Comments on: To Buy or Not To Buy…What’s Your Advice for This AFM Reader? http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Sat, 21 Nov 2009 13:00:57 -0800 http://wordpress.org/?v=abc hourly 1 By: SM http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/comment-page-1/#comment-396228 SM Sat, 10 Jan 2009 21:20:27 +0000 http://allfinancialmatters.com/?p=3070#comment-396228 Thanks again guys! After reading all of this, I'm happy to report that we will be passing on the new house. Thanks for the guidance! -SM Thanks again guys! After reading all of this, I’m happy to report that we will be passing on the new house. Thanks for the guidance! -SM

]]> By: Meg http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/comment-page-1/#comment-396033 Meg Fri, 09 Jan 2009 22:20:26 +0000 http://allfinancialmatters.com/?p=3070#comment-396033 So you are married, in your 20's, in law school, and have about $465K in marketable securities of some kind. That's awesome! And it sounds like you already own a home since you want a "new, bigger" one. If you know you want to stay in the Birmingham area for 10-15 years, then I WOULD condider buying a home right now, one that you can see yourself living in for that duration. But I would NOT put more than 15% of my net worth in it (25% MAX). You need to diversify if the whole point is to make money, and you need to retain liquidity during this transitional period of your life. What if you get a great job offer in Mobile when you graduate? Or what if you can't find a good job, or realize you hate practicing law? What if your wife gets pregnant or you total your car? You're telling me you'd be comfortable with $15,000 in the bank? PS - Make sure you can afford the mortgage and taxes and insurance without living off your inheritance. If you would otherwise be living off your assets during law school, make sure those costs don't exceed what you'd otherwise be taking out to pay rent. PPS - If your main goal is appreciation, houses closest to the median home value appreciate the fastest. Very expensive homes and very cheap homes relative to that typically appreciate at lower rates. OK, so what to do with your $375K - $465K that's leftover? Keep at least one year of expenses in cash. Or maybe even one year of your expected salary once you graduate. Then max out Roth IRAs for you and your wife, assuming you have $5K of income for the year. Then put the rest in a moderately conservative fund such as the Vanguard LifeStrategy fund. If all you want to do is keep this money safe and grow it as much as possible in the meanwhile, real estate isn't your best bet. It's NOT as safe as it seems, even though a big house seems more tangible than a stock fund. The transaction costs and taxes and upkeep are extremelly prohibitive to good returns even when it's NOT the worst real estate market we've seen in decades. So you are married, in your 20’s, in law school, and have about $465K in marketable securities of some kind. That’s awesome! And it sounds like you already own a home since you want a “new, bigger” one.

If you know you want to stay in the Birmingham area for 10-15 years, then I WOULD condider buying a home right now, one that you can see yourself living in for that duration. But I would NOT put more than 15% of my net worth in it (25% MAX). You need to diversify if the whole point is to make money, and you need to retain liquidity during this transitional period of your life. What if you get a great job offer in Mobile when you graduate? Or what if you can’t find a good job, or realize you hate practicing law? What if your wife gets pregnant or you total your car? You’re telling me you’d be comfortable with $15,000 in the bank?

PS – Make sure you can afford the mortgage and taxes and insurance without living off your inheritance. If you would otherwise be living off your assets during law school, make sure those costs don’t exceed what you’d otherwise be taking out to pay rent.

PPS – If your main goal is appreciation, houses closest to the median home value appreciate the fastest. Very expensive homes and very cheap homes relative to that typically appreciate at lower rates.

OK, so what to do with your $375K – $465K that’s leftover? Keep at least one year of expenses in cash. Or maybe even one year of your expected salary once you graduate. Then max out Roth IRAs for you and your wife, assuming you have $5K of income for the year. Then put the rest in a moderately conservative fund such as the Vanguard LifeStrategy fund.

If all you want to do is keep this money safe and grow it as much as possible in the meanwhile, real estate isn’t your best bet. It’s NOT as safe as it seems, even though a big house seems more tangible than a stock fund. The transaction costs and taxes and upkeep are extremelly prohibitive to good returns even when it’s NOT the worst real estate market we’ve seen in decades.

]]> By: thomas http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/comment-page-1/#comment-395892 thomas Fri, 09 Jan 2009 04:26:35 +0000 http://allfinancialmatters.com/?p=3070#comment-395892 Probably way too much to throw all your money into one house. Property taxes would be a pain and you have no way to offset the costs if you were paying interest. You would be better off buying forclosed homes, fixing them up, and sitting on them till the market turns. Not only are house prices down, but so are labor costs, supplies, etc. The true money makers are the ones that have the capital to take advantage of the down times. Just my thoughts. Good luck in your decision. Probably way too much to throw all your money into one house. Property taxes would be a pain and you have no way to offset the costs if you were paying interest.
You would be better off buying forclosed homes, fixing them up, and sitting on them till the market turns. Not only are house prices down, but so are labor costs, supplies, etc. The true money makers are the ones that have the capital to take advantage of the down times.

Just my thoughts. Good luck in your decision.

]]> By: Gerard http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/comment-page-1/#comment-395855 Gerard Thu, 08 Jan 2009 22:46:19 +0000 http://allfinancialmatters.com/?p=3070#comment-395855 SM, As with all things financial, it depends on your motives for the money. Personally, I agree with most of the commentators here. I do not think a house is the best investment unless you intend to live in it for the next 10 years. Even with the depressed house prices, I still think you will be able to make your money work harder in the stock market (especially given the beating they've taken). That said, this is based purely on the assumption that you do not intend to use the money in the near future. Further, I would keep an emergency fund using a CD ladder / online savings accounts regardless of which path you go down. Good luck! SM,
As with all things financial, it depends on your motives for the money. Personally, I agree with most of the commentators here. I do not think a house is the best investment unless you intend to live in it for the next 10 years. Even with the depressed house prices, I still think you will be able to make your money work harder in the stock market (especially given the beating they’ve taken). That said, this is based purely on the assumption that you do not intend to use the money in the near future. Further, I would keep an emergency fund using a CD ladder / online savings accounts regardless of which path you go down.
Good luck!

]]> By: Joe http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/comment-page-1/#comment-395824 Joe Thu, 08 Jan 2009 20:10:03 +0000 http://allfinancialmatters.com/?p=3070#comment-395824 Considering the legal world is being restructured and you may not be able to make big dollars as an attorney (as opposed the world in 1998) you can't count on what your income will be. You didn't mentioned law school loans, but if you have those you can't possibly get rid of $450,000 unless those loans are paid off. Considering the legal world is being restructured and you may not be able to make big dollars as an attorney (as opposed the world in 1998) you can’t count on what your income will be. You didn’t mentioned law school loans, but if you have those you can’t possibly get rid of $450,000 unless those loans are paid off.

]]> By: SM http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/comment-page-1/#comment-395806 SM Thu, 08 Jan 2009 18:55:41 +0000 http://allfinancialmatters.com/?p=3070#comment-395806 Wow, thanks JLP and crew, keep it coming. It may not be what my wife and I want to hear, but you guys are making sense... I'm simply looking for the best investment vehicle for this large a sum of money... and a nice house seemed like the best thing. But it seems that I was wrong. Thanks again you guys, ya'll are great. Wow, thanks JLP and crew, keep it coming. It may not be what my wife and I want to hear, but you guys are making sense… I’m simply looking for the best investment vehicle for this large a sum of money… and a nice house seemed like the best thing. But it seems that I was wrong. Thanks again you guys, ya’ll are great.

]]> By: zed http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/comment-page-1/#comment-395793 zed Thu, 08 Jan 2009 18:35:17 +0000 http://allfinancialmatters.com/?p=3070#comment-395793 SM, My $.02. It would be foolish to have that much of your net worth tied up in a personal residence. Why do I say that? Because that’s exactly where I am right now. My wife and I built our dream home (Seattle area) back in ’96 for $400k. For the last year now we’ve owned it free and clear. Being without debt is a wonderful feeling but the other side of the coin is that we’re now sitting on an asset worth $1mil/$900k/$800k – pick a number. Okay maybe that’s such a bad problem to have but does it really make sense to have that much of your net worth tied up in one asset? Taking into consideration where you are at this point in your life and career I would strongly suggest that you educate yourself on good personal finance and investing habits. Charlie “Tremendous” Jones was credited with saying: “You’ll be the same person you are today, five years from now, except for the books you read and the people you meet”. Recommended reading list: “The Millionaire Next Door”, Thomas Stanley “Financial Peace”, Dave Ramsey Titles found here by Jack Bogle/Bill Bernstein/Larry Swedroe/Rick Ferri http://www.successfulinvestingradio.com/reading.php Note: The Podcasts found on this sit are also worth listening to (click on Archive.) Note: I’m not plugging these advisors. I’ve never talked with them. Judge for yourself. The message I’m trying to convey is: live frugally and well within your means, save, diversify your investments and ALWAYS be in control of your money. Oh and above all – Enjoy your life. zed SM,

My $.02. It would be foolish to have that much of your net worth tied up in a personal residence. Why do I say that? Because that’s exactly where I am right now.

My wife and I built our dream home (Seattle area) back in ’96 for $400k. For the last year now we’ve owned it free and clear. Being without debt is a wonderful feeling but the other side of the coin is that we’re now sitting on an asset worth $1mil/$900k/$800k – pick a number. Okay maybe that’s such a bad problem to have but does it really make sense to have that much of your net worth tied up in one asset?

Taking into consideration where you are at this point in your life and career I would strongly suggest that you educate yourself on good personal finance and investing habits.

Charlie “Tremendous” Jones was credited with saying: “You’ll be the same person you are today, five years from now, except for the books you read and the people you meet”.

Recommended reading list:
“The Millionaire Next Door”, Thomas Stanley
“Financial Peace”, Dave Ramsey
Titles found here by Jack Bogle/Bill Bernstein/Larry Swedroe/Rick Ferri
http://www.successfulinvestingradio.com/reading.php
Note: The Podcasts found on this sit are also worth listening to (click on Archive.)
Note: I’m not plugging these advisors. I’ve never talked with them. Judge for yourself.

The message I’m trying to convey is: live frugally and well within your means, save, diversify your investments and ALWAYS be in control of your money.

Oh and above all – Enjoy your life.

zed

]]> By: JC http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/comment-page-1/#comment-395767 JC Thu, 08 Jan 2009 16:51:05 +0000 http://allfinancialmatters.com/?p=3070#comment-395767 just to play devil's advocate here, but why can't the OP put a sizeable down payment (30-40%), take out a mortgage at these historically LOW rates (get the tax advantages thereof), and still have a large stash of cash to draw from to bridge him to the end of law school and his first job? he then gets the home he wants (assuming he can live there for at least 5-10 years), and when he feels he has a stable income to work with, he can use the sizeable stash to pay of the mortgage if that's what he wants to do...i see this as a way to hedge his bets a little by getting the real estate as well as having a cash cushion to work with to deal with the uncertain short term future. just to play devil’s advocate here, but why can’t the OP put a sizeable down payment (30-40%), take out a mortgage at these historically LOW rates (get the tax advantages thereof), and still have a large stash of cash to draw from to bridge him to the end of law school and his first job? he then gets the home he wants (assuming he can live there for at least 5-10 years), and when he feels he has a stable income to work with, he can use the sizeable stash to pay of the mortgage if that’s what he wants to do…i see this as a way to hedge his bets a little by getting the real estate as well as having a cash cushion to work with to deal with the uncertain short term future.

]]> By: Spokane Al http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/comment-page-1/#comment-395760 Spokane Al Thu, 08 Jan 2009 16:20:57 +0000 http://allfinancialmatters.com/?p=3070#comment-395760 I strongly agree with many of the points previously made. It sounds like the writer views a fancy home as a measurement of success. A house is first off a home, and second, over the long run, one hopes that its value will increase. As some have previously commented, if the writer is looking for an investment that will increase in value faster that other choices, a luxury home is probably not the best move. The more expensive the home, the more exclusive the buyer. Just starting off in any vocation is a time to be a bit cautious. To sink virtually all of one’s net worth into a house is not the right move in my opinion. If the writer has the income, I would fully fund a Roth IRA for both him and his spouse. I would then put about 25% into a diversified mix of mutual funds (Vanguard is my first choice). I would ladder the remainder in CDs of terms of one to five years. I would take my wife out to a nice dinner celebrating our lives together and the excitement of the future. I would evaluate my need for big houses and lots of stuff – that does not drive happiness. I would then get back to hitting the books, passing the bar and working overtime to find a decent place to practice, learn and grow, and fully fund a 401(k). Once I was settled into a solid firm (if that is the writer’s direction) I would consider homes on a much smaller scale. And I would continue with a diversified investment plan. I strongly agree with many of the points previously made. It sounds like the writer views a fancy home as a measurement of success. A house is first off a home, and second, over the long run, one hopes that its value will increase.

As some have previously commented, if the writer is looking for an investment that will increase in value faster that other choices, a luxury home is probably not the best move. The more expensive the home, the more exclusive the buyer.

Just starting off in any vocation is a time to be a bit cautious. To sink virtually all of one’s net worth into a house is not the right move in my opinion.

If the writer has the income, I would fully fund a Roth IRA for both him and his spouse. I would then put about 25% into a diversified mix of mutual funds (Vanguard is my first choice).

I would ladder the remainder in CDs of terms of one to five years.

I would take my wife out to a nice dinner celebrating our lives together and the excitement of the future.

I would evaluate my need for big houses and lots of stuff – that does not drive happiness.

I would then get back to hitting the books, passing the bar and working overtime to find a decent place to practice, learn and grow, and fully fund a 401(k).

Once I was settled into a solid firm (if that is the writer’s direction) I would consider homes on a much smaller scale.

And I would continue with a diversified investment plan.

]]> By: Mia http://allfinancialmatters.com/2009/01/07/to-buy-or-not-to-buywhats-your-advice-for-this-afm-reader/comment-page-1/#comment-395752 Mia Thu, 08 Jan 2009 16:01:41 +0000 http://allfinancialmatters.com/?p=3070#comment-395752 I'm sure that there will always be a small niche market for luxury homes, but I, and many real estate experts, predict that the long term trend will be towards smaller, less 'in your face' homes. Excess, and the bling that goes along with it, are becoming socially unacceptable: large homes usually aren't 'green', and owners of luxury homes are being viewed as wasteful, greedy show-offs. Do a google search for "building trends" and you'll find plenty of information. I’m sure that there will always be a small niche market for luxury homes, but I, and many real estate experts, predict that the long term trend will be towards smaller, less ‘in your face’ homes. Excess, and the bling that goes along with it, are becoming socially unacceptable: large homes usually aren’t ‘green’, and owners of luxury homes are being viewed as wasteful, greedy show-offs.

Do a google search for “building trends” and you’ll find plenty of information.

]]>