Advice on buying a million dolloar house, please

[sdcellar]

masayako– I have to say I’m having a hard time fully understanding what question you’re looking to answer. I understand the original post, which is how much to put down and what type of loan to get, but further along, you say that you’re on track to have 50% down in 3 years time.

This introduces the factor of when you’d actually be pulling the trigger. On first glance, one might conclude that you plan on purchasing three years from now and are simply wondering how you might approach it when you get there. Thinking about it a bit more deeply, it seems you could be considering a number of other alternatives.

Perhaps you have 20% today, so if that’s a good idea, you would buy today (assuming there’s something you like).

Perhaps you really are three years out, but you want to think about how you might lock up your money. That is, you decide you like half down, so you need to be fully liquid to the tune of $500K in three years.

And, I could go on and on.

I guess what strikes me is your’re asking the question today (well, the other day, really). If you’re three years out, then I’d say save as much as you can, invest it wisely (easier said than done, as someone said, more reward indicates higher risk) and continue to noodle on how much to put down and what vehicle you might use to finance it. It doesn’t do you any good to ponder 4.25% interest rates offered today because who knows where that will be three years from now. Same thing with your million dollar house. Not many meeting your criteria today and who knows what it will look like in three years. Could be a lot more (and cheaper). Or not.

So I guess the short version is “What is your time horizon?”

(and, yes, “between 0 and 3 years” is a fair answer)

Just trying to fully understand the question.

[sdcellar]

and looking more fully, I guess your original post did say “a few years.”

(but I still wouldn’t mind understanding your shortest time horizon. For me at least, the further out one goes, the harder it is to come up with an answer. Maybe there’s a general rule of thumb no matter what, but I personally don’t know what that is.)

[sdcellar]

and looking more fully, I guess your original post did say “a few years.”

(but I still wouldn’t mind understanding your shortest time horizon. For me at least, the further out one goes, the harder it is to come up with an answer. Maybe there’s a general rule of thumb no matter what, but I personally don’t know what that is.)

[sdcellar]

and looking more fully, I guess your original post did say “a few years.”

(but I still wouldn’t mind understanding your shortest time horizon. For me at least, the further out one goes, the harder it is to come up with an answer. Maybe there’s a general rule of thumb no matter what, but I personally don’t know what that is.)

[sdcellar]

and looking more fully, I guess your original post did say “a few years.”

(but I still wouldn’t mind understanding your shortest time horizon. For me at least, the further out one goes, the harder it is to come up with an answer. Maybe there’s a general rule of thumb no matter what, but I personally don’t know what that is.)

[sdcellar]

and looking more fully, I guess your original post did say “a few years.”

(but I still wouldn’t mind understanding your shortest time horizon. For me at least, the further out one goes, the harder it is to come up with an answer. Maybe there’s a general rule of thumb no matter what, but I personally don’t know what that is.)

[masayako]

Sdcellar,
Assuming I can save $50k per year, I should be able to reach $500k in 3 years for a substantial downpayment. We don’t want to carry more than $500k mortgage so pulling the trigger with 20% downpayment sounds a bit too risky to me. Throughout the next 3 years, housing may go down, stay about the same or even go up a little (not likely), I am betting it to stay around the same. In short, I am just saving and hoping houses that I am interested in come down or worse case stay around the same price while savings catch up.

[masayako]

Sdcellar,
Assuming I can save $50k per year, I should be able to reach $500k in 3 years for a substantial downpayment. We don’t want to carry more than $500k mortgage so pulling the trigger with 20% downpayment sounds a bit too risky to me. Throughout the next 3 years, housing may go down, stay about the same or even go up a little (not likely), I am betting it to stay around the same. In short, I am just saving and hoping houses that I am interested in come down or worse case stay around the same price while savings catch up.

[masayako]

Sdcellar,
Assuming I can save $50k per year, I should be able to reach $500k in 3 years for a substantial downpayment. We don’t want to carry more than $500k mortgage so pulling the trigger with 20% downpayment sounds a bit too risky to me. Throughout the next 3 years, housing may go down, stay about the same or even go up a little (not likely), I am betting it to stay around the same. In short, I am just saving and hoping houses that I am interested in come down or worse case stay around the same price while savings catch up.

[masayako]

Sdcellar,
Assuming I can save $50k per year, I should be able to reach $500k in 3 years for a substantial downpayment. We don’t want to carry more than $500k mortgage so pulling the trigger with 20% downpayment sounds a bit too risky to me. Throughout the next 3 years, housing may go down, stay about the same or even go up a little (not likely), I am betting it to stay around the same. In short, I am just saving and hoping houses that I am interested in come down or worse case stay around the same price while savings catch up.

[masayako]

Sdcellar,
Assuming I can save $50k per year, I should be able to reach $500k in 3 years for a substantial downpayment. We don’t want to carry more than $500k mortgage so pulling the trigger with 20% downpayment sounds a bit too risky to me. Throughout the next 3 years, housing may go down, stay about the same or even go up a little (not likely), I am betting it to stay around the same. In short, I am just saving and hoping houses that I am interested in come down or worse case stay around the same price while savings catch up.

[CA renter]

[quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.

Am I missing something?
[/quote]

The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.

Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.

It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.

If you compare

A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.

You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.

Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]

The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.

IMHO, if one can get a fairly safe and consistent after-tax ROI that would be equal to or greater than the post-deduction mortgage interest (and origination) costs, then it could be argued that they should use a mortgage and invest the cash.

The problem is that many people talk about the “tax savings” of a mortgage, without considering the costs associated with the mortgage (interest and fees). If you’re paying a dollar in interest, just to save the 30-40 cents (or less!) from the mortgage interest deduction, you’re not thinking straight. You have to look at the net benefit of getting a mortgage and using that cash in other ways, vs. paying cash and getting a “guaranteed” return that’s equal to the mortgage interest and origination costs — and this “return” is tax-free, because savings aren’t taxed.
——————-

As far as the rent vs. buy issue, you also have to consider appreciation/depreciation, maintenance costs, the benefit of flexibility, whether or not your income is going to be stable/up/down over the next 30 years, the benefit of stability/control of housing costs, the benefit of owning a house outright in retirement, whether or not the MID is really going to make a difference in your tax situation, etc. There are a lot of things to consider when trying to decide if one should buy or rent. Realtors like to make it sound as though the MID is proof enough of the benefit of buying, but that’s a very simplistic and dangerous way to look at it, IMO.

[CA renter]

[quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.

Am I missing something?
[/quote]

The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.

Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.

It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.

If you compare

A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.

You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.

Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]

The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.

IMHO, if one can get a fairly safe and consistent after-tax ROI that would be equal to or greater than the post-deduction mortgage interest (and origination) costs, then it could be argued that they should use a mortgage and invest the cash.

The problem is that many people talk about the “tax savings” of a mortgage, without considering the costs associated with the mortgage (interest and fees). If you’re paying a dollar in interest, just to save the 30-40 cents (or less!) from the mortgage interest deduction, you’re not thinking straight. You have to look at the net benefit of getting a mortgage and using that cash in other ways, vs. paying cash and getting a “guaranteed” return that’s equal to the mortgage interest and origination costs — and this “return” is tax-free, because savings aren’t taxed.
——————-

As far as the rent vs. buy issue, you also have to consider appreciation/depreciation, maintenance costs, the benefit of flexibility, whether or not your income is going to be stable/up/down over the next 30 years, the benefit of stability/control of housing costs, the benefit of owning a house outright in retirement, whether or not the MID is really going to make a difference in your tax situation, etc. There are a lot of things to consider when trying to decide if one should buy or rent. Realtors like to make it sound as though the MID is proof enough of the benefit of buying, but that’s a very simplistic and dangerous way to look at it, IMO.

[CA renter]

[quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.

Am I missing something?
[/quote]

The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.

Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.

It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.

If you compare

A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.

You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.

Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]

The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.

IMHO, if one can get a fairly safe and consistent after-tax ROI that would be equal to or greater than the post-deduction mortgage interest (and origination) costs, then it could be argued that they should use a mortgage and invest the cash.

The problem is that many people talk about the “tax savings” of a mortgage, without considering the costs associated with the mortgage (interest and fees). If you’re paying a dollar in interest, just to save the 30-40 cents (or less!) from the mortgage interest deduction, you’re not thinking straight. You have to look at the net benefit of getting a mortgage and using that cash in other ways, vs. paying cash and getting a “guaranteed” return that’s equal to the mortgage interest and origination costs — and this “return” is tax-free, because savings aren’t taxed.
——————-

As far as the rent vs. buy issue, you also have to consider appreciation/depreciation, maintenance costs, the benefit of flexibility, whether or not your income is going to be stable/up/down over the next 30 years, the benefit of stability/control of housing costs, the benefit of owning a house outright in retirement, whether or not the MID is really going to make a difference in your tax situation, etc. There are a lot of things to consider when trying to decide if one should buy or rent. Realtors like to make it sound as though the MID is proof enough of the benefit of buying, but that’s a very simplistic and dangerous way to look at it, IMO.

[CA renter]

[quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.

Am I missing something?
[/quote]

The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.

Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.

It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.

If you compare

A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.

You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.

Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]

The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.

IMHO, if one can get a fairly safe and consistent after-tax ROI that would be equal to or greater than the post-deduction mortgage interest (and origination) costs, then it could be argued that they should use a mortgage and invest the cash.

The problem is that many people talk about the “tax savings” of a mortgage, without considering the costs associated with the mortgage (interest and fees). If you’re paying a dollar in interest, just to save the 30-40 cents (or less!) from the mortgage interest deduction, you’re not thinking straight. You have to look at the net benefit of getting a mortgage and using that cash in other ways, vs. paying cash and getting a “guaranteed” return that’s equal to the mortgage interest and origination costs — and this “return” is tax-free, because savings aren’t taxed.
——————-

As far as the rent vs. buy issue, you also have to consider appreciation/depreciation, maintenance costs, the benefit of flexibility, whether or not your income is going to be stable/up/down over the next 30 years, the benefit of stability/control of housing costs, the benefit of owning a house outright in retirement, whether or not the MID is really going to make a difference in your tax situation, etc. There are a lot of things to consider when trying to decide if one should buy or rent. Realtors like to make it sound as though the MID is proof enough of the benefit of buying, but that’s a very simplistic and dangerous way to look at it, IMO.

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