Cool post!

My parents have an out house like the one in the picture at the top of this page in their back garden – only smaller!

Alexandria sounds like a really cool place to visit or buy your house for that matter.

I tell you what – people in the UK who have bought houses for investment in the last 5 years have really had their fingers burnt – it has also really affected the way local people to villages live their lives – so you could say that there are advantages and disadvantages to this sort of thing!

Anyway, take care for now!

James

Al’s last blog post..Subprime Mess

Taxes in DC metro are RIDAMNDICULOUS and would certainly bite into that profit. Furthermore, no house here in DC unless it is a 6-10 plot of land will go for 100k. Nothing here that is livable is worth 100k so I’d like to see that in practice which for this area means starting out at 350k depending on the area. Remember you must add everything you spend on that house in order to determine your REAL profit, not just want HGTV tells you your profit will be which is never the bottom line number.

Ive yet to meet a family that has found the house they will stay in for 30-40 years. I dont see where tying up 40k in the name of saying $300 a month makes sense? I would rather pay cheaper rent and invest that 40k. Given the fickleness of the market my 40k is best elsewhere. Maybe not entirely in the stock market but certainly not left to the whims of buyer psychology and rough economic times.

So if you have the 20%, it’s a good idea to use it to put down. Even 10% will get you lower rates. These days few lenders will lend to you with nothing down, even if you have great credit and a huge net worth.

Putting 20% (or any amount) down doesn’t just benefit the bank, though. It benefits YOU. Not only are you lowering your monthly payments – and the total amount you’ll pay on interest over the life of the loan – but it enables you to be able to sell and move quickly if you decide you want/need to. If you take out a 100% loan and then want to suddenly move in 2 years to accept a new job, your home probably hasn’t appreciated enough for you to sell (remember the selling costs will include a 6% realtor commission). But if you have equity in your home, you don’t have to worry that you might sell and not have enough to pay the bank back, even if you have to do so soon after closing.

In any event, home ownership is designed to be long term in nature. There are few easier ways to build wealth than buying real estate and holding, even and especially if you have a mortgage. Let’s review – you buy a $100,000 home and put $10,000 (10%) down. You owe $90,000. Your home value goes up 4% – $4000 in the first year (this is the average over time in most areas). You also pay down the mortgage a teeny bit – let’s say by $600 that year. So now you owe $89,400 on a $104,000 house. Your equity grew from $10,000 to $14,600 in one year – a 46% gain. Try doing THAT in the stock market.

I think little to 0 down can work for many people, especially if the property cost is very low in relation to income. But then that might mean they are prevented from taking a work hiatus or switching careers. I personally never want to be locked into needing a certain income so 0 down couldn’t work for my life strategy.

I want as much down as possible but no less than 20%, because I’ve always been self-employed and try to keep expenses low with my fluctuating income. Low price homes in L.A. are still riding in the 600ks, 20% down would leave a mtg payment of $2800 and 0 down would be around $3600, if I got the same interest rate on the 2nd. 2nd mortgages tend to be at a higher percentage and shorter term and could put it at more than $4100 per month. Then add property tax on top and you’re looking at near $5000 a month.

If I bought a house I loved and it lost equity or value I wouldn’t feel foolish. I would hope my property tax would decrease. I would be upset about the folks who figured out walking away was a good financial decision because they put nothing down and lost equity and were upsside down. That’s how neigborhoods fall apart. That’s also why I choose established neighborhoods, even if the homes lose equity the neighborhood is stable.

For those who are buying a home (vs just a house) that they intend to stay in, 20% down is a good idea provided you have a solid e-fund in place. You will lock-in a low rate mortgage and your monthly payments will be minimized. Also, you will avoid PMI (IMHO, throwing away money despite the fact that it recently became tax-deductible).

In the end, I think it all boils to down WHY you are buying. We didn’t buy our house with the intent of making it profitable. We bought it because we wanted to settle down and have a HOME. We don’t intend to move again, therefore we’re paying extra toward the mortgage (which is also highly debated) to get it paid off more quickly.

I don’t NEED to have a backyard or my own “home” or do to the repairs to it, or fix it the way I want.. for me, my home is really a subjective emotional sort of thing… it’s what I make of it.