Is it good or bad to invest heavily in your home? (1 Viewer)

[culdeus]

My PITI is just over 10% of our monthly gross income

That is super low, but with interest rates where they are and in a low tax state not impossible.

 

[Fennis]

My PITI is just over 10% of our monthly gross income

That is super low, but with interest rates where they are and in a low tax state not impossible.

I agree it is low, and my situation is different than the OP, for example I am married without kids.



But we live below our means in order to meet long term goals like early retirement. Unfortunately, I wasn't fiscally responsible early in life, so we are still making up ground, but our on track.

 

[Judge Smails]

If you're moving every few years you can definitely look at it as an investment. Not so much if it is your 'forever' home.

Difference between moving every few years due to work, etc, or buying/flipping. If the latter, or you are buying homes as rental properties, then you can look at a house as an investment. Anything other isn't IMO.For me, a house is a place to live, raise a family and enjoy. That being said, as I pay down my 15 year note and look at what even conservatively the house will be worth at retirement I see my home as a key asset, if not an "investment". Pretty confident as home is in a very desirable location. Thousand Oaks ain't going the way of Detroit or Flint.

 

[Cliff Clavin]

If you're moving every few years you can definitely look at it as an investment. Not so much if it is your 'forever' home.

Difference between moving every few years due to work, etc, or buying/flipping. If the latter, or you are buying homes as rental properties, then you can look at a house as an investment. Anything other isn't IMO.For me, a house is a place to live, raise a family and enjoy. That being said, as I pay down my 15 year note and look at what even conservatively the house will be worth at retirement I see my home as a key asset, if not an "investment". Pretty confident as home is in a very desirable location. Thousand Oaks ain't going the way of Detroit or Flint.

Yep. I'm talking about the buying and flipping your primary residence. Finding a dated house in a nice area and fixing it up over a couple years then moving again. Definitely not for someone like Otis but for someone who can do the work themselves, it is a fairly easy way to make a buck (as long as the market cooperates). Do that a half dozen times and you're mortgage free in your dream house. You just have to be willing to work, move and live in a house under constant renovations.

 

[tonydead]

Just a note for paying off a mortgage for fear of collapse. It depends on where and how much your other investments are. I have plenty to pay off the mortgage, but, I wouldn't have that money any longer to be making higher returns somewhere else. It's really just about net worth and having enough secure investments to cover the mortgage that is at a lower leveraged interest rate.

 

[culdeus]

Also in a situation where inflation is accompanied with higher interest rates a house can be free money in a way. Renting has no such control as there is not a way to lock in a 30 year rent payment.

 

[mr roboto]

Our PITI is 1,600. Take home is 6k base, probably 7k average. We are moving soon and plan to buy a more expensive home. We are assuming 7k monthly take home and 25% down. We will go up to 2,800 monthly PITI. That's for our kids 'forever' home (ie where they will most remember growing up).

 

[sublimeone]

The biggest problem with heavily investing in your home is all the incremental cost increases that go with owing an more valuable home. Sure you can look at the underlying value of your home increasing 3-5% annually but that number doesn't take into account all the additional $$'s you spend on heating, cooling, roof replacement, etc... and most of all property taxes... all of that money is lost.

 

[ZenMaster]

My PITI is just over 10% of our monthly gross income

I had no idea what ours was so I just ran the numbers. Our mortgage+property tax+insurance is 13.7% of our take-home pay.

It's just my wife and I (no kids) and we could afford a more expensive home but we have an early retirement plan that we're sticking to. Like others have mentioned, there's a certain freedom in having our house paid off (3 years to go).

 

[Ilov80s]

Have you heard of Summerslam?

 

[wilked]

Our PITI is 1,600. Take home is 6k base, probably 7k average. We are moving soon and plan to buy a more expensive home. We are assuming 7k monthly take home and 25% down. We will go up to 2,800 monthly PITI. That's for our kids 'forever' home (ie where they will most remember growing up).

Good luck getting a loan where PITI is 40% of net income. This is well above bank'a typical guidelines.

People often justify overspending on a home as 'this is our forever home' or 'it's the perfect neighborhood to raise our family' , essentially letting emotion trump reason. The issue is that you will be left with little margin should your life plans hit a hiccup financially

 

[mr roboto]

Our PITI is 1,600. Take home is 6k base, probably 7k average. We are moving soon and plan to buy a more expensive home. We are assuming 7k monthly take home and 25% down. We will go up to 2,800 monthly PITI. That's for our kids 'forever' home (ie where they will most remember growing up).

Good luck getting a loan where PITI is 40% of net income. This is well above bank'a typical guidelines. People often justify overspending on a home as 'this is our forever home' or 'it's the perfect neighborhood to raise our family' , essentially letting emotion trump reason. The issue is that you will be left with little margin should your life plans hit a hiccup financially

Appreciate this response. There are some other financial considerations where we already know we are approved for this amount. And likely we won't be going above 2,500 monthly.

 

[Otis]

what's the point of having money if you can't enjoy it?

You could live in a trailer park and put all of your assets into mutual funds and retire early, or you could enjoy the next 20-30 years of your life in a nice house, but that may (or may not) have an overall lower return.

cars, clothes, stuff like that always depreciates so that's worse. At least a house has a chance to appreciate or break even at the very least.

House could also collapse...

Also your post implies that you could not achieve happiness in a trailer park and or lesser home... that the nice home is like trading dollars directly for happiness.

I agree that if you are a person lucky enough to be able to meet all the recommended financial goals and then still have enough left over to enjoy it, that is probably a worthwhile venture to pursue, but the pursuit of that through the acquisition of a large mortgage is misguided.

Not only does the larger home cost more, but it will require more maintenance, cost more in property taxes and insurance, and cost more to furnish and re-furnish when Mrs. Otis's tastes change.. I just haven't seen homes be that great of an investment if the owner honestly factors in all the money and time they spend maintaining it.

Money is far better spent if used to buy either experiences or freedom (and henceforth the freedom to enjoy more experiences).

The quicker one is able to achieve financial independence and then thus be able to choose if or if not to work, or if they continue to work at least it be on their terms and at the times of their choosing, the quicker peace and happiness are achieved... unless you are one of the 1/1000 that truly has a hobby they would do for nothing as their job, and that job allows a life free of stress and anxiety.

re: house collapsing - that's why you have insurance. If the market goes bust, I have no insurance against that.

A more expensive house does not necessarily mean happiness, I agree with that. There are certainly more incremental expenses that come along with it that cannot be re-captured. But, we've all got to live somewhere. I'm of the opinion that I want to love where I live - that's where I sleep, spend my weekends, raise my kids, it's where my wife spends a majority of her time, etc. I don't believe a primary house should be considered an investment vehicle, but it's not the same thing as throwing money away either.

I'm not advocating breaking the bank to buy the most expensive house possible. I believe that a paid off house is a key aspect of retirement planning, I just don't think it's a good plan to retire with a mortgage. That's how i'm looking at it - I'm not interested in buying a house that I will be making payments on after I'm 55. I'm about to turn 40, so that's what I'm planning around right now.

I agree with the bolded. The OP probably didn't call for it, but folks aren't acknowledging the other value in having a more expensive home--typically more space, more comfortable living, a better school system in which to raise kids, etc. So there is value beyond just the value of the house that you get out of it over the years. Yes it's not a dollar-for-dollar exchange for happiness, but there are some good intangibles you can get out of a larger mortgage.

By the way, I'm not advocating going over the 25-33% range rule of thumb.

 

[NewlyRetired]

The OP probably didn't call for it, but folks aren't acknowledging the other value in having a more expensive home--typically more space, more comfortable living, a better school system in which to raise kids, etc. So there is value beyond just the value of the house that you get out of it over the years. Yes it's not a dollar-for-dollar exchange for happiness, but there are some good intangibles you can get out of a larger mortgage..

You can't have it both ways though.

http://forums.footballguys.com/forum/index.php?showtopic=709978&p=17073036

 

[Otis]

I suppose it depends on what "invest heavily" means.

• >25% of your take-home?
• >50% of your net worth? (age dependant, I think. It's probably ok to spend a majority of your net worth as a down-payment when you are <30, probably not a good idea if you are over 40)
• are we talking about purchase price, or are we talking about money spent on re-model? value of remodel dollars spent would depend on lots of variables.
• have to consider incremental costs like utilities, insurance, repairs & upkeep, taxes, commute

Sorry, I meant purchase price. As in mortgage as a portion of your monthly nut.

 

[Tiger Fan]

This again?

 

[Otis]

The OP probably didn't call for it, but folks aren't acknowledging the other value in having a more expensive home--typically more space, more comfortable living, a better school system in which to raise kids, etc. So there is value beyond just the value of the house that you get out of it over the years. Yes it's not a dollar-for-dollar exchange for happiness, but there are some good intangibles you can get out of a larger mortgage..

You can't have it both ways though.

http://forums.footballguys.com/forum/index.php?showtopic=709978&p=17073036

Understood, and a good point. I guess I'm hoping to find both--i.e., buying a place that puts us at around the 27% of take home pay after taxes (mortgage plus property taxes) based on current salary, but over time getting raises that will allow us to sock away more and more.

But this isn't really about my situation. I don't think we're in over our heads based on our current salary level. It's not a conceptual question. To me, it seems like it's OK to spend a lot of money on a home, more so than on any other thing you spend on in life. (Education being the only other good way to spend money).

 

[Otis]

Actually I forgot insurance. We'll be at 29% PITI. Seems to be in a reasonable range. But this isn't really about my situation, it's just the general idea.

 

[Otis]

My PITI is just over 10% of our monthly gross income

Wait, that ratio is supposed to be gross income? I thought it was after taxes are taken out.

If the PITI ratio is supposed to be percentage of gross income, we're at 20%. Does this mean I can retire in a year or two?

 

[RUSF18]

The OP probably didn't call for it, but folks aren't acknowledging the other value in having a more expensive home--typically more space, more comfortable living, a better school system in which to raise kids, etc. So there is value beyond just the value of the house that you get out of it over the years. Yes it's not a dollar-for-dollar exchange for happiness, but there are some good intangibles you can get out of a larger mortgage..

You can't have it both ways though.http://forums.footballguys.com/forum/index.php?showtopic=709978&p=17073036

Understood, and a good point. I guess I'm hoping to find both--i.e., buying a place that puts us at around the 27% of take home pay after taxes (mortgage plus property taxes) based on current salary, but over time getting raises that will allow us to sock away more and more.

But this isn't really about my situation. I don't think we're in over our heads based on our current salary level. It's not a conceptual question. To me, it seems like it's OK to spend a lot of money on a home, more so than on any other thing you spend on in life. (Education being the only other good way to spend money).

All of that is fine, and you called it the right thing - "spending" money on a home. Not investing into it.

 

[Thorn]

The OP probably didn't call for it, but folks aren't acknowledging the other value in having a more expensive home--typically more space, more comfortable living, a better school system in which to raise kids, etc. So there is value beyond just the value of the house that you get out of it over the years. Yes it's not a dollar-for-dollar exchange for happiness, but there are some good intangibles you can get out of a larger mortgage..

You can't have it both ways though.http://forums.footballguys.com/forum/index.php?showtopic=709978&p=17073036

Understood, and a good point. I guess I'm hoping to find both--i.e., buying a place that puts us at around the 27% of take home pay after taxes (mortgage plus property taxes) based on current salary, but over time getting raises that will allow us to sock away more and more.

But this isn't really about my situation. I don't think we're in over our heads based on our current salary level. It's not a conceptual question. To me, it seems like it's OK to spend a lot of money on a home, more so than on any other thing you spend on in life. (Education being the only other good way to spend money).

All of that is fine, and you called it the right thing - "spending" money on a home. Not investing into it.

Exactly. Original question was about investing.

 

[Rohn Jambo]

Otis, are you any good with other types of investments? I mean besides taking bets in the FFA.

 

[bostonfred]

Investing in your own home isn't great advice for most people because your money doesn't earn you anything and you can't cash out until you downsize your home. But compared with an investment strategy that once literally included sending money electronically to an unknown foreign company, betting four digits a hand on blackjack, then watching a video of a dealer putting your losing card up on the screen and saying better luck next time, I think this house thing is a potential winner for you.

 

[Pumpnick]

was thinking of doing the opposite of this, and take out a 10 year mortgage on a cheaper home.