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Diversification can include real estate. Besides, it's the leverage. You can buy $625,500 of house with 2.5% down + a monthly payment with a ~4% vig. Nowhere e

Diversification can include real estate. Besides, it's the leverage. You can buy $625,500 of house with 2.5% down + a monthly payment with a ~4% vig. Nowhere else can you get that kind of money at that kind of rate with ~$16k down. Then if you're smart you invest other money other places to diversify. You can live in house, unlike Vanguard funds. But you should have both.

scurvy 11y ago
Where can you buy with 2.5% down? Those days are long gone. Skin in the game and all that.
- heywire 11y ago
  Not 2.5%, but close, FHA still allows 3.5% down.. but then you're talking MIP and such
  - Domenic_S 11y ago
    Yep, I was talking about FHA but misremembered the %. Still crazy low. MI sucks but hey, 3.5%.
refurb 11y ago
You are correct, but with leverage comes risk. Here is my nightmare scenario: I live in the Bay area and if I wanted to buy a single-family house, I'd be looking at $900K at a minimum (if you avoid the really run-down/dangerous areas of the city). Let's say I have the down payment of 20%. That's $180K. I buy the house and I can swing the $6000 per month in PMI, utilities, maintenance, etc. Then the market takes a dip of 20%. If you own a $200K home, the hit would be $40K. That would suck, but with a good paying job, you could handle it. In SF, a 20% drop (still within the realm of possibility) means you just lost $200K (if you include the other costs of closing on the home). $200K would be 5+ years of savings down the tubes.
- Domenic_S 11y ago
  PMI is mortgage insurance, which you do not have to pay with 20% down. You may have meant PITI (principle, interest, taxes & insurance) which for that example situation would be about $4500/mo. Even so, assuming your mortgage is fixed rate, your payments don't change regardless of the value of your home. Whether it's worth $1 today or $10MM today, it only matters what you paid. Like the other commenter said, it's a paper loss.
- kspaans 11y ago
  You did _not_ lose anything! That's a paper loss! Are you a speculator expecting to sell the house in 2-4 years? If you went to all of that effort to buy a _family_ home, presumably you are planning on staying there for a while (possibly long enough for the price to recover). On the other hand, I agree that now you're underwater and if you're forced to sell you'd be in trouble. But if there was a risk you'd have to sell the house so soon, why would you buy it in the first place?

scurvy 11y ago

Where can you buy with 2.5% down? Those days are long gone. Skin in the game and all that.

heywire 11y ago
Not 2.5%, but close, FHA still allows 3.5% down.. but then you're talking MIP and such
- Domenic_S 11y ago
  Yep, I was talking about FHA but misremembered the %. Still crazy low. MI sucks but hey, 3.5%.

refurb 11y ago

You are correct, but with leverage comes risk. Here is my nightmare scenario: I live in the Bay area and if I wanted to buy a single-family house, I'd be looking at $900K at a minimum (if you avoid the really run-down/dangerous areas of the city). Let's say I have the down payment of 20%. That's $180K. I buy the house and I can swing the $6000 per month in PMI, utilities, maintenance, etc. Then the market takes a dip of 20%. If you own a $200K home, the hit would be $40K. That would suck, but with a good paying job, you could handle it. In SF, a 20% drop (still within the realm of possibility) means you just lost $200K (if you include the other costs of closing on the home). $200K would be 5+ years of savings down the tubes.

Domenic_S 11y ago
PMI is mortgage insurance, which you do not have to pay with 20% down. You may have meant PITI (principle, interest, taxes & insurance) which for that example situation would be about $4500/mo. Even so, assuming your mortgage is fixed rate, your payments don't change regardless of the value of your home. Whether it's worth $1 today or $10MM today, it only matters what you paid. Like the other commenter said, it's a paper loss.
kspaans 11y ago
You did _not_ lose anything! That's a paper loss! Are you a speculator expecting to sell the house in 2-4 years? If you went to all of that effort to buy a _family_ home, presumably you are planning on staying there for a while (possibly long enough for the price to recover). On the other hand, I agree that now you're underwater and if you're forced to sell you'd be in trouble. But if there was a risk you'd have to sell the house so soon, why would you buy it in the first place?