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A Wedding, a wife, a house oh my!!!

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Old 02-16-2012, 05:08 PM   #31
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Re: A Wedding, a wife, a house oh my!!!

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Originally Posted by Schneed10 View Post
Pay off debt first. If the interest is not tax deductible, then you want it gone before you buy a house. So unless it's a student loan, pay off the debt.

Then save up an emergency fund. Sock away enough to cover 6 months of your basic expenses: rent, food, utilities.

Then save up to buy a house, never dipping into the emergency fund. I don't think you need 20% down, that's impractical for a lot of people. The long term appreciation on the price of the home will outpace the cost of personal mortgage insurance.

Just keep your monthly mortgage payment (including taxes & insurance) less than 33% of your net monthly income. Any more than 33% and you'll start to feel the pinch.
To add to that, make sure that you still have room to save some money after you make your mortgage payments. With having a house, you never know when something is going to happen that will require you to put up some money to fix it.
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Old 02-16-2012, 11:27 PM   #32
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Re: A Wedding, a wife, a house oh my!!!

All this talk about renting out a house or not seems overlook whether WaldSkins and his wife wants to be a landlord and/or landlady and deal with tenants, and there are plenty of tenants who are "pesky". Well, there are property management companies, but there are potential principal/agent issues with them too.
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Old 02-17-2012, 08:13 AM   #33
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Re: A Wedding, a wife, a house oh my!!!

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All this talk about renting out a house or not seems overlook whether WaldSkins and his wife wants to be a landlord and/or landlady and deal with tenants, and there are plenty of tenants who are "pesky". Well, there are property management companies, but there are potential principal/agent issues with them too.
Dingus. The choice is whether he should buy a house or continue renting. Not whether he should rent out a house he owns.

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Old 02-17-2012, 08:25 AM   #34
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Re: A Wedding, a wife, a house oh my!!!

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Dingus. The choice is whether he should buy a house or continue renting. Not whether he should rent out a house he owns.

Reading is fundamental.

I think he got confused becasue the number of side bars going on. Which I caused most of them, sorry.

As far as answering the OP's question S10 has some great advice and a couple of others. Though I am very comfortable with my finances I took a lot of risk holding on to properties and what not early on when I was first starting out. I would not recommend it to everyone.

With that said I can't emphasized enough you have to decide what a comfortable risk level is for you when planing your finances. I build cost models everyday for my customer and everyone of my models has different levels of risk and confidence in them. All the models are then presented to the decision maker and they decide what level of risk they are comfortable with. You can easily do the same with your personal finances.
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Old 02-17-2012, 09:07 AM   #35
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Re: A Wedding, a wife, a house oh my!!!

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In your mind I have done it now counting the condo I bought in college for over 15 years, made great money on that place, over the entire time. I have two other small investment like that. I have had years where I have lost some money on them due to repairs or low occupancy but in the whole scope of the investment I have made positive dollars.

It is just a risk you personally are not willing to take that doesn't make it a bad idea or bad investment. There are many variables that come into play.

I much rather have those dollars wrapped in them then the current stock market.

I would not recommend it to everyone but I have the cash flow right now to make it a low risk investment.
It just happens to work out because you have been LUCKY so far. And you have still lost money on this venture, and could still lose money. Have you ever thought about what would happen if you got sick or injured and couldn't work? Or if you just flat out lost your job? How would you be able to maintain two rental properties and the current place you live in? I bet you're paying on all of that property, aren't you? Like I said before, it's different if the property is bought and paid for, but if it's not, you're taking a very insane chance at losing your butt.

I'm giving WaldSkins the best advice that he needs to hear. Schneed10 has pretty much echoed what I posted earlier. There is absolutely no risk in WaldSkins buying a home if he follows what I've said.
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Old 02-17-2012, 09:10 AM   #36
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Re: A Wedding, a wife, a house oh my!!!

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I think he got confused becasue the number of side bars going on. Which I caused most of them, sorry.

As far as answering the OP's question S10 has some great advice and a couple of others. Though I am very comfortable with my finances I took a lot of risk holding on to properties and what not early on when I was first starting out. I would not recommend it to everyone.

With that said I can't emphasized enough you have to decide what a comfortable risk level is for you when planing your finances. I build cost models everyday for my customer and everyone of my models has different levels of risk and confidence in them. All the models are then presented to the decision maker and they decide what level of risk they are comfortable with. You can easily do the same with your personal finances.
I feel more comfortable knowing that you admit what you're doing is not going to work for everyone. Sorry if my tone seems harsh, I am truly happy that it's working out for you, but it is a huge chance you're taking.
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Old 02-17-2012, 09:31 AM   #37
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Re: A Wedding, a wife, a house oh my!!!

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It just happens to work out because you have been LUCKY so far. And you have still lost money on this venture, and could still lose money. Have you ever thought about what would happen if you got sick or injured and couldn't work? Or if you just flat out lost your job? How would you be able to maintain two rental properties and the current place you live in? I bet you're paying on all of that property, aren't you? Like I said before, it's different if the property is bought and paid for, but if it's not, you're taking a very insane chance at losing your butt.

I'm giving WaldSkins the best advice that he needs to hear. Schneed10 has pretty much echoed what I posted earlier. There is absolutely no risk in WaldSkins buying a home if he follows what I've said.

There is risk in everything. Even yours and S10 plan. Should I never have a child because it could have down syndrome or something else horrible? Life is risk, some people choice to hide from it others choice to accept it but regardless it is still there.

And you are right I am very lucky person and I remind myself ever day of it. I have a healthy wife, my own health and two very healthy children. As far as losing my butt I have safety measures in place but that is not to say the perfect storm would not wipe me out or yourself. Again, I feel very comfortable with my financial situation; there are other factors that I am not going to bring in like my savings and cash flow that help strengthen my safety measures.

You seem to be bitter by my choices and for that I am sorry. Is that you are afraid of risk? Without great risk there are no great rewards.

As far as Waldskins he too can make his own choices; either risky ones or less risky ones.
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Old 02-17-2012, 09:35 AM   #38
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Re: A Wedding, a wife, a house oh my!!!

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It just happens to work out because you have been LUCKY so far. And you have still lost money on this venture, and could still lose money. Have you ever thought about what would happen if you got sick or injured and couldn't work? Or if you just flat out lost your job? How would you be able to maintain two rental properties and the current place you live in? I bet you're paying on all of that property, aren't you? Like I said before, it's different if the property is bought and paid for, but if it's not, you're taking a very insane chance at losing your butt.

I'm giving WaldSkins the best advice that he needs to hear. Schneed10 has pretty much echoed what I posted earlier. There is absolutely no risk in WaldSkins buying a home if he follows what I've said.

I actually lost my job after 9/11 and my rental properties kept me afloat for six months until my company hired me back. As far as losing money yes that will happen with any rental property from time to time you just have to have the savings/cash flow to ride that wave out. Anyone that has been in "business" has lost money it is the nature of the game.

You seem to believe I have no other forms of income other then my 9 to 5 and I do not have a savings account both are untrue.
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Old 02-17-2012, 10:38 AM   #39
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Re: A Wedding, a wife, a house oh my!!!

Skinsguy is right, that's a lot of risk, mredskins. Sounds like it has worked out well so far.

When you talk about risk in life - babies with down syndrome or likelihood of getting in a car wreck or likelihood of getting laid off - those are probabilities that are not easily quantifiable. However the risk that you'll lose a stream of rental income is very easily quantifiable.

Sounds like you're in good shape, but I'll say it anyway. You should make sure you always maintain an emergency fund that would cover 6 months of your own living expenses + 6 months of the cost of maintaining your rental properties + 6 months worth of whatever debt service payments you have on those rental properties.

If you lost your job and at the same time lost a tenant and still had to make mortgage payments on your rental properties, you'd be in real bad shape.

Sounds like you have some contingency plans. If I were you, I could sleep real well at night in your situation as long as I had 180 days cash on hand.

You were very very exposed to risk early on in this venture. Sounds like it worked out and paid off. But now you have taken steps, and maybe can take more steps, to minimize that exposure going forward.
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Old 02-17-2012, 10:53 AM   #40
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Re: A Wedding, a wife, a house oh my!!!

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I'm giving WaldSkins the best advice that he needs to hear. Schneed10 has pretty much echoed what I posted earlier. There is absolutely no risk in WaldSkins buying a home if he follows what I've said.
That's true, your plan pretty much eliminates all risk. But it also means nobody would buy a home until they were like 40 years old.

Unless you come from old money, it takes time to build up enough cash to cover a 6-month emergency fund plus enough to put down a 20% down payment. While you're taking years to save all that money, you're missing out on the appreciation of home prices. Granted home price appreciation has been nonexistent for five years, but going forward it will come back around.

The practical analysis goes like so: if you build an emergency fund and buy a home with 5% down, you can probably accomplish that by age 28 or so. If you build an emergency fund and buy a home with 20% down, most can't accomplish that until 35. That's a seven year difference.

A $200,000 home will appreciate in value by $46,000 over 7 years, assuming 3% appreciation in home prices (about the historical rate).

If you buy that home with only 5% down instead of 20% down, you're paying:

PMI - $16,800 ($200 per month times 12 months times 7 years)
Interest on the 15% you didn't put down - $10,500 ($30K times 5% interest rate times 7 years)
Maintenance Expense for those 7 additional years: I dunno, call it $2000 per year to be generous - $14,000
Total - $41,300

That's less than the appreciation you missed out on. And then you get money back on your taxes on the PMI and interest you paid.

You're better off paying 5% down and not waiting to build up the 20%. At least most people are.

I agree there's some risk there, but the risk/reward pays off as long as you have an emergency fund and keep your monthly mortgage payment to less than ~33% of your net income.
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Old 02-17-2012, 11:11 AM   #41
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Re: A Wedding, a wife, a house oh my!!!

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There is risk in everything. Even yours and S10 plan. Should I never have a child because it could have down syndrome or something else horrible? Life is risk, some people choice to hide from it others choice to accept it but regardless it is still there.

And you are right I am very lucky person and I remind myself ever day of it. I have a healthy wife, my own health and two very healthy children. As far as losing my butt I have safety measures in place but that is not to say the perfect storm would not wipe me out or yourself. Again, I feel very comfortable with my financial situation; there are other factors that I am not going to bring in like my savings and cash flow that help strengthen my safety measures.

You seem to be bitter by my choices and for that I am sorry. Is that you are afraid of risk? Without great risk there are no great rewards.

As far as Waldskins he too can make his own choices; either risky ones or less risky ones.
I'm not bitter at all. In fact, you skipped over my last post that said I was happy for you that things seem to be working, but it's not a situation that I would advice others to pursue. Yours is based purely on luck. You were obviously wealthy enough to take the chance. That's fine for you. But, the advice I posted, and the advice that Firstdown and Schneed posted is not based on luck.

It was based on fiscal responsibility and something that does work for everybody if they are willing to do what it takes to follow each step. Saving up an emergency fund for six months to live off of is not based on luck. It's based on insurance that if I lose my job, I'm able to keep food on the table, a roof over my head, gas in the car, and clothes on my back for six months. I don't have to rely on any outside source of funding to keep things afloat. That means, I have hired myself to be an active job seeker for a six month contract. I don't have to rely on the hope that I'm going to keep enough tenants in my rental properties to make ends meet, because that money does not exist until it is in my pocket. So, I have to PLAN for the worst. That is really my whole point MRedskins.

I said that buying rental property, unless it is paid in full, is a bad, bad idea, and I stand by that statement regardless of the outcome. Because, until that property is paid in full, you're constantly chasing profit and having to borrow from Peter to pay Paul to keep everything above water. Being financially free does not mean you have to take large risks - that is an excuse and a myth that people use all the time to justify whatever mess they got themselves into. Does it work for some? Sure it does. But for ever one person that makes it work, there is at least three people who went bankrupt trying to do the same thing. It's not the best advice.

Again, there is no bitterness on my part, just a curiosity why someone would advice a person not to purchase a home in this buyer's market, a home in which that person is going to own and live in, and then turn around and justify owning several properties that are not paid for, and saying you're making good money off of it? It's just a bit hypocritical in my opinion.
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Old 02-17-2012, 11:33 AM   #42
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Re: A Wedding, a wife, a house oh my!!!

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Originally Posted by Schneed10 View Post
That's true, your plan pretty much eliminates all risk. But it also means nobody would buy a home until they were like 40 years old.

Unless you come from old money, it takes time to build up enough cash to cover a 6-month emergency fund plus enough to put down a 20% down payment. While you're taking years to save all that money, you're missing out on the appreciation of home prices. Granted home price appreciation has been nonexistent for five years, but going forward it will come back around.

The practical analysis goes like so: if you build an emergency fund and buy a home with 5% down, you can probably accomplish that by age 28 or so. If you build an emergency fund and buy a home with 20% down, most can't accomplish that until 35. That's a seven year difference.

A $200,000 home will appreciate in value by $46,000 over 7 years, assuming 3% appreciation in home prices (about the historical rate).

If you buy that home with only 5% down instead of 20% down, you're paying:

PMI - $16,800 ($200 per month times 12 months times 7 years)
Interest on the 15% you didn't put down - $10,500 ($30K times 5% interest rate times 7 years)
Maintenance Expense for those 7 additional years: I dunno, call it $2000 per year to be generous - $14,000
Total - $41,300

That's less than the appreciation you missed out on. And then you get money back on your taxes on the PMI and interest you paid.

You're better off paying 5% down and not waiting to build up the 20%. At least most people are.

I agree there's some risk there, but the risk/reward pays off as long as you have an emergency fund and keep your monthly mortgage payment to less than ~33% of your net income.

Well, I think it depends upon the property. Is this a $150,000 home or is it $300,000k or more? I think it's entirely possible to save 20% down for a home that's around $150k. I'm assuming a couple brings in collectively $80k a year. It certainly takes being frugal and the willingness to pick up an extra income somewhere to help supplement. However, practicality? Most people don't want to do that. They would much rather continue going on vacation every year, spending money eating out every week, buying new cars, so forth and so on. It's human nature. I'm the same way. But, regardless of the amount that's put down, I'd not have that mortgage payment greater than around 30% of my monthly expenses. Think you mentioned that earlier as well.
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Old 02-17-2012, 11:51 AM   #43
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Re: A Wedding, a wife, a house oh my!!!

The great thing about buying a home now is that you can get the sellers to pay some if not all closing cost. Actually you should ask them to pay cost associated with closing because it covers more things. Some things like insurance ar not considered closing cost but are cost associated with closing.
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Old 02-17-2012, 12:07 PM   #44
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Re: A Wedding, a wife, a house oh my!!!

Save your self and just don't get married.
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Old 02-17-2012, 12:14 PM   #45
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Re: A Wedding, a wife, a house oh my!!!

Pay no mind to SBXVII. He hijacked my wedding thread a while back.

Enjoy your marriage and best of luck with the housing situation.
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