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Millenials Regret Buying Home! Is Buying a Home a Real Estate Mistake?

Millenials Regret Buying Home! Is Buying a Home a Real Estate Mistake?
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38 COMMENTS

  1. Well it is a financial analysis problem, believe it or not. You need to define the variables.

    First; there is the rent on THE SAME SORT OF HOUSING;

    second, the cost of the home;

    Third, the the estimated value of the land you are buying;

    fourth, estimated value of the structures you are buying,

    fifth, the actual (NOT GAAP or IRS) depreciation schedule and depreciation expense or long-term maintenance on the structure;

    sixth the inflation rate on housing structures;

    seventh, the inflation rate on land;

    eighth, the closing (transaction) costs;

    ninth, how long you intend to stay there;

    tenth, the appraised value relative to the price you are paying;

    eleventh, how much you would want to invest in improvements and minor or major repairs or need to invest in major repairs to maximize your investment return (there are some repairs which are necessary to re-sell the house for full fair market value which but which don’t affect your appraised value, therefore there is a limit on the profitability of such projects. Moreover, there are some repairs which will speed up the amount of time it takes to sell the house but which won’t move the appraised value and therefore are unlikely to increase the selling price. Finally, there is a limit on how much you can increase the overall appraised value (and therefore market value) of a home by doing a lot of repairs. A lot of people don’t understand that the appraised value only looks at very non-cosmetic factors I. A very odd unrealistic way and ignores a lot of improvements, and that appraised value sets an upper limit on how much you can borrow against the home. In other words you aren’t going to sell for more than about 20 percent above appraised value, and you are likely going to sell for closer to appraised value, no matter if you put 50 percent of the purchase price into the home in repairs (unless you purchased for way below appraised value). The key is to make it look good without spending g do much that you are pissing money away, to do only the most marketable repairs, and to avoid buying a house with big looming repairs (like a 25-year old roof) which will show up on an inspectors report.);

    twelfth, your ability to do such repairs (including leading to do such repairs) and the cost of hiring professionals.

    Thirteenth, the mortgage rate you are paying.

    Fourteenth, the risk-adjusted discount rate or the price-to-rent ratio you expect to be average and fair (16?). I think it is fair to set the discount rate to the long-term government bond rate, as real estate, long term government bonds, and stocks have done degree of not being aligned and therefore buying a house could be a risk reducing action. However, if you are actually buying real estate as an investment, you may want to use the average earnings yield on the stock market (about 6 percent plus inflation)

    All of this is very complex. You need to approach this as a professional real estate investor renting to a fictitious tenant for the amount of rent you would pay if you were deciding to rent a home. You would want to either figure the value to rent ratio and make sure it was under about 16, or you would want to discount your net income after financing back to the present by the long-term bond rate and see if there is net present value.

    So if you don’t want to study corporate finance, if you plan on staying more than 6 years, or and are buying a home at about it’s appraised value, a quick thing to consider is whether the price plus closing costs and all necessary marketable repairs divided by what you could rent it for is less than 16.

    But the thing, is appraisals ( and inspections) cost money and take time. You could request the seller pay for it as soon as you you make an offer. Otherwise, you are going to have to be well into the purchase process before you can make an accurate assessment. But more likely you are you going to be relying initially on Real Estate Agents comps. That’s fine. But I’d pull out if the appraisal came in lower than expected and the seller wasn’t willing to drop the price. And I’d be a complete prick about getting an indie tire report with itemized repair costs and having the seller fix everything on the inspectors report or compensating you for it at actual market repair value (being fair).

    A key point is is you wouldn’t rent a 4 bedroom new house don’t buy one. Also you can closing (transaction costs are going to be 6 percent or so, and it is reasonable to assume real after CPI inflation land appreciation is about 1 percent. So a quick analysis is if your land value is half the purchase price of the property, you should be prepared stay there about 6 years just to make a profit. Most people count inflation on the home structure and CPI inflation on the land a a return on investment and count the mortgage interest as a cost, without adjusting for inflation. Most of the time this is a wash. But this causes problems when dealing with one-time immediate expenses like closing costs. If you wouldn’t stay there for long enough for real after CPI-inflation appreciation to cover transaction costs, then don’t buy it. Instead rent an overall cheaper place and save the extra cash flow you’d be paying on mortgage principal and repairs.

  2. I rented this duplex for a few years, then the owner sold it to me early last year. I'm still living here, but, now I'm collecting rent from the other side. I got lucky and was fortunate to be in a position to jump on the deal.

  3. As someone who used to work in the plumbing, heating, and air conditioning business. It's definitely not true that new homes wont have to have big repairs. A lot of homes that were made in the last 10 years (at least out here in Southern California) are made with cheaper materials and tend to break easy. For example the copper they use for water pipes is a cheaper copper that comes from china or Taiwan and will corrode wayyyyyyyyy faster then older thicker copper that was the standard 30+ years ago. I remember summer of 2016 I would work 40+ hours a week for that entire summer just in one neighborhood week after week just repairing ceiling and wall leaks. Having to come in cut the ceiling repair the leak, leave the hole in the ceiling because I was scheduled to come in some other day to repair the other 4 leaks in the same ceiling. The entire neighborhood was constructed in 2014. That's just one of many neighborhoods with similar stories. Don't even get me started on how bad the plumbing design was in a lot of those houses.

  4. Yes. Buying a home is a money drain. Even with newer homes. Homeowners fee and tax is ridiculous. Maintenance not including utilities and insurance. Real estate is overpriced. It needs to crash.

  5. I work on new houses and unfortunately most materials nvr use are particle board junk
    The exterior walls used to be all plywood board now they use waxed cardboard 1/8 in thick crazy.

  6. New isn't always better and doesn't mean you won't be paying maintenance. It depends, but a lot of new construction is really cheap and completely for profit. Twisted poor quality wood studs, cheap OSB, useless house wrap, vinyl siding, bad flashing, built on bad grade and water runoff, cheap roof shingles, incorrect vents crawl space, cheapest appliances, unknown/new development, etc etc. List is really long. Most buyers wont understand the flaws and will focus on shallow things. Everything might will be fine first few years, but how about 15 or 30? Depends, but I've see homes built in 2010s with serious problems. Of course an old house with zero updates since it was built is a nightmare too.

    What I personally read and see is some buy bigger more expensive homes because they think it's an investment. They think the value will increase and they can resell in a few years to make a killing. Then they have to move in a few years for a new job and realize they're losing (not gaining) a lot of money. Buying a house to live in is an expense not an investment. A lot times it makes more sense to rent.

  7. Sounds like the mortgage along with the home repair costs is causing a lot of stress and the living paycheck to paycheck scenario to play out. Turn that liability into an asset and house hack. Buy that duplex, live below your means and have your neighbor pay most of the costs as you stash the cash away. No need to keep up with the Joneses.

  8. 6:286:38 Absolutely correct! Shop around! I almost purchased some luggage at a store but paused to see if I could get it cheaper on Amazon. I'm glad I checked Amazon because the reviews were terrible- everything from the seams tearing out to the wheels breaking. Glad I saved my money and dodged a bullet $$$

  9. we are a generation, that fears divorce, must deal with very transitory job offers, and must deal with student debt. why in the world would we want to deal with a 20 year mortgage? Being told we must live in the same place for that long is a disadvantage.

  10. Wait till these millennials need to get a new roof. It is very expensive, not fun, you never see it, and it you don't do your homework, you can be buying another one in 2 years after you have to pay to get the one you just installed peeled off

  11. I bought my first property at the height of the market in 2005….BIG REGRETS! Bought my 2nd when the bubble popped and I’m sitting on a GoldMine. The difference is, this is my forever home annnnnd I don’t owe very much on it now. Once it’s paid off, I’ll be set and I’m only 44.

    I was more mindful the 2nd time around.

  12. i took out 0 loans and bought a forclosure with my gf b4 we got married. Best financial decision i could have made. Fixed up the house and sold it a few years later for 45k more than what we bought it for. Now we have a house 3x the size, in a better area and only pay $200 more per month taxes included. Be smart with your $$$ ppl. Interest paid over a lifetime will get you. Pay off your credit cards every month if you can. Dobyour best to stay out of the red. if u are in your early 20s you will be happy you did this 10years from now.

  13. I'm 31 bought my house in 2016, did a lot of research and looked at at least a dozen homes found the right price and am now living comfortably. If the value were to drop 35% I could sell for what I paid.

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