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I'm considering purchasing a home, not as an investment; but because my return rate on rent is 0%. I just need a home and have a flexible ~2-year time window t

I'm considering purchasing a home, not as an investment; but because my return rate on rent is 0%. I just need a home and have a flexible ~2-year time window to buy, and just need advice on when to buy. Does this article apply to my decision making?

MeinBlutIstBlau 6y ago
When I worked in banking I'd always use this to keep track of prime interest rates and when I'd have to prep borrowers to either close sooner or maybe wait and redisclose docs. http://fedprimerate.com/ http://fedprimerate.com/ Prime is essentially the base rate for everything. If banks are matching prime, it's because they're not making money on interest but either servicing loans or the fees charged. So they just want to close the loan. We haven't seen 3.25% since like early 2017. I'd personally recommend getting a fixed loan now just because we were teetering on 5.5% pre-covid. 3.25% is of course dependent upon the institution, FHLB or FHA, and credit score. I'd say only buy if you retain the house for the bare minimum required for you to sell and come out even or turn into a rental property. If you can't be patient enough to do either, don't buy a house.
dahart 6y ago
> my annual rate of return on my rental dollars is 0% though. Technically, rate of return on a rental is -100%. 0% means you break even and get your money back without making any more. https://www.investopedia.com/terms/r/rateofreturn.asp https://www.investopedia.com/terms/r/rateofreturn.asp Of course the main point is that renting is not an investment, so it looks pretty bad compared to something that is an investment. When you rent, you don't get any money back, and when you buy you do usually get your money back. > just need advice on when to buy. If you think the housing market's in a bubble, then don't buy yet until it's stable. But if you think the housing market is stable and increasing with inflation, the best time to buy is now. The earlier the better. The 'when' problem gets a little balance with your second house, since you buy and sell at the same time, so where you buy and sell starts to matter more than when. Speaking personally, after buying my first house, I concluded I had waited much too long to buy. I was scared by articles like this one and people talking about being locked in and losing opportunity costs, etc. What is being missed in most of the comments here is an honest discussion of our actual behavior, as opposed to what's financially optimal or possible. The truth is that, while I might be able to rent + invest my down payment in the stock market and make more money than if I bought a house, that takes a lot of work beyond my job. I think it's also riskier. I'm not a savvy investor who knows how to make a 5% return on the stock market year in and year out, especially not right now, and I'm not sure I have the motivation to stay on top of it. So for the lazy investor, like me (and most people, I suspect), buying a house really is a choice between rent or buy, not a choice between real estate and stock market. In that case, buying over renting is the clear and easy win. This all makes it worth contemplating the fact that if you buy in a bubble, and your house loses a rather rare and extreme 50% of it's value by the time you sell, you are still much better off than if you had rented without investing a lot of money elsewhere.

MeinBlutIstBlau 6y ago

When I worked in banking I'd always use this to keep track of prime interest rates and when I'd have to prep borrowers to either close sooner or maybe wait and redisclose docs. http://fedprimerate.com/ http://fedprimerate.com/ Prime is essentially the base rate for everything. If banks are matching prime, it's because they're not making money on interest but either servicing loans or the fees charged. So they just want to close the loan. We haven't seen 3.25% since like early 2017. I'd personally recommend getting a fixed loan now just because we were teetering on 5.5% pre-covid. 3.25% is of course dependent upon the institution, FHLB or FHA, and credit score. I'd say only buy if you retain the house for the bare minimum required for you to sell and come out even or turn into a rental property. If you can't be patient enough to do either, don't buy a house.

dahart 6y ago

> my annual rate of return on my rental dollars is 0% though. Technically, rate of return on a rental is -100%. 0% means you break even and get your money back without making any more. https://www.investopedia.com/terms/r/rateofreturn.asp https://www.investopedia.com/terms/r/rateofreturn.asp Of course the main point is that renting is not an investment, so it looks pretty bad compared to something that is an investment. When you rent, you don't get any money back, and when you buy you do usually get your money back. > just need advice on when to buy. If you think the housing market's in a bubble, then don't buy yet until it's stable. But if you think the housing market is stable and increasing with inflation, the best time to buy is now. The earlier the better. The 'when' problem gets a little balance with your second house, since you buy and sell at the same time, so where you buy and sell starts to matter more than when. Speaking personally, after buying my first house, I concluded I had waited much too long to buy. I was scared by articles like this one and people talking about being locked in and losing opportunity costs, etc. What is being missed in most of the comments here is an honest discussion of our actual behavior, as opposed to what's financially optimal or possible. The truth is that, while I might be able to rent + invest my down payment in the stock market and make more money than if I bought a house, that takes a lot of work beyond my job. I think it's also riskier. I'm not a savvy investor who knows how to make a 5% return on the stock market year in and year out, especially not right now, and I'm not sure I have the motivation to stay on top of it. So for the lazy investor, like me (and most people, I suspect), buying a house really is a choice between rent or buy, not a choice between real estate and stock market. In that case, buying over renting is the clear and easy win. This all makes it worth contemplating the fact that if you buy in a bubble, and your house loses a rather rare and extreme 50% of it's value by the time you sell, you are still much better off than if you had rented without investing a lot of money elsewhere.