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

[skinsguy]

Originally Posted by WaldSkins

So im quickly approaching my wedding date in May and have been looking into buying a house. With the amount of money that we have been putting into the wedding it has pretty much drained most of our savings accounts. I was just wondering if it was better to pay off my fiancees debt or save the money for the house. What looks better to a bank/lender, having no debt or having no savings?

WaldSkins: Let me address your original question first with some sound advice:

1. PAY OFF THE DEBT FIRST! No questions asked. PAY THE DEBT OFF FIRST! As attractive as it might sound to fall into a no down payment situation with a house, and again, I'm in the same boat as you, don't put buying a home in front of paying off the debt.

2. Before you even think of saving for the house, you need to SAVE UP AN EMERGENCY FUND FIRST! Your goal on that is at least 3 to 6 months worth of living expenses. What if you buy a house and both of you lose your jobs? You gotta have an emergency fund. DON'T RELY ON CREDIT CARDS AS AN EMERGENCY FUND!

3. Once #1 and #2 have been satisfied, decide what your intentions are on a house purchase. Do you plan to live there for at least 10 to 15 years? You need to know this before you buy a house. Whatever the answer is, you definitely want to be saving back money to either purchase the house straight out (yes I know that's probably not realistic for most people) or for a down payment NO LOWER THAN 20%. Don't go into a house purchase without knowing what is you're wanting to do or what it is you're actually purchasing.

4. Once you have found the house you want to purchase, it doesn't matter if it's a starter home or if it's one you plan on being in for the rest of your life, you need to budget out your mortgage payments for a 15 YEAR LOAN! Trust me, you'll be paying nearly double for that house if you get sucked up into a 30 year loan. And also, don't budget it on both salaries, budget it for one salary. Most people go out and grab the 30 year loan thinking they can always double up on the payments, but almost nobody ever pays double on their mortgage.

Now, don't listen to people who say investing in real estate is not worth it. It IS worth it, but you HAVE to be smart about it. You can't go in over your head on a purchase. And for the love of everything that is burgundy and gold, don't purchase property in hopes of turning it into rental property UNLESS IT'S PAID IN FULL! That's a bad, bad move that can seriously get you into a bad financial situation.

Now, are there any decent apartments in a decent area to rent that are cheaper than $1000 a month? If so, move there! Even if the apartments are smaller, maybe not as nice, this is just a way for you to free up some money to get you started. If not, then one or both of ya'll might need to think about a second job - at least until the debt has been satisfied. There's nothing wrong in both contributing to the savings for a house, but like I said earlier, the payment for the house should be based on one salary.

[mredskins]

Originally Posted by skinsguy

WaldSkins: Let me address your original question first with some sound advice:

1. PAY OFF THE DEBT FIRST! No questions asked. PAY THE DEBT OFF FIRST! As attractive as it might sound to fall into a no down payment situation with a house, and again, I'm in the same boat as you, don't put buying a home in front of paying off the debt.

2. Before you even think of saving for the house, you need to SAVE UP AN EMERGENCY FUND FIRST! Your goal on that is at least 3 to 6 months worth of living expenses. What if you buy a house and both of you lose your jobs? You gotta have an emergency fund. DON'T RELY ON CREDIT CARDS AS AN EMERGENCY FUND!

3. Once #1 and #2 have been satisfied, decide what your intentions are on a house purchase. Do you plan to live there for at least 10 to 15 years? You need to know this before you buy a house. Whatever the answer is, you definitely want to be saving back money to either purchase the house straight out (yes I know that's probably not realistic for most people) or for a down payment NO LOWER THAN 20%. Don't go into a house purchase without knowing what is you're wanting to do or what it is you're actually purchasing.

4. Once you have found the house you want to purchase, it doesn't matter if it's a starter home or if it's one you plan on being in for the rest of your life, you need to budget out your mortgage payments for a 15 YEAR LOAN! Trust me, you'll be paying nearly double for that house if you get sucked up into a 30 year loan. And also, don't budget it on both salaries, budget it for one salary. Most people go out and grab the 30 year loan thinking they can always double up on the payments, but almost nobody ever pays double on their mortgage.

Now, don't listen to people who say investing in real estate is not worth it. It IS worth it, but you HAVE to be smart about it. You can't go in over your head on a purchase. And for the love of everything that is burgundy and gold, don't purchase property in hopes of turning it into rental property UNLESS IT'S PAID IN FULL! That's a bad, bad move that can seriously get you into a bad financial situation.

Now, are there any decent apartments in a decent area to rent that are cheaper than $1000 a month? If so, move there! Even if the apartments are smaller, maybe not as nice, this is just a way for you to free up some money to get you started. If not, then one or both of ya'll might need to think about a second job - at least until the debt has been satisfied. There's nothing wrong in both contributing to the savings for a house, but like I said earlier, the payment for the house should be based on one salary.

Not necessarily true all depends on your cash flow. As long as you can float the mortgage when no one is there you can pull it off.

[skinsguy]

Originally Posted by mredskins

Not necessarily true all depends on your cash flow. As long as you can float the mortgage when no one is there you can pull it off.

Repeat, it is a BAD, BAD move.

[mredskins]

Originally Posted by skinsguy

Repeat, it is a BAD, BAD move.

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.

[firstdown]

Originally Posted by mredskins

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.

So now its a good idea?LOL

[mredskins]

Originally Posted by firstdown

So now its a good idea?LOL

I know my advice original was for someone just starting out. If I had no investments and was just getting married I would not take that risk of buying a home and/or getting rental properties.

I think we are not seeing eye to eye where money can be made in the real estate market. you seem to beleive you can buy something then have it appreciate and make money. I don't see that as a good risk since the housing market is frozen or worst melting. My investments were ones I made because I moved kept the property and rented them out, all before purchased before 2005.

In hindsight there was a good amount of risk and most likely still is but I am willing to take it has panned out well so far for me.

To be clear I would not add anymore properties right now that would be too risk in my opinion for me. someone else may have a better cash flow and it be lower risk for them.

[skinsguy]

Originally Posted by mredskins

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.

[mredskins]

Originally Posted by skinsguy

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.

[skinsguy]

Originally Posted by mredskins

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.

[mredskins]

Originally Posted by skinsguy

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.

[Schneed10]

Originally Posted by skinsguy

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.

[skinsguy]

Originally Posted by Schneed10

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.