord or Sell

April 2nd, 2015 at 10:53 am

So more than one friend has commented that my DH and I should turn our current house into a rental. That we should cash out some equity for the DP on our next place and then rent it out. Truth be told we probably have enough cash on hand to buy our next place with a 20% DP without cashing out our current home.

But I don't think it's a good idea. I haven't calculated the OAR or done a spreadsheet of the analysis. But just my gut says it's a bad idea.

I am going to do a rough analysis now. We could rent out place conservatively for $3500/month or $42k/year gross income. Our mortgage on it is $2250/month PITI is $27k/year. We'd only net $15k/year not including HOA $250/month ($3k/year), utilities say $25/month ($300/year) since it's only when vacant.

Obviously it's not a very profitable rental in the sense it has very little cash flow. Another Reader has said in HCOLA people are counting more on appreciation than on cash flow. Sounds reasonable but I think it's really risky to be investing in real estate where I live then. Because you need to have a large cash flow to be able to carry these types of rentals if something goes wrong and there is very minimal cash flow. If something major breaks or is not rented for months then what?

Perhaps if we lived somewhere that renting it would generate 10-15% return on cash I'd do it. But at barely breaking even and counting on appreciation as the way to make money. I think I'll have to pass.

Perhaps more savvy real estate investors will explain why I should or shouldn't keep it as a rental.

Selling the house

March 19th, 2015 at 12:48 pm

Okay so I've meet with 2 realtors and 3rd tomorrow afternoon. I've also met with one painter and am calling 2 more painters today and tile guy. We decided we are going to aim to list our house April 29th. It's time.

Are we moving? Yes. Where? I have no idea. We are going to move cross country without a job. Unsure where exactly but that will likely become more clear in the next few months.

Financially one realtor, the one who sold us the house, said she'd list it at $699k and see what bidding war happens. A direct comp (townhouse on our street) sold in fall 2012 for $695k and the market is even stronger now, so getting $699k is very conservatively likely. This market is late this year because of the weather so we aren't missing the spring market though we're listing so late. There is nothing on the market now and if we were ready to sell next Wednesday we'd likely have a bidding frenzy. But due to the nature of getting ready we just can't.

Houses are selling like hot cakes in my market without mortgage contingencies or home inspections contingencies. This is a seller's market and we need to take advantage of what might be another bubble. We owe I believe $385k so if we sell for $700k after our realtor fees we'll walk away with $280k. In many areas of the country it's enough to buy a house. Where we want to move to, probably not. But it's a substantial down payment on whatever we want to buy. Of course when we move we aren't buying for at least a year.

Should we sell our house now?

February 22nd, 2015 at 05:07 pm

So we are not sure what to do whether we should sell our home and rent. Background and some information. We are planning on moving June 2016 no matter what. DH is quitting his job and we are leaving the area to relocated cross country. This could happen sooner if the right opportunity arises. Unfortunately his most recent interview did not work out. So we plan on selling our townhouse next spring no matter what. But we have one year to live where currently are or sell.

We live in a nice 3bd/2.5ba townhouse (1700 sq ft) with parking spots in good school district. DH commute is 30 minutes driving and 1 hour by public transit. We owe $385k on our place and conservatively we could sell for $750k right now. Our current monthly payments are $1700 mortgage, $550 property taxes, $250 HOA = $2500/month. Our utilities we pay a balanced budget of $250 electric and $300 natural gas (last month our gas/heat bill was $700).

If we were to move we would be looking at paying around $2k/month to rent a 2 bd condo 1200 sq ft. However it would be a 30 minute commute by public transit and less driving. A few of these rentals include heat and hot water including one I found for $2195/month 2 bd. The school district is also good but the commuting location is better.

So the question is should we sell our place and lock in our equity? Perhaps it'll go up more in the next year but we are really betting on is that nothing will happen to our condo in the next year. That we won't be hit by any big repairs.

When I look at it I know financially it makes most sense to stay put right? I mean we are paying around $850 interest and $850 principal. And the interest and property taxes are deductible and principal payments are enforced savings. So in effect we are paying to rent our place $1300/month with HOA + interest/property taxes (taxes deducted out). Versus $2k to rent a smaller but better located apartment.

So how do I calculate what's better? What am I missing out?

Condo living exhaustion

July 22nd, 2014 at 01:32 am

So I am pretty exhausted as I write this. This is probably yet another straw about why tying your yoke to others is exhausting.

I wasn't blogging when this happened but in January of this year we had a pipe burst in our neighbors and flood their unit and the unit below. They were on vacation and had left the heat on but the pilot light went out apparently on the gas insert fireplace. They had left on the central furnace but it wasn't enough.

My DH was the only person home and not only turned off the water, but he shop-vac the water, drained, cleaned, called and paid the plumber and fan drying guys. He truly works just as hard as I do on our place (in case I sound like I'm complaining, we both break out backs).

Anyway because of this water damage loss our master condo policy was not renewed and is ending August 10th. I've been in contact with our current agent and calling multiple agents regarding getting new insurance. Based on condo docs we need to get something in place and it can't be crap. And I've been looking into our state insurance if all else fails.

Besides that I've been calling the people who installed our fence to come out and repair the gate that broke off. And I've dealt with the tree removal people and gas lines. I'm just tired. My DH does the bill pay and manages the books. I manage everything associated with the maintenance.

But it's exhausting. I got an email 3 months the gate broke off. No suggesting they take care of it. Rather "deal" with it tone.

I am just done. Whoever said condo living is easier hasn't live like this.

Making Choices

July 7th, 2014 at 12:59 pm

We visited with some friends this weekend at their new house! Huge, perfect, lovely. They got the lifestyle they wanted! It's 2400 sq ft house with 4/2.5 ba, attached 2 car garage, and unfinished basement, all for the rock bottom price of $650K! Amazing deal. So what's the catch?

Well they commute a solid hour without traffic and if they had to work rush hours it'd be closer to 1.5-2 hours. They live about 45 minutes from me without traffic. So it's not an easy commute and they admit that. But it's the lifestyle they wanted and they got the house they wanted at a price they could afford. We talked about it, they work close to where my DH works. And the truth is with 2 kids and a stepchild they make huge commuting sacrifices and even seeing her stepson less (he lives in the city with his mom and prefers to stay weekends to hang out with friends). But they now have a bedroom for each kid and space they didn't have before.

So my DH and I were in lust. Yeah as we looked at the brand new construction we sighed. Very cute. We agreed the sq ft and use of space was perfect. I'd change only a couple things, full bath on first floor instead of half bath, and open floor plan instead of dining room and nix the office. But size wise the house felt super large and there was tons of closet space and storage. Honestly it was more than adequate for us we both agreed.

So now I know that 2400 sq ft is more than we'd need, I suspected around 2000 depending on layout but most people I know with new construction have 4000+ sq ft, and yes it's over $1.7M. So I couldn't accurately gauge what a smaller new house would feel like.

I'm so happy my friend got the house of her dreams and the life she wants. She got everything she wanted and it is worth celebrating. I hope I get to that point as well where everything falls into place. They even managed to sell their other two homes without losing their shirts! CHEERING!!! They had been carrying one of them and shelling out $500/month because the rent didn't cover the mortgage and they were about $75k underwater. They did it! Consolidated and got something perfect they wanted. The success for them is great.

But life is about choices. And my friend said they consciously decided to live far from friends and work because they liked the quirky nature of the town they bought in, the house and lot was rural and private, and the lifestyle on the weekends of being in nature. No they are not retiring early or anytime even close to soon and this commute will be happening I would guess another 15 years. But if they decide it's too hard they can always change their minds. BUT they seems super happy with the house so I doubt it! I applaud their brave decision to go do something different.

I kind think that's the best case. If you want to change your life you do it. Life's about choices. And when it's not working you change it. And if it's still working you change it again. The only pitfall? You have to live with the choices you make.

Can you afford your house and car?

May 30th, 2014 at 12:26 pm

So a long, long time ago my mom said something that often resonated with me. She talked about people affording the expensive homes and flashy cars. My parents are those millionaires next door and so are my in-laws. And my parents are also the people who spend money like water, but have always out earned stupid. They've made so much money that it's never mattered how they spent it.

But my mom still preached financially responsibility and buying what you can afford. She said it's not bad to buy a big home or luxury vehicle if you can afford it. The problem is? Affording it. Really affording it. Not affording it on a shoe string.

Sure you can afford the monthly note on either a $500k home (this was a long time ago) or $50k car. But what happens when you need to repair it? Why would anyone want to buy a $500k McMansion and then have to clean it themselves? To really afford a house that big and expensive then you should have enough fat in the budget to hire someone to clean it. Be able to hire someone to fix something if breaks. You shouldn't be worrying about every little repair because if so you can't afford the house. The house is more than the payment monthly.

Same with the car. Her example was if you are sweating buying $400 tires for your luxury car then why did you buy it? Or $1k repair? Did you not realize the car is more than just the payment? Or the more expensive the car, typically the more expensive the repairs? We're not talking older versus newer car but rather brakes on a Toyota versus brakes on the Lexus.

That got me thinking that I would always try to underbuy what we could really afford so I'd have lots of fat in the budget to deal with all the extras. That I could own my house and car and take care of them and not worry they would rule my budget. That the next repair was too expensive and I'd put it off.

Turns out my mom gave good advice. Did you overbuy?

I have an adjustable rate mortgage...

May 22nd, 2014 at 12:06 am

When we bought our townhouse in 2005 we bought using an 7/1 ARM @ 4.25% for $460k. We figured we wouldn't be here in 2012, hahahaha...We're still here in 2014. BUT we've saved a ton in mortgage interest and we've still got an adjustable rate mortgage.

Back in 2011 we refinanced to a 5/1 ARM at 3.125% $416k. A year later in 2012 we refinanced to another 5/1 for 2.625% for $410k. Both times was no cost mortgage, so our rate was higher than if we had paid but it didn't cost us anything to get a cheaper rate.

Our current mortgage caps out in 2020 @ 7.625%. It starts increasing in 2017 @ 2% annually and caps out with a lifetime minimum of 5%. Who knows where rates will be but since we're paying down approximately $800/month or $10k/year we could easily handle the increased interest rate or we could refinance before then. Seriously we've saved a ton in mortgage interest and we've been paying down the mortgage faster because of it.

We have 33% equity in our house now based on purchase price, and with current appraisals/sales I know we're looking at a sale price of $725k-$750k and we owe around $390k so we have about 50% equity and we'll be paying off more the longer we stay put.

The joys/sorrows of living in such a HCOLA. It's an old, tiny townhouse. But it also could be the bedrock of our future plans.

Have you considered an ARM?