Ask HN: Should I buy a home? | Hacker News Reader

Ask HN: Should I buy a home?

3 pointsmetabro9 comments

Please Excuse the title. I need some perspective.

Early Last year I was planning to buy a house in Southern California but ended up taking a job in the Bay Area and moving instead.

Kind of kicking myself for not pulling the trigger on a sub 1m house at <3%. I could have just rented it out.

Instead I’m in the Bay Area paying in rent what my entire mortgage + taxes would have been while my downpayment money (>200k) just erodes due to inflation- which is accentuated in housing.

Now I feel like I’ve missed an opportunity of a lifetime. Housing is much higher across the board and the Bay Area is just nuts.

If I was to buy here With a reasonable commute then I’m looking at 1.5m on the lower end for a 3 bedroom (I have a family). Which I can’t (reasonably) pull off at these rates.

I make more money than I did but a good portion of that is equity which hasn’t done well. My base income excluding equity is 190k and I’m priced out.

I made over $300k last year (it will likely be less than 300k this year due to equity drop) but I’m just as worried about our future as ever.

Part of me wonders if I should just buy further away as I just go into work a couple times a week or even go perm remote and buy something for cheaper a lot further away (or even move back).

One (of several) downside to living further away is access to career opportunities that are concentrated here. Maybe that’s over valued at this point with the shift to remote work.

Or I just put off home ownership for at least the next 5 years. Invest the cash in an index and focus on my career.

But I’m only getting older and have a family to support and want to provide stability and security. Housing is a hedge against ever increasing rents so despite the downsides should I just buy what I can and just move.

I’m so confused and think about this constantly. Would appreciate perspective.

Hope I don’t get flamed. I do feel like I have trouble with perspective and seeing a therapist.

It costs a lot of money to buy a home. I don't know what it costs in a place like San Fransisco, but it could be something like 5-10 thousand dollars in just closing costs.

Because of this it doesn't usually make sense to buy a home unless you are planning on staying there for at least 5 years or so. It'll take that long to effectively break even over just renting.

Keep in mind that instead of feeling bad about losing possible equity in a house you could invest that money instead of spending it on closing costs. So in a short term situation you can potentially earn more money by NOT buying a house, even if the monthly payments are the same.

Housing prices are in a bubble right now. But it's impossible to know when that bubble is going to burst. It could be 10 years from now. It could be next week.

Also keep in mind that 1 million dollar house in Bay area gets you a reasonably nice place. While a 1 million dollar house in the country in the mid-west gets you a small mansion, acres of land, and horses if that is your thing.

So really it boils down to first deciding were you want to be in 5-7 years. Then doing the math.

>Keep in mind that instead of feeling bad about losing possible equity in a house you could invest that money instead of spending it on closing costs. So in a short term situation you can potentially earn more money by NOT buying a house, even if the monthly payments are the same.

Can you explain this a bit more. What is your definition of short term and by investments im assuming equities. Generally for a less than 5 years the advice is not to invest downpayment money in risk assets.

>Also keep in mind that 1 million dollar house in Bay area gets you a reasonably nice place.

I wish.houses in the east bay are listed between 1-1.5. And are sold over list. I’m not even thinking about peninsula or South Bay that is double the price for a smaller home.

For 1m I’d have to move over an hour or more away if not more or buy rougher housing stock on the east bay listed <1m. Might get luckier with condos tho.

> Can you explain this a bit more. What is your definition of short term and by investments im assuming equities. Generally for a less than 5 years the advice is not to invest downpayment money in risk assets.

A down payment is different then closing costs. The money you put down on the house goes into the house. So effectively you retain the value of the downpayment in the equity of your house. So it is not "lost".

The closing costs are the costs of actually getting the loan. That is money you spend in order to get the loan. That money doesn't go anywhere except into taxes, bank fees, real state fees, titling, etc etc. So that is money that simply 'evaporates'.

You can use that money for purposes other then buying a mortgage.

When deciding to rent vs buy the argument for buying a home is that you get equity in the home, were as with renting that money is gone for ever.

So say you spend 10,000 on closing costs and make payments of 3000 dollars a month. Out of that payment the vast majority goes to taxes, insurance, and interest payments. You may only end up with 300 dollars in actually equity.

Versus

You spend 3000 dollars a month on rent, make zero equity, and get to keep your 10000 dollars.

So if you live in a house for just 3 years then sell it... You might get 10,800 in actual equity in your house.

So over the course of 3 years you only actually earned 800 dollars.

Is that 800 dollars more or less then what you could of gotten if you invested that 10 grand into something?

Most people assume that buying a house is a no-brainer because over the years the value of the house rises. So even if you don't put much money into the equity you can still earn a sizable profit selling it.

But that is only true if there is no bubble and people can afford to buy your house in the future.

Really whether or not to buy a house ends up being a math problem. Were do you want to be and what are the chances of making money by renting vs buying.

If you are planning on living somewhere for 10 or 20 years then closing costs end up incidental and you win by buying pretty much no matter what.

I see, you were talking about closing costs. Yeah I fully fund retirement plus I bonds plus sick some away in after tax account and kids 529. So I think I am investing the difference now.

But I still have the couple hundred grand that was earmarked for a down amdownpayment withering away in a savings account.

Yep. It's impossible to give a definitive answer one way or another.

If you want to live in that place for years and years and years then it's kinda dumb not to buy the house.

But if you want to get out of that area once you get your career more established or something like that then just rent.

You can go ahead and stuff your down payment into some bond ETFs or something like that if you don't want to get a house right away. I use Vanguard "inflation protected" ETFs, personally. You won't make a whole lot of money, but if Fed bonds take a huge shit your money isn't going to be worth much anyways. So it's one of the safest place to put it and still have it easily accessible.

The only reason to buy a home is because you want it. It should be a joint decision; what does the wife think?

A home is not an investment, it is a liability. The "American dream" makes money for speculators, realtors, advertisers, builders, decorators, landscapers, lenders, insurance companies, and taxing entities. Homeowners may breakeven if they keep it for thirty years. They can actually make money if they were really lucky in their choice of "location, location, location." But that's gambling, not investing.

Read "Your Engineered House" by Rex Roberts. Avoid the updated version; get the original, 1964 version. Then read Ken Kern's "The Owner Built Home." Roberts deals with houses as machines; What do they do for us that make us need or want them? Both books deal with buying a house with sweat equity. Roberts points out that half the cost of a house is labor. (If you build it yourself you can have twice the house for the same money.) But half the materials cost comes from fixtures: doors, windows, cabinets, etc; things that other people make for retail. We buy them ready-made because ... builders get a kickback (discount); because they are advertised in "Better" Homes and Gardens; because we don't know that we can DIY-build better for a quarter the cost.

A rental house is an investment. Keep it until the loan is retired and you have an income-stream.

Building your own home is the same as buying it for twenty-five cents on the dollar ... and that IS an investment.

Always remember the Rule of 72 - "Seventy-two divided by the interest rate yields the years required for your investment to double." Don't forget to subtract the inflation rate from the interest rate. The point is that if you can live on half your income and invest the other half at 10% interest (after inflation), then you can retire on half your income after seven-point-two years. When you are thinking about a major expenditure, think about it in terms of the Rule of 72 and your eventual retirement.

...Do you see a therapist because you have difficulty distinguishing between what YOU want and what self-interested others tell you that you SHOULD want?

Well what do you want?

I want to buy a home so I can provide security for my wife and I as a hedge against inflation over time. I don’t want to end up a renter when I’m retired. Buying in california in theory locks in housing costs until I decide to sell.

In my mind, It’s only investing in the sense of trying to hedge against rent inflation.

So it’s out of fear of the future and not out of wanting a house for a house sake. That would be the main motivation. Plus I have the downpayment losing to inflation the longer I take to decide.

If you can “just” buy a home, sure why not?

I agree. Could have done without the “just”.

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