4 ms·

I get the sentiment, but I'd just like the point out that with current interest rates it makes sense put 20% down and invest the rest in mutual funds. You get m

I get the sentiment, but I'd just like the point out that with current interest rates it makes sense put 20% down and invest the rest in mutual funds. You get mortgage interest deduction and are paying 4% interest while making 7% market gains. Buying a house all cash is not the way to do it.

Retric 9y ago
You get an interest deduction, but you need to pay taxes on capital gains. The added flexibility is probably worth more in theory but risks spending that money on other things. A larger issue IMO, is condo's / houses have large upkeep costs and reduce mobility. So, simply renting while investing 90% of the money for a very early retirement is probably the best bet.
- astura 9y ago
  They, yes, the nebulous "they," say you should expect to spend around 1% of the house's value a year for repairs, upkeep, and maintenance. This rule of thumb doesn't quite work when the local housing market is in a bubble though. Of course, there will be years you spend much less and years your roof needs replacing so you'll spend much more, so that's why you amortize.
  - Retric 9y ago
    Not just repairs. Depending on what you get your facing everything from condo fees, taxes, lawn care, etc and it can all add up quickly. The real savings from renting is the flexibility to up size, downsize, relocate etc as needed and with minimal transaction costs. Thinking of starting a family some day? That does not mean you need to pay for more space today, unless your planing to stay put for 15+ years.
astura 9y ago
>You get mortgage interest deduction People say this but do they know what it means? It's not like the "woooo, free money!" people make it out to be. You are spending a lot of money and saving a little bit of money. It's only a very significant decrease in taxes if you pay a real lot in interest and have high property and income tax. In my experience buying a house saved me only about a whopping $500 in taxes the first year. And you better fucking believe that $500 went right back into the house in the form of maintenance and upkeep. Furthermore, You don't get the mortgage interest deduction if you don't itemize and take the standard deduction instead. Due to new tax laws the standard deduction after 2017 is so high it will be taken by 97% (IIRC) of Americans. So mortgage interest deduction is totally irrelevant from 2018 on. One of my biggest concerns with putting the vast majority of my wealth in my house is a lack of asset diversion and if it causes you to negligent the tax advantages of contributing to retirement account. ESPECIALLY when your in your 20s, that's when compound interest work most of it's magic.
pc86 9y ago
So let's look at the mortgage interest tax deduction on a theoretical $3k/mo mortgage ($635,000 loan at 3.92% for 30 years). The first twelve months payments total $36,028.44, of which $24,689.72 is interest. At the top marginal tax rate of 37%, that's $9,135.20. For married couples your HHI has to be above $600k to be in that marginal bracket so your household is pulling in at least $630k+ in this example. Does a household making $53,000 a month get anything by saving $9,000? Especially if they need to spend $36,000 to get it?
chrisparton1991 9y ago
>Buying a house all cash is not the way to do it. It's _a_ way to do it though. My argument isn't that buying a house with the cash is the optimal way to spend it, simply that having a house fully paid for is a massive financial burden taken off one's shoulders. In Australia where a typical house can easily sell for $800K-$1M AUD in desirable locations, the repayments on a mortgage (or rent) can be crippling. I would be more than happy for that to be a non-issue for me!

Retric 9y ago

You get an interest deduction, but you need to pay taxes on capital gains. The added flexibility is probably worth more in theory but risks spending that money on other things. A larger issue IMO, is condo's / houses have large upkeep costs and reduce mobility. So, simply renting while investing 90% of the money for a very early retirement is probably the best bet.

astura 9y ago
They, yes, the nebulous "they," say you should expect to spend around 1% of the house's value a year for repairs, upkeep, and maintenance. This rule of thumb doesn't quite work when the local housing market is in a bubble though. Of course, there will be years you spend much less and years your roof needs replacing so you'll spend much more, so that's why you amortize.
- Retric 9y ago
  Not just repairs. Depending on what you get your facing everything from condo fees, taxes, lawn care, etc and it can all add up quickly. The real savings from renting is the flexibility to up size, downsize, relocate etc as needed and with minimal transaction costs. Thinking of starting a family some day? That does not mean you need to pay for more space today, unless your planing to stay put for 15+ years.

astura 9y ago

>You get mortgage interest deduction People say this but do they know what it means? It's not like the "woooo, free money!" people make it out to be. You are spending a lot of money and saving a little bit of money. It's only a very significant decrease in taxes if you pay a real lot in interest and have high property and income tax. In my experience buying a house saved me only about a whopping $500 in taxes the first year. And you better fucking believe that $500 went right back into the house in the form of maintenance and upkeep. Furthermore, You don't get the mortgage interest deduction if you don't itemize and take the standard deduction instead. Due to new tax laws the standard deduction after 2017 is so high it will be taken by 97% (IIRC) of Americans. So mortgage interest deduction is totally irrelevant from 2018 on. One of my biggest concerns with putting the vast majority of my wealth in my house is a lack of asset diversion and if it causes you to negligent the tax advantages of contributing to retirement account. ESPECIALLY when your in your 20s, that's when compound interest work most of it's magic.

pc86 9y ago

So let's look at the mortgage interest tax deduction on a theoretical $3k/mo mortgage ($635,000 loan at 3.92% for 30 years). The first twelve months payments total $36,028.44, of which $24,689.72 is interest. At the top marginal tax rate of 37%, that's $9,135.20. For married couples your HHI has to be above $600k to be in that marginal bracket so your household is pulling in at least $630k+ in this example. Does a household making $53,000 a month get anything by saving $9,000? Especially if they need to spend $36,000 to get it?

chrisparton1991 9y ago

>Buying a house all cash is not the way to do it. It's _a_ way to do it though. My argument isn't that buying a house with the cash is the optimal way to spend it, simply that having a house fully paid for is a massive financial burden taken off one's shoulders. In Australia where a typical house can easily sell for $800K-$1M AUD in desirable locations, the repayments on a mortgage (or rent) can be crippling. I would be more than happy for that to be a non-issue for me!