Convince me that buying a nice house is a dumb idea

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newyorker
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Convince me that buying a nice house is a dumb idea

Post by newyorker »

I am pretty comfy in my current house. Single guy living in a starter home of around 350k in value. It is not the best house but fits my need and etc. Property tax is only $200/month and monthly expense including mortgage and tax is $1100

I always had an itch to buy around 1 mil dollar house in a nicer neighborhood and use the current home as rental. It is a growing city and I guess its 50 pecent vanity and 50 percent investment thinking that why not borrow money and get a house to leverage for higher return.

But at the same time, i am a professional stresses out running a business so dont want to take any crazy risks.


So hence a question, just for the reason of leveraging for future return, is it worth spending 200k in downpayment for a better house? Or, play safe and put the money into S&P and chill?
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slow n steady
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Re: Convince me that buying a nice house is a dumb idea

Post by slow n steady »

Buying the expensive house is just increasing your spending.

If you want more exposure to real estate, just buy three more homes like your current home and rent them out.

Good luck!
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newyorker
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Re: Convince me that buying a nice house is a dumb idea

Post by newyorker »

slow n steady wrote: Tue Oct 26, 2021 8:54 pm Buying the expensive house is just increasing your spending.

If you want more exposure to real estate, just buy three more homes like your current home and rent them out.

Good luck!
That is a great idea!

Sandtrap also recommended me to multifamily rental as an idea. Considering that too but hard to find the right inventory.
Last edited by newyorker on Tue Oct 26, 2021 8:56 pm, edited 1 time in total.
SnowBog
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Re: Convince me that buying a nice house is a dumb idea

Post by SnowBog »

For my two cents, I'd expect it rare that a house is going to appreciate more than the stock market.

Maybe you are the exception in a really "hot" market...

Or maybe COVID will make "work from home" permanent which could crush "hot markets" as people no longer need to fight for limited real estate near jobs (they can live anywhere).
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arcticpineapplecorp.
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Re: Convince me that buying a nice house is a dumb idea

Post by arcticpineapplecorp. »

just make sure to watch the movie Pacific Heights before making any decision!
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newyorker
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Re: Convince me that buying a nice house is a dumb idea

Post by newyorker »

SnowBog wrote: Tue Oct 26, 2021 8:55 pm For my two cents, I'd expect it rare that a house is going to appreciate more than the stock market.

Maybe you are the exception in a really "hot" market...

Or maybe COVID will make "work from home" permanent which could crush "hot markets" as people no longer need to fight for limited real estate near jobs (they can live anywhere).
So stocks it is. Im in mid 30 hence dont really need a nice home. Mine now is just as safe and sound.
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Lee_WSP
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Re: Convince me that buying a nice house is a dumb idea

Post by Lee_WSP »

A home isn't an investment, it's where you live.
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newyorker
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Re: Convince me that buying a nice house is a dumb idea

Post by newyorker »

arcticpineapplecorp. wrote: Tue Oct 26, 2021 8:57 pm just make sure to watch the movie Pacific Heights before making any decision!
Hahaha saw that movie few times already. My primal fear of deadbeat tenants is from that movie.
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newyorker
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Re: Convince me that buying a nice house is a dumb idea

Post by newyorker »

SnowBog wrote: Tue Oct 26, 2021 8:55 pm For my two cents, I'd expect it rare that a house is going to appreciate more than the stock market.

Maybe you are the exception in a really "hot" market...

Or maybe COVID will make "work from home" permanent which could crush "hot markets" as people no longer need to fight for limited real estate near jobs (they can live anywhere).
True. House is like stock picking.
sailaway
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Re: Convince me that buying a nice house is a dumb idea

Post by sailaway »

Does the "nicer" house and/or the "nicer" neighborhood actually offer anything that better suits your lifestyle than where you are now or are they just generically nice?
Topic Author
newyorker
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Re: Convince me that buying a nice house is a dumb idea

Post by newyorker »

sailaway wrote: Tue Oct 26, 2021 9:00 pm Does the "nicer" house and/or the "nicer" neighborhood actually offer anything that better suits your lifestyle than where you are now or are they just generically nice?
Not really. Better school district but i dont have kids. They are generically nice though. Cleaner street and richer (or richer looking) neighbors and etc. Mostly ego things.
dukeblue219
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Re: Convince me that buying a nice house is a dumb idea

Post by dukeblue219 »

newyorker wrote: Tue Oct 26, 2021 9:06 pm
sailaway wrote: Tue Oct 26, 2021 9:00 pm Does the "nicer" house and/or the "nicer" neighborhood actually offer anything that better suits your lifestyle than where you are now or are they just generically nice?
Not really. Better school district but i dont have kids. They are generically nice though. Cleaner street and richer (or richer looking) neighbors and etc. Mostly ego things.
I think you get it, but richer neighbors ain't automatically better, not by a long shot.
retire2022
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Re: Convince me that buying a nice house is a dumb idea

Post by retire2022 »

newyorker wrote: Tue Oct 26, 2021 9:06 pm
Not really. Better school district but i dont have kids. They are generically nice though. Cleaner street and richer (or richer looking) neighbors and etc. Mostly ego things.
Is this within NYC?

There maybe a possibility that the potential real estate will appreciate faster than the stock market.

I had two friends which did so.

One person brought a five story walk up building in 1997 for approx 700K it is now worth 10 million.

Another brought a brownstone in Bedford Stuyvesant in 2003 for leveraged mortgage at 300K turn it into an Air-B-N-B, sold it for 1.5 million in 2016.

However, my 35 year retirement investing of approx 600k is worth 2.63 million, no managing necessary, your mileage may vary.

Stocks don't talk back to you, I was a professional real estate person, I hate tenant and owners equally, that said I own my coop apt and vacation home upstate.

best
123
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Re: Convince me that buying a nice house is a dumb idea

Post by 123 »

Do you have too much time on your hands? Buying a larger home for yourself likely entails more time for upkeep and maintenance. Renting out your existing home makes you subject to calls at all hours for plumbing issues and other problems. If you're looking for a headache become a landlord.
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LFKB
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Re: Convince me that buying a nice house is a dumb idea

Post by LFKB »

I can’t and I won’t
Topic Author
newyorker
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Re: Convince me that buying a nice house is a dumb idea

Post by newyorker »

retire2022 wrote: Tue Oct 26, 2021 9:18 pm
newyorker wrote: Tue Oct 26, 2021 9:06 pm
Not really. Better school district but i dont have kids. They are generically nice though. Cleaner street and richer (or richer looking) neighbors and etc. Mostly ego things.
Is this within NYC?

There maybe a possibility that the potential real estate will appreciate faster than the stock market.

I had two friends which did so.

One person brought a five story walk up building in 1997 for approx 700K it is now worth 10 million.

Another brought a brownstone in Bedford Stuyvesant in 2003 for leveraged mortgage at 300K turn it into an Air-B-N-B, sold it for 1.5 million in 2016.

However, my 35 year retirement investing of approx 600k is worth 2.63 million, no managing necessary, your mileage may vary.

Stocks don't talk back to you, I was a professional real estate person, I hate tenant and owners equally, that said I own my coop apt and vacation home upstate.

best

Im in midwest now.

And it can be quite like a stock picking.
McCharley
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Re: Convince me that buying a nice house is a dumb idea

Post by McCharley »

You should not look at your home as an investment. The fact that their house tends to be most people's most valuable asset is only because people buy them with leverage and have long timelines. The stock market has almost always beaten real estate as an investment, especially when you consider the interest paid on the loan. That said, if you want a nicer home you should seriously consider it -- you only live once! :beer

I would never be a landlord, however. That is a headache even with the best tenants, and one bad tenant could be ruinous. :(
killjoy2012
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Re: Convince me that buying a nice house is a dumb idea

Post by killjoy2012 »

OP: I'm in a similar position. Single, white collar, starter home purchased 20 years ago has been paid off, and have had thoughts of "upgrading".

I think the only good reason to do it would be for some quality that you don't currently have with your current home that you would value in your new home. For me, I'd love a nice waterfront property on a large inland "all sports" lake. I may make the move to lakefront living at some point, but right now, the housing market is way high in my area - certainly a sellers market, not a buyers. Which makes things unpalatable financially since the new house would likely be 2-4x the cost of my current.

I would not move just for a bigger house. How many sq ft do you really need for 1 person?
Property tax, utilities, maintenance would all be higher on bigger house. Cleaning is another issue.
I personally wouldn't rent your current out unless you're looking for a 2nd headache-filled job.
Californiastate
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Re: Convince me that buying a nice house is a dumb idea

Post by Californiastate »

Lee_WSP wrote: Tue Oct 26, 2021 8:58 pm A home isn't an investment, it's where you live.
That depends on the location. Seriously.
skierincolorado
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Re: Convince me that buying a nice house is a dumb idea

Post by skierincolorado »

Primary home is not an investment. We know this because any buy vs rent calculator will tell you it is a tossup between buying and renting financially and clearly renting is not an investment.

Renting out is an investment. The financial thing to do if you are interested in real estate investing would be to buy a property and invest it and live in whatever you feel comfortable in. Personally I’d rather just invest in the stock market and have enough real estate exposure through my primary residence since I have to live somewhere.
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Re: Convince me that buying a nice house is a dumb idea

Post by tibbitts »

newyorker wrote: Tue Oct 26, 2021 8:51 pm But at the same time, i am a professional stresses out running a business so dont want to take any crazy risks.
So your plan is to open a new risky real estate business to run and create more stress for yourself?
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Re: Convince me that buying a nice house is a dumb idea

Post by skierincolorado »

Californiastate wrote: Wed Oct 27, 2021 6:08 pm
Lee_WSP wrote: Tue Oct 26, 2021 8:58 pm A home isn't an investment, it's where you live.
That depends on the location. Seriously.
I mean not really in the long run. Houses appreciate at the rate of inflation long term. But I’m sure that there are inefficiencies that a savvy buyer might sniff out. Like knowing when a market is going to go on a run.
spammagnet
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Re: Convince me that buying a nice house is a dumb idea

Post by spammagnet »

newyorker wrote: Tue Oct 26, 2021 9:06 pm(... richer looking) neighbors ...
You'll be one of those richer "looking" residents because a larger portion of your wealth will be tied up in a house that costs more to maintain. It won't make you richer.

If you want a nicer home in a nicer place and can afford it without adversely affecting your plan, buy one. But don't leverage your net worth to buy a home with the excuse that it's an investment.
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Re: Convince me that buying a nice house is a dumb idea

Post by spammagnet »

skierincolorado wrote: Wed Oct 27, 2021 6:27 pm... But I’m sure that there are inefficiencies that a savvy buyer might sniff out. Like knowing when a market is going to go on a run.
That seems unlikely for a buyer who isn't continuously in the market, like a real estate broker or house flipper. And, my impression is that house flippers don't always do well.
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Re: Convince me that buying a nice house is a dumb idea

Post by skierincolorado »

spammagnet wrote: Wed Oct 27, 2021 6:34 pm
skierincolorado wrote: Wed Oct 27, 2021 6:27 pm... But I’m sure that there are inefficiencies that a savvy buyer might sniff out. Like knowing when a market is going to go on a run.
That seems unlikely for a buyer who isn't continuously in the market, like a real estate broker or house flipper. And, my impression is that house flippers don't always do well.
I agree. I think some people in tune with their community might know when an upgrade makes sense, like if an area is developing into a tech hub. The rise of prices in newer tech hubs is probably somewhat predictable. It’s not an efficient market like the stock market.
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newyorker
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Re: Convince me that buying a nice house is a dumb idea

Post by newyorker »

killjoy2012 wrote: Wed Oct 27, 2021 5:56 pm OP: I'm in a similar position. Single, white collar, starter home purchased 20 years ago has been paid off, and have had thoughts of "upgrading".

I think the only good reason to do it would be for some quality that you don't currently have with your current home that you would value in your new home. For me, I'd love a nice waterfront property on a large inland "all sports" lake. I may make the move to lakefront living at some point, but right now, the housing market is way high in my area - certainly a sellers market, not a buyers. Which makes things unpalatable financially since the new house would likely be 2-4x the cost of my current.

I would not move just for a bigger house. How many sq ft do you really need for 1 person?
Property tax, utilities, maintenance would all be higher on bigger house. Cleaning is another issue.
I personally wouldn't rent your current out unless you're looking for a 2nd headache-filled job.
Thats exactly where i am. Certainly dont want 2nd headache on top of what i have. Honestly i dont need more space. I just want the premium feel of nicer neighborhood. But considering higher tax and maintenance, its probably not a good move. I am just trying to justify it as investment as i can leverage.
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Re: Convince me that buying a nice house is a dumb idea

Post by phxjcc »

spammagnet wrote: Wed Oct 27, 2021 6:31 pm
newyorker wrote: Tue Oct 26, 2021 9:06 pm(... richer looking) neighbors ...
You'll be one of those richer "looking" residents because a larger portion of your wealth will be tied up in a house that costs more to maintain. It won't make you richer.

If you want a nicer home in a nicer place and can afford it without adversely affecting your plan, buy one. But don't leverage your net worth to buy a home with the excuse that it's an investment.
See, the thing is, you are wrong.

All RE is local.

Coastal (def'n: west of the 405) SoCal RE is at least 7X inflation.

That is NOT beach property, which is at least 12x.

This is a GI post WWII house built in the late 40's.

90,000 in 1984
Per inflation 237,000
Per recent sales $1.4 mil.

All RE is local; unless someone is citing the ZIP3 that they are considering, the conversation is useless.

Some would argue zip5; I can defend zip4 as being most correct.
spammagnet
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Re: Convince me that buying a nice house is a dumb idea

Post by spammagnet »

phxjcc wrote: Wed Oct 27, 2021 6:51 pm... See, the thing is, you are wrong. ...
How did the collapse of real estate values in 2008 affect your personal net worth?
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newyorker
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Re: Convince me that buying a nice house is a dumb idea

Post by newyorker »

phxjcc wrote: Wed Oct 27, 2021 6:51 pm
spammagnet wrote: Wed Oct 27, 2021 6:31 pm
newyorker wrote: Tue Oct 26, 2021 9:06 pm(... richer looking) neighbors ...
You'll be one of those richer "looking" residents because a larger portion of your wealth will be tied up in a house that costs more to maintain. It won't make you richer.

If you want a nicer home in a nicer place and can afford it without adversely affecting your plan, buy one. But don't leverage your net worth to buy a home with the excuse that it's an investment.
See, the thing is, you are wrong.

All RE is local.

Coastal (def'n: west of the 405) SoCal RE is at least 7X inflation.

That is NOT beach property, which is at least 12x.

This is a GI post WWII house built in the late 40's.

90,000 in 1984
Per inflation 237,000
Per recent sales $1.4 mil.

All RE is local; unless someone is citing the ZIP3 that they are considering, the conversation is useless.

Some would argue zip5; I can defend zip4 as being most correct.
Isnt it like stock picking though? Like buying tsla in 2010
rich126
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Re: Convince me that buying a nice house is a dumb idea

Post by rich126 »

If you are happy in a house I would not sell it. One thing I would always be on the watch for is the neighborhood. You don't usually want to stay in a home if the area is deteriorating. For a long time as a single guy I lived in 2,000+ sq ft homes in very nice areas. A couple were fixer uppers. I am currently in a 1,000 sq ft apartment with my wife and honestly don't miss the extra space. Less to clean, no maintenance, gym in the complex, etc. Most likely we will buy once I retire but will try to convince my wife maintaining a large home is costly and harder as you age.

Personally I have always done well buying and selling homes with prices nearly doubling. Also helps that on 3 sales my company paid commissions, etc.
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retire2022
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Re: Convince me that buying a nice house is a dumb idea

Post by retire2022 »

newyorker wrote: Wed Oct 27, 2021 5:35 pm
Im in midwest now.

And it can be quite like a stock picking.
Indeed I concur it is like stock picking, risky.

If you were to reside there, you may not expect appreciation.

Another friend who moved from Northeast to Michigan brought and sold home, barely broke even.

good luck with your decision.
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Re: Convince me that buying a nice house is a dumb idea

Post by willthrill81 »

newyorker wrote: Tue Oct 26, 2021 8:51 pm I am pretty comfy in my current house. Single guy living in a starter home of around 350k in value. It is not the best house but fits my need and etc.
Then staying where you are is likely the best financial decision. Anything else is a consumption decision.
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bradinsky
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Re: Convince me that buying a nice house is a dumb idea

Post by bradinsky »

OP,
Can you find balance with the stresses of running your business, along with buying a new residence AND acting as the landlord to your rental property? In your earlier post you seemed almost overwhelmed by the stress from the business alone. I think I would tackle one issue at a time. Good luck!
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StevieG72
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Re: Convince me that buying a nice house is a dumb idea

Post by StevieG72 »

VTI & chill. I love living in my starter home, prefer to save for early retirement vs. upgrading.
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Re: Convince me that buying a nice house is a dumb idea

Post by cchrissyy »

Stay in the house that suits you, don't add to your stress, and, if someday you do prefer to live somewhere else then that's the time to evaluate your current houses potential as a rental. Not now.
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phxjcc
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Re: Convince me that buying a nice house is a dumb idea

Post by phxjcc »

spammagnet wrote: Wed Oct 27, 2021 6:54 pm
phxjcc wrote: Wed Oct 27, 2021 6:51 pm... See, the thing is, you are wrong. ...
How did the collapse of real estate values in 2008 affect your personal net worth?
Why do I care?
I cannot sell 100 shares of Chateau Phxjcc to pay bills.

OTOH, my BH recommended index funds dropped 40%.

Which I did have to sell.
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Re: Convince me that buying a nice house is a dumb idea

Post by phxjcc »

newyorker wrote: Wed Oct 27, 2021 6:57 pm
phxjcc wrote: Wed Oct 27, 2021 6:51 pm
spammagnet wrote: Wed Oct 27, 2021 6:31 pm
newyorker wrote: Tue Oct 26, 2021 9:06 pm(... richer looking) neighbors ...
You'll be one of those richer "looking" residents because a larger portion of your wealth will be tied up in a house that costs more to maintain. It won't make you richer.

If you want a nicer home in a nicer place and can afford it without adversely affecting your plan, buy one. But don't leverage your net worth to buy a home with the excuse that it's an investment.
See, the thing is, you are wrong.

All RE is local.

Coastal (def'n: west of the 405) SoCal RE is at least 7X inflation.

That is NOT beach property, which is at least 12x.

This is a GI post WWII house built in the late 40's.

90,000 in 1984
Per inflation 237,000
Per recent sales $1.4 mil.

All RE is local; unless someone is citing the ZIP3 that they are considering, the conversation is useless.

Some would argue zip5; I can defend zip4 as being most correct.
Isnt it like stock picking though? Like buying tsla in 2010
False analogy.

There will always be a “shiny new thing” in the market….USS, IBM, XRX, MSFT, CSCO whatever.

Manhattan Beach?
Palm Springs?
Malibu?

“They aren’t making it anymore “
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madbrain
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Re: Convince me that buying a nice house is a dumb idea

Post by madbrain »

newyorker wrote: Tue Oct 26, 2021 8:51 pm I am pretty comfy in my current house. Single guy living in a starter home of around 350k in value. It is not the best house but fits my need and etc. Property tax is only $200/month and monthly expense including mortgage and tax is $1100

I always had an itch to buy around 1 mil dollar house in a nicer neighborhood and use the current home as rental. It is a growing city and I guess its 50 pecent vanity and 50 percent investment thinking that why not borrow money and get a house to leverage for higher return.

But at the same time, i am a professional stresses out running a business so dont want to take any crazy risks.


So hence a question, just for the reason of leveraging for future return, is it worth spending 200k in downpayment for a better house? Or, play safe and put the money into S&P and chill?
The house you live in is a consumption concern, not an investment concern whatsoever. A nicer, larger house with more amenities will come with higher maintenance costs. I live in a 4600sq ft mansion in the hills in CA bought for about $800k as a foreclosure during the financial crisis in 2010. It came with things like 5 wallmount toilets (in the 4.5 bathrooms), two large indoor jetted tubs, an outdoor in-deck hot tub, a dry sauna, two water heaters, two furnaces, one air conditioner, a dedicated dark room for home theater, a dedicated bar, kitchen upstairs with views of the whole bay area, a 3-car garage, built-in outdoor grill plumbed to city gas, 236 built-in ceiling light fixtures with very inefficient halogen bulbs, 98 dimmer switches that couldn't handle either CFL or LED bulbs, an outdoor whole house water softener, four furnaces that are either gas or wood powered, including one outdoors in the patio.

The 98 switches were all replaced with CA Title 24 vacancy switches.
The 236 halogens were replaced with CFLs, and now with LEDs.
The sprinkler system has leaked unbeknowngst to us, and caused water bills as high as $800 for two monthly. Water is our highest home utility bill.
I am on my 3rd water heater replacement out of 2 units in 11 years. One is a warranty replacement, and AO Smith gave me a dud unit last week that I'm fighting over.
I am on the 2nd water softener replacement. New one installed this morning. There was a bird's nest inside the old one !
I just learned this morning that the gas meter was defective, and also undersized for the house. The undersizing is probably since the home was added onto decades ago. Gas meter was replaced today.
The outdoor hot tub has been replaced once after rats ate the plumbing 4.5 years ago. It had to be cut up to be taken out. I had a tile platform built for the new one 4 years ago so it's serviceable from the sides. The new one has had 4 repairs. A storm destroyed the cover last weekend, which is now waterlogged. It could be a while until I can get a new one.
I replaced the original Thermador gas cooktop with induction, so I don't know how long that would lasted.
The original Fisher & Paykel dish drawer couldn't wash. It was replaced with a Miele in the first month.
The built-in double Thermador oven has problems with the controls, and there are no more parts left to repair it. Can't change the clock, use the meat probe, or turn on the self-cleaning anymore. Basic functions still work. A comparable new one is $8K and up.
The original Monogram built-in fridge has had a few repairs, worth over $1000. My appliance guy tells me that the new ones are much less reliable, and to keep mine because it has analog boards and are easy to repair. He said it would cost $2K just to haul the old one out from the upstairs kitchen cabinet and out. New units cost $8K and up.
We have had many fights with the cable company. Our house is at the end of the cable line and always first to suffer any degradation. Back when we owned our modem, they always blamed the modem. We ended up renting theirs just so they would finally admit the problem and fix it. The outside cable line has been replaced 3 times. A cabling specialist told me Comcast is using cheap non-UV rated cable on my wall on the south side, and that's one reason for the failure. The other is the amplifiers they install at neighbors for cable TV that interfere with my internet.
Cell signals from all mobile operators don't penetrate the thick walls. We have an in-home personall cell tower that runs off ethernet. If Internet goes down, so does cell signal.
Wifi signals are problematic in the house too. We have 5 access points, 2 wired and 3 bridged wirelessly, and it's still not perfect. We have been through many brands of routers/access points such as Netgear, Google, and now Ubiquiti.
One of the jetted tub, which I seldom use, turned itself on last Sunday morning during the storm, and wouldn't turn off, except at the breaker. It was made in 2004, and the manufacturer has informed me yesterday there are no parts for it. There are upgrade kits that costs $1100 for parts alone.
One of the wallmount toilets started leaking water into the bowl. We first noticed it in August 2020, in the middle of the pandemic. Replacement parts aren't available due to supply chain issues. Replacing it with a regular toilet cost nearly $5000, due to having to open walls to extract plumbing, and open the floor to add plumbing, and of course drywall, texturing and painting. This also includes adding a 15 amp dedicated electrical circuit for a $300 Biobidet seat. That project almost finished today. Extracting the plumbing lines from the wall from another still-working wallmount toilet for a bidet seat, and adding a circuit for a second bidet seat, and patching things up. Yes, the prices are crazy. But no other contractor wanted to even touch touch wallmount toilets.
The power goes out often, because the lines are aerial, and idiots keep driving into the pole. This is at least once a year event. Last month, we had a power surge when the power came back that knocked out several pieces of electronics, and a toaster oven.
We have two reverse osmosis systems, one on each floor. The one upstairs has leaked multiple times into the home theater down below, and had to be replaced.
The sauna heater sometimes turns off, tripping its internal breaker. If I forget to check it the next time I use it before I turn it on, I come back to a cold sauna after waiting a half hour for it to heat. I'm afraid to replace such a high current device with new cheap Chineseum, for fear of having it burn down the house. It's a 9kW heater.
14 of the dual Enphase solar micro-inverters had to be replaced with 28 M215 because there were no more D380 replacement parts, and the two couldn't be mixed. Enphase took care of parts & labor at the time.
3 of the M215 have now failed. I got replacement parts, but Enphase won't pay for labor this time, and my installer is gone, so there is no warranty. I I did the math, and it's not cost-effective to have someone go on the roof to fix it for $800 to reduce our power bill from $1500/year by maybe $150, so I haven't done it. New parts are sitting in the garage. Our power bill would be in the $7000+ range if we didn't have the remaining 37 solar panels still working, but that includes powering 2 electric cars (Chevys, not Teslas).

At the end of the day, we are still living the life in luxury. But those luxurious things do cost a lot in maintenance. Sometimes, a whole bunch of things fail in a short period of time, as has happened to me recently. When things work, they are really great. It's a rare day that every single thing in the house is working perfectly. I wish I was handy and could fix most of them myself, but I'm simply not.

Of course, you don't have to go for something as extreme as we did. I don't know what kind of house $1M buys in your neighborhood.
We still love our house, despite what's involved in keeping it up. And I'm still considering making a few more upgrades, like a steam generator in the master bathroom, and upgrading one of the other toilets with bidet seats.
stoptothink
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Re: Convince me that buying a nice house is a dumb idea

Post by stoptothink »

madbrain wrote: Wed Oct 27, 2021 11:19 pm
newyorker wrote: Tue Oct 26, 2021 8:51 pm I am pretty comfy in my current house. Single guy living in a starter home of around 350k in value. It is not the best house but fits my need and etc. Property tax is only $200/month and monthly expense including mortgage and tax is $1100

I always had an itch to buy around 1 mil dollar house in a nicer neighborhood and use the current home as rental. It is a growing city and I guess its 50 pecent vanity and 50 percent investment thinking that why not borrow money and get a house to leverage for higher return.

But at the same time, i am a professional stresses out running a business so dont want to take any crazy risks.


So hence a question, just for the reason of leveraging for future return, is it worth spending 200k in downpayment for a better house? Or, play safe and put the money into S&P and chill?
The house you live in is a consumption concern, not an investment concern whatsoever. A nicer, larger house with more amenities will come with higher maintenance costs. I live in a 4600sq ft mansion in the hills in CA bought for about $800k as a foreclosure during the financial crisis in 2010. It came with things like 5 wallmount toilets (in the 4.5 bathrooms), two large indoor jetted tubs, an outdoor in-deck hot tub, a dry sauna, two water heaters, two furnaces, one air conditioner, a dedicated dark room for home theater, a dedicated bar, kitchen upstairs with views of the whole bay area, a 3-car garage, built-in outdoor grill plumbed to city gas, 236 built-in ceiling light fixtures with very inefficient halogen bulbs, 98 dimmer switches that couldn't handle either CFL or LED bulbs, an outdoor whole house water softener, four furnaces that are either gas or wood powered, including one outdoors in the patio.

The 98 switches were all replaced with CA Title 24 vacancy switches.
The 236 halogens were replaced with CFLs, and now with LEDs.
The sprinkler system has leaked unbeknowngst to us, and caused water bills as high as $800 for two monthly. Water is our highest home utility bill.
I am on my 3rd water heater replacement out of 2 units in 11 years. One is a warranty replacement, and AO Smith gave me a dud unit last week that I'm fighting over.
I am on the 2nd water softener replacement. New one installed this morning. There was a bird's nest inside the old one !
I just learned this morning that the gas meter was defective, and also undersized for the house. The undersizing is probably since the home was added onto decades ago. Gas meter was replaced today.
The outdoor hot tub has been replaced once after rats ate the plumbing 4.5 years ago. It had to be cut up to be taken out. I had a tile platform built for the new one 4 years ago so it's serviceable from the sides. The new one has had 4 repairs. A storm destroyed the cover last weekend, which is now waterlogged. It could be a while until I can get a new one.
I replaced the original Thermador gas cooktop with induction, so I don't know how long that would lasted.
The original Fisher & Paykel dish drawer couldn't wash. It was replaced with a Miele in the first month.
The built-in double Thermador oven has problems with the controls, and there are no more parts left to repair it. Can't change the clock, use the meat probe, or turn on the self-cleaning anymore. Basic functions still work. A comparable new one is $8K and up.
The original Monogram built-in fridge has had a few repairs, worth over $1000. My appliance guy tells me that the new ones are much less reliable, and to keep mine because it has analog boards and are easy to repair. He said it would cost $2K just to haul the old one out from the upstairs kitchen cabinet and out. New units cost $8K and up.
We have had many fights with the cable company. Our house is at the end of the cable line and always first to suffer any degradation. Back when we owned our modem, they always blamed the modem. We ended up renting theirs just so they would finally admit the problem and fix it. The outside cable line has been replaced 3 times. A cabling specialist told me Comcast is using cheap non-UV rated cable on my wall on the south side, and that's one reason for the failure. The other is the amplifiers they install at neighbors for cable TV that interfere with my internet.
Cell signals from all mobile operators don't penetrate the thick walls. We have an in-home personall cell tower that runs off ethernet. If Internet goes down, so does cell signal.
Wifi signals are problematic in the house too. We have 5 access points, 2 wired and 3 bridged wirelessly, and it's still not perfect. We have been through many brands of routers/access points such as Netgear, Google, and now Ubiquiti.
One of the jetted tub, which I seldom use, turned itself on last Sunday morning during the storm, and wouldn't turn off, except at the breaker. It was made in 2004, and the manufacturer has informed me yesterday there are no parts for it. There are upgrade kits that costs $1100 for parts alone.
One of the wallmount toilets started leaking water into the bowl. We first noticed it in August 2020, in the middle of the pandemic. Replacement parts aren't available due to supply chain issues. Replacing it with a regular toilet cost nearly $5000, due to having to open walls to extract plumbing, and open the floor to add plumbing, and of course drywall, texturing and painting. This also includes adding a 15 amp dedicated electrical circuit for a $300 Biobidet seat. That project almost finished today. Extracting the plumbing lines from the wall from another still-working wallmount toilet for a bidet seat, and adding a circuit for a second bidet seat, and patching things up. Yes, the prices are crazy. But no other contractor wanted to even touch touch wallmount toilets.
The power goes out often, because the lines are aerial, and idiots keep driving into the pole. This is at least once a year event. Last month, we had a power surge when the power came back that knocked out several pieces of electronics, and a toaster oven.
We have two reverse osmosis systems, one on each floor. The one upstairs has leaked multiple times into the home theater down below, and had to be replaced.
The sauna heater sometimes turns off, tripping its internal breaker. If I forget to check it the next time I use it before I turn it on, I come back to a cold sauna after waiting a half hour for it to heat. I'm afraid to replace such a high current device with new cheap Chineseum, for fear of having it burn down the house. It's a 9kW heater.
14 of the dual Enphase solar micro-inverters had to be replaced with 28 M215 because there were no more D380 replacement parts, and the two couldn't be mixed. Enphase took care of parts & labor at the time.
3 of the M215 have now failed. I got replacement parts, but Enphase won't pay for labor this time, and my installer is gone, so there is no warranty. I I did the math, and it's not cost-effective to have someone go on the roof to fix it for $800 to reduce our power bill from $1500/year by maybe $150, so I haven't done it. New parts are sitting in the garage. Our power bill would be in the $7000+ range if we didn't have the remaining 37 solar panels still working, but that includes powering 2 electric cars (Chevys, not Teslas).

At the end of the day, we are still living the life in luxury. But those luxurious things do cost a lot in maintenance. Sometimes, a whole bunch of things fail in a short period of time, as has happened to me recently. When things work, they are really great. It's a rare day that every single thing in the house is working perfectly. I wish I was handy and could fix most of them myself, but I'm simply not.

Of course, you don't have to go for something as extreme as we did. I don't know what kind of house $1M buys in your neighborhood.
We still love our house, despite what's involved in keeping it up. And I'm still considering making a few more upgrades, like a steam generator in the master bathroom, and upgrading one of the other toilets with bidet seats.
I'm going to re-read this every time my wife mentions that maybe we should get a bigger home (we're 4 in a 1480sq. ft. home). Home maintenance is one of our least favorite things on the planet. Even my parents, who have ~3700 sq. ft. but nowhere near the amenities you do, are fixing something at all times.
Hannibal Barca
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Re: Convince me that buying a nice house is a dumb idea

Post by Hannibal Barca »

What are the issues with buying a big house?

-It's a seller's market and you'll probably pay way more for your house than it's worth. Either that or you'll constantly be outbid and won't get anything
-If you buy in a HCOL area, your house value may fall or stagnate for the foreseeable future as work-from-home changes how people value living near large metro areas
-Maintenance can be expected to run 2-4% of your house's value per year
-There will almost certainly be skeletons in the closet when you buy your house if it's not brand new -- big appliances that are about to die, pest problems, that annoying neighbor the seller failed to mention, etc. At least you know the full picture with your current home; this new home would be a new can of worms
-Almost any improvement you make to the house is going to be negative NPV. And I guarantee that there are some things about the house you buy that you'll want to change
-Only the interest from your first $750k in mortgage is going to be tax deductible, so some of your mortgage probably won't be covered
-The size of your property tax bill is going to feel like paying rent all over again
-More house means more cleaning. Either you need to scrub those extra toilets or hire someone to do it for you
-Higher end neighborhoods have annoying HOA committees that like to police what you do with your home. You'd be surprised how annoying this can be

That said, I plan on upscaling my house some day. But for the reasons listed above, I'm not in a hurry.
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JoeRetire
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Re: Convince me that buying a nice house is a dumb idea

Post by JoeRetire »

newyorker wrote: Tue Oct 26, 2021 8:51 pm So hence a question, just for the reason of leveraging for future return, is it worth spending 200k in downpayment for a better house? Or, play safe and put the money into S&P and chill?
"Is it worth it" is something only you can determine.
It is a growing city and I guess its 50 pecent vanity and 50 percent investment thinking that why not borrow money and get a house to leverage for higher return.
Sounds like you already have a nice house. If you buy a better house, how long until you get bored with that one or the vanity wears off and you want an even better house?

Houses are for living, not investment.
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JoMoney
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Re: Convince me that buying a nice house is a dumb idea

Post by JoMoney »

The house you live in should be, and primarily is, a consumption decision.
If you're consuming more house then you need or otherwise desire to, there's some economic loss there, whether it's in paying more in rent then you need to, or in consuming more of your own equity in owners equivalent rent (that you're missing out on had you put your equity into the same place and rented to someone else while renting a place that better suited your needs.)
If you expect to live in the same place for a long period of time, it's usually better off to own your home, there's some good tax benefits to it, and you effectively hedge your expenses from rent inflation. There's also a matter that some people aren't good at saving/investing other ways, and the forced saving that happens as equity is accumulated in real estate might be the only investment they have.
I do think the growth in the housing market in recent times has left people with expectations on housing as an investment that may not be as likely to work out well (especially over shorter time windows) as they think.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Hulu
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Re: Convince me that buying a nice house is a dumb idea

Post by Hulu »

Sounds like you’re unclear on your top goals. The answer is whichever helps you achieve your dreams better.
exodusNH
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Re: Convince me that buying a nice house is a dumb idea

Post by exodusNH »

JoMoney wrote: Thu Oct 28, 2021 8:18 am The house you live in should be, and primarily is, a consumption decision.
If you're consuming more house then you need or otherwise desire to, there's some economic loss there, whether it's in paying more in rent then you need to, or in consuming more of your own equity in owners equivalent rent (that you're missing out on had you put your equity into the same place and rented to someone else while renting a place that better suited your needs.)
If you expect to live in the same place for a long period of time, it's usually better off to own your home, there's some good tax benefits to it, and you effectively hedge your expenses from rent inflation. There's also a matter that some people aren't good at saving/investing other ways, and the forced saving that happens as equity is accumulated in real estate might be the only investment they have.
I do think the growth in the housing market in recent times has left people with expectations on housing as an investment that may not be as likely to work out well (especially over shorter time windows) as they think.
How quickly they've forgotten 2008/9. Bought mine in 2005. It wasn't until the COVID runup that it was finally "worth" more than I bought it for 16 years ago. If you factor in inflation, I need another 25% increase to break even.
bloom2708
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Re: Convince me that buying a nice house is a dumb idea

Post by bloom2708 »

tibbitts wrote: Wed Oct 27, 2021 6:25 pm
newyorker wrote: Tue Oct 26, 2021 8:51 pm But at the same time, i am a professional stressed out running a business so dont want to take any crazy risks.
So your plan is to open a new risky real estate business to run and create more stress for yourself?
Ding ding ding ding. We have a winner.

It is a dumb idea to start a rental business and purchase more house than you need to. That is not a stress reliever.

Buy a new bike. Buy a Peloton bike and treadmill. Buy a golf membership. Get into "audiophile" stereo equipment.

All of those would be far cheaper and remove stress not add to it.
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AnnetteLouisan
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Re: Convince me that buying a nice house is a dumb idea

Post by AnnetteLouisan »

I was in a similar position as you and intentionally kept my residential footprint small to the point where it is now 1/19th of my gross. The extra cash gave me peace of mind, high ability to focus on work, and the expectation of a future not burdened by debt. However, there were undeniable negative social consequences. And now at 54, I need to trade up anyway and prices are higher.
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calmaniac
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Re: Convince me that buying a nice house is a dumb idea

Post by calmaniac »

newyorker wrote: Tue Oct 26, 2021 8:51 pm I guess its 50 pecent vanity and 50 percent investment thinking that why not borrow money and get a house to leverage for higher return.
At least you are honest! :D Neither of the above are great reasons to buy a 1 million dollar house.

You need to differentiate between rental real estate as an investment vs. speculating on the appreciation of a 1 million house. These are very different things. Suggest you do some homework. Check out Paula Pant on some of the usual financial podcasts.
"Pretired", working 20 h/wk. AA 75/25: 30% TSM, 19% value (VFVA/AVUV), 18% Int'l LC, 8% emerging, 25% GFund/VBTLX. Military pension ≈60% of expenses. Pension+SS@age 70 ≈100% of expenses.
nigel_ht
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Re: Convince me that buying a nice house is a dumb idea

Post by nigel_ht »

newyorker wrote: Tue Oct 26, 2021 8:51 pm I am pretty comfy in my current house. Single guy living in a starter home of around 350k in value. It is not the best house but fits my need and etc. Property tax is only $200/month and monthly expense including mortgage and tax is $1100

I always had an itch to buy around 1 mil dollar house in a nicer neighborhood and use the current home as rental. It is a growing city and I guess its 50 pecent vanity and 50 percent investment thinking that why not borrow money and get a house to leverage for higher return.

But at the same time, i am a professional stresses out running a business so dont want to take any crazy risks.


So hence a question, just for the reason of leveraging for future return, is it worth spending 200k in downpayment for a better house? Or, play safe and put the money into S&P and chill?
My recommendation is to sell current and buy the new home. You don’t want two mortgages.

That’s not normally my recommendation but it gives you an inflation hedge if you can get the right house for a reasonable amount (ie not a bidding war) at a good rate.

Ideally the new house has an ADU that you can rent out. And shoot for 700K maybe unless the ADU is really nice. Then live in the ADU and rent out the house to a family that wants their kids to go to the nice school but can’t afford $$$ house.

Or rent the basement/in-law suite out if you want the income and don’t mind roommates.

This is probably the best option vs another house across town to manage.
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quantAndHold
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Re: Convince me that buying a nice house is a dumb idea

Post by quantAndHold »

spammagnet wrote: Wed Oct 27, 2021 6:54 pm
phxjcc wrote: Wed Oct 27, 2021 6:51 pm... See, the thing is, you are wrong. ...
How did the collapse of real estate values in 2008 affect your personal net worth?
My house was the best part of my portfolio in 2008. It dropped about 10%, and completely recovered in about a year.

Real estate is local.
nigel_ht
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Re: Convince me that buying a nice house is a dumb idea

Post by nigel_ht »

quantAndHold wrote: Thu Oct 28, 2021 10:22 am
spammagnet wrote: Wed Oct 27, 2021 6:54 pm
phxjcc wrote: Wed Oct 27, 2021 6:51 pm... See, the thing is, you are wrong. ...
How did the collapse of real estate values in 2008 affect your personal net worth?
My house was the best part of my portfolio in 2008. It dropped about 10%, and completely recovered in about a year.

Real estate is local.
I was looking at vacation property and land that still hadn’t recovered to 2007 levels in early covid. Maybe they have now though…
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