I am in the process of buying a house in MCOL area. Loan principal: 500k Interest Rate: 6.4% I will end up paying ~32k annual interest which is basically money wasted. I could easily rent a single family home for 2.5K in the area I am looking to buy (annual rent 28k) It feels like an epiphany to me. Isn’t buying home a bad investment with this interest rate. Even if the price appraises by 100k in next 5 years, I would have paid more interest out of pocket in that duration. The only savior might be refinancing when reduced interest rates come in couple of years, which again is not a guarantee. Am I missing something in this calculation? #firsttimehomebuyer #realestate #home TC: 175K HH TC: 265K
So the decreasing principal, and possibility of decreased interest rate should make up for the initial shocker in long term. My concern is, I might not live in the same house for more than 5 years. I guess the rule of “buy a house if you live at a place for more than 3 years” got diluted because of the interest rate hikes.
My rent went down significantly this year. Rent does not always go up. The best method I’ve found is to rent where you live and own properties you rent out. This allows me to spread equity over multiple properties and reduce risk, while living in a HCOL area for much less than it would cost to buy.
First mistake...the house you live in isn't an investment, it's where you live. There are pros and cons to owning your primary residence but only in specific markets or otherwise ideal conditions does it appreciate like an investment would.
ITT: people want free financial advice but can’t be bothered to google the question
Thanks for your time and valuable addition ITT!
In the time it took you to write this post and comment you could’ve read the entire /r/personalfinance wiki
If the money doesnt add up, dont do it. Now is not a great time to buy, you can absolutely lose money on real estate or have returns that are less then if you put that money towards alternate investments. The reality is that housing prices have not fully corrected to take into account higher rates. That takes a good deal of time, buying an inflated price with an inflated mortgage is tough to have major upside.
You need to assess the inventory in your area. In mine a HCOL, homes are not even staying on the market for a week before going pending. Yes rates are high, but what risk are you willing to take? Pull the trigger now or wait until rents/mortgages get even higher the longer you wait? Lenders are getting more responsible with whom they lend to, so if you want for a recession like in 2008 it isn’t likely to happen and if it were, not as catastrophic. The issue is if you also wait for rates to go down, competition may be even stiffer and you’d end up overbidding and not appraising like people did in 2021.
Why do you think so? Do you believe the sky high credit scores are built upon diversified stream of income? It is built upon good payment behavior observed during the boom period that will go south even if one earning member in a family were to be taken off. I don’t think they are also tracking the rate at which credit scores are falling once a loan was approved. The economy also works in a trickle down fashion, what happens in the market will impact how companies operate (which we see), and how their impacted employees react will impact the lower stream guys. I don’t buy this argument that white collar worker economy is different than blue collar workers. They are interconnected with a lag that is different in different places depending on how many from an industry are concentrated.
Major investors typically make 2-3% after overhead on rentals. Right now bonds pay more than that, with no expenses. So no, it doesn’t make sense now. Add to this the fact that most housing markets don’t have any upside in the near future and you have your answer. Blackstone is close to defaulting on some of their loans.
This!!
If Blackstone’s situation gets worse I predict they’ll start offloading holdings and we’ll see a huge inventory increase which will drive prices down in impacted markets.
leverage
If you expect 3 percent interest, you should depress your future payments by that ratio (future value). If you expect inflation to be 5%, it’s free money (because your rent will go up by 5 percent a year while your mortgage will not). Profitability is a function of the future rates
My rent has gone down the last two years. Rents are softening almost nationwide.
If you expect rents to go down (specific rent inflation) then use that number in in your excel
Your primary home is not an investment. Buying stabilizes your living expenses over a long horizon, while rent is subject to yearly increases. If you plan on moving around a lot, renting is probably a good idea.
Most people who buy are expecting the appreciation to be $500k and not $100k in 5 years.
That might be true in bay area where houses are priced at 1.5 M, my house itself would cost ~600k, it won’t double in 5 years.
It will triple in 5 years