I'm confused as to how you'd pay your mortgage if you used all of the profit from the sale of your first home on the down payment on the second home. Since your only income is 50k and you said you spend 3.7k/month on non mortgage expenses. The numbers aren't adding up to me, but perhaps I've missed something?
I'm pretty risk adverse. If it was me, I'd keep at least 75k-100k in liquid assets and put the rest in retirement and/or use as down payment on a reasonably priced home (like 200k or less). And if there aren't homes at that price point where you live, I would rent. Just my 2 cents.
-
If I were you I'd run a comparison of how much the difference of owning a $750k home vs a $400K home will run you over the course of 5 years. Add up all of the property tax, insurance, mortgage interest, expected heating/cooling, maintenance, improvements and add in the cost of buying/selling each home as you plan to live there temporarily and then move on.
Ask yourself if you'd rather have that much money towards your dream house, trips, retirement, etc.
We did the same very recently.
My wife and I are both physicians. We have about $250k in student loans. We are under contract to purchase a $499k home at this moment, our loan will be for $396k. Our total debt will be close to $650k. Our combined income will be around $600k per year when she completes fellowship at the end of June. We considered purchasing a much larger/nicer home for $630k but after we ran the numbers decided it probably wasn't worth it. We live in a high property tax state and the larger home would have added significant amounts of other bills and maintenance which we estimated would cost us at least a total of $500k more during 15 years of ownership (our planned mortgage length).
The ability to retire sooner and/or travel more was much more important to us than having the nicer house. What would you do with 500k?
For additional perspective, during residency we bought a $150k dollar home for 0% down on a Doctor's loan. We got lucky and made it out 5 years later without losing any money. We did however buy this home with a combined income of around 100k which allowed us plenty of room to enjoy ourselves when not a work. Many of my classmates couldn't resist a bigger house and ended up moonlighting instead of spending their precious extra time with family.Leave a comment:
-
Consider me the new owner of some significantly adjusted expectations…
I just want to point out that this is pretty cool. He came for advice, got the answer he didn't want, and still took it to heart. Someone actually changed their mind on the internet! Doesn't happen often. Well done.Leave a comment:
-
Interesting. The house is not yet sold. The 300k is real estate comps. If you must buy another house in your new city please wait until you sell you current house. My brother bought a second house before selling his original house. It ended up taking over a year to sell the first house. You cannot predict these things. Now that you have looked at the numbers as Zaphod and Johanna have posted real estate is not as good of an investment as you thought. Consider the advice you are getting. You can have a very nice house and a nice lifestyle but just wait for the income stream to appear first.
And for some reason RE agents always tell you they can get you X price "easy". Its their job to win your business. It may be true as the overall market is decent now, but you never know.Leave a comment:
-
Interesting. The house is not yet sold. The 300k is real estate comps. If you must buy another house in your new city please wait until you sell you current house. My brother bought a second house before selling his original house. It ended up taking over a year to sell the first house. You cannot predict these things. Now that you have looked at the numbers as Zaphod and Johanna have posted real estate is not as good of an investment as you thought. Consider the advice you are getting. You can have a very nice house and a nice lifestyle but just wait for the income stream to appear first.Leave a comment:
-
I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was “made” in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, “whoa! im a stellar RE investor” and then make less than informed decisions going forward.
Ah, I understand now and agree with your POV.Leave a comment:
-
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains, and was simply clarifying. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be. You dont "make" anything when just getting your principal back. That could have been in savings, cds, stocks, bonds, etc...it just happened to be in the house for this case. It wont make a difference in their gain on the sale math wise.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.
Its not letting me quote and reply for some reason.Leave a comment:
-
Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains, and was simply clarifying. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be. You dont "make" anything when just getting your principal back. That could have been in savings, cds, stocks, bonds, etc...it just happened to be in the house for this case. It wont make a difference in their gain on the sale math wise.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.
Leave a comment:
-
Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains, and was simply clarifying. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be. You dont "make" anything when just getting your principal back. That could have been in savings, cds, stocks, bonds, etc...it just happened to be in the house for this case. It wont make a difference in their gain on the sale math wise.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.
Not posting 4 some reason...Leave a comment:
-
Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains, and was simply clarifying. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be. You dont "make" anything when just getting your principal back. That could have been in savings, cds, stocks, bonds, etc...it just happened to be in the house for this case. It wont make a difference in their gain on the sale math wise.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.
Not posting for some reason...Leave a comment:
-
It’s true that over the time period you paid off your first home (5 years?), that money put into equities could have been up 59% (9.5% annualized) like it was the last 5 years, but it also could just have easily been down 21% (-4.6% annualized) like it was from 2004-2009.
I agree absolutely. Short-term returns are nothing but luck and no reason for @awesomesauce to be beating himself up about it.Leave a comment:
-
It’s true that over the time period you paid off your first home (5 years?), that money put into equities could have been up 59% (9.5% annualized) like it was the last 5 years, but it also could just have easily been down 21% (-4.6% annualized) like it was from 2004-2009.
I agree absolutely. Short-term returns are nothing but luck and no reason for @awesomesauce to be beating himself up about it.Leave a comment:
-
Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be. You dont "make" anything when just getting your principal back. That could have been in savings, cds, stocks, bonds, etc...it just happened to be in the house for this case. It wont make a difference in their gain on the sale math wise.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.Leave a comment:
-
Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.Leave a comment:
-
I agree that, in general, markets are expected to return more than the 3-4% I was paying in mortgage interest, so it would have been better to invest the money in equities, rather than paying down the mortgage early (is that correct)?
If so, I know. A lesson for next time.
It's true that your "expected" return in the total market is more than 3-4%. Perhaps you expect a 6% annualized return (4% real) in the market. But that is absolutely not a guaranteed return like a mortgage pay-down is, especially over a short time period. Because you take more risk in the market, you should expect more return. I wouldn't necessarily say that it "would have been better" to invest the money in equities rather than pay down your mortgage. You can't put a dollar-value on piece of mind for debt-averse persons like you and your SO.
It's true that over the time period you paid off your first home (5 years?), that money put into equities could have been up 59% (9.5% annualized) like it was the last 5 years, but it also could just have easily been down 21% (-4.6% annualized) like it was from 2004-2009.Leave a comment:
Leave a comment: