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Friday, May 6, 2011
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19 comments:
Folks
Typical Closing Costs on a house.
now i did screw that up a bit, typically the buyer pays 2%+ getting in. (Recording fees, mortgage fees,
etc, but then when you sell it's
7%
6% for the broker, 1% for assessed points (FHA, etc) and .
lets not forget the costs of getting it ready to sell.
so say Anon bought in in 2006 for
2.5% of 736 and then sold for 7% of
790K
thats 55K in fees to sell, and 18.4K to buy.
Even if my purchase fees are a little high, it was a 54K gain in price offset by a 55K selling fee.
Now, Somehow Anon is going to say
"Glug, Glug, Glug", but,
given He/She said the place would rent for 3K, it wasn't a particularly benificial transaction.
There are reasons to buy a house,
but, it's because you want to stay there for a decade or more, it's because you want to reduce risk of inflation or you want to have grater control.
But it's not like some huge once in a lifetime opportunity was missed.
To me it's all about the discounted cash flows. Of course thats' why i think the better values are in DC
"Pat said...thats 55K in fees to sell, and 18.4K to buy.
Even if my purchase fees are a little high, it was a 54K gain in price offset by a 55K selling fee."
Supposing thats correct, had I rented this place for the past 5 years at 3K a month, I would have spent $180,000 in rent. Is that better?
pat,
Is there a particular reason you are using 2006 as the base price - the worst time possible to buy?
He is using it because that was the last time I toured that place in the previous thread. Moreover, back then I was indeed glug, glug, glugging from the fountain of doom, and thought a huge correction was necessary in Del Ray (before I knew better), so I wouldnt have been buying then anyways.
If he really wanted to have an honest discussion of my situation, he would go back and see what would have happened if I bought that place back in 2002, when I first found out about this thing called "the bubble" which would soon bring widespread price declines to places like this one.
pat, don't mean to nitpick, but if you sell a house but do not buy another, you don't pay points. If you as a seller agree to pay the buyer's closing costs, you may pay his/her points, and you may also pay his/her other closing costs, which may then be more than 1%.
Anon,
I could give a ton of examples of buying in 2002 or 2003 or 1998 or 2000 or 1993 or 2008 or 2009, etc., etc.,
It's not appropriate, imo, to evaluate re based on the limited time frames that pat feels necessary to exploit.
I even have some great examples from 2004 and 2005.
Cheryl
Anon points out the place in DelRey as a wonderful opportunity passed by, I'm merely pointing out that maybe it wasn't that great of a deal.
Anon
Had you rented the Place in 2006, you would pay 180,000 in Cumulative rent.
Had you bought the place in 2006, you
would have paid
239K Renting the Money to Buy the space.
36K Paying Taxes on the space and
probably 70K Insuring and Maintaining the space.
Now is 345K a good expenditure comparatively? Well there are definitely a lot of psychic rewards from owning.
Look, I"ve been looking for a Duplex or a triplex or a quad in arlington, which just don't seem to exist, and i've been looking in DC where the cap rates are kind of lousy.
If Bernanke would stop printing money like mad, things would recover. Heck, people have finally cottoned on, that had they just let the market equalize in 08, we'd be out of this damned fog by now. Instead it's been like marching through a cold driving rain for 3 years.
The japanese spent 20 years doing that, now they have radioactive mist. Aren't they happy?
pat,
Sorry. Wasn't following the earlier thread. I'll let others argue your numbers.
for those arguing closing costs,
http://www.zimbio.com/Real+Estate/articles/414/Purchaser+Closing+Costs+Virginia
CLOSING COSTS % of SALES PRICE 2.96% 2.81%
3% to get in, figure 7% to get out,
it's why you really ant to own a house at leas 5-7 years to amortize those costs.
Anon: Supposing thats correct, had I rented this place for the past 5 years at 3K a month, I would have spent $180,000 in rent. Is that better?
That would be a good comparison if the $3000 a month were spent on *nothing* rather than paying for a place to live.
Are you really following the NAR adage of "rent = throwing money away"?
pat,
I've got a good source for "wholesale" deals in DC. E-mail me.
"Kevin said...Are you really following the NAR adage of "rent = throwing money away"?
Somewhat. I did not articulate this fully to Pat, but if you are ready to buy, I see two scenarios (as applied to that house I looked at in 2006).
Option 1 -- buy the house in 2006 for 736K, and start paying 5K a month in PITI, etc. paying it off in 2036
OR
Option 2 -- spend 180K renting a house for 5 years AND THEN, buying that house in 2011 for 790K, and start paying 5K+ per month in PITI, etc. paying it off in 2041.
Which option would you choose?
Obviously I would choose the latter. But your presumption that the $180k was wasted where the PITI - the vast majority of which goes towards interest on the loan - is not, is an unfair argument.
Of course these assumptions are based on housing prices being the same or lower in 2006 as they are now, which I'm not quite following. But the bottom line is that you're paying for a roof over you head. Even if rent = own, which it still isn't (and not even close), rent is only being wasted so much as your PITI is being wasted on interest payments.
"Kevin said...But the bottom line is that you're paying for a roof over you head. Even if rent = own, which it still isn't (and not even close), rent is only being wasted so much as your PITI is being wasted on interest payments."
Thats true, but the "P" and "I" portions of PITI will eventually stop, whereas rent payments never will. If you had 10-15 years left on this planet, then renting would be a slam dunk. However, many of us here, have 40-50 years left and the idea of making 50 years of rent payments is abhorent.
Thus, the sooner you start that 30 year PITI repayment process, the sooner it will end. If you are truly ready to buy a house in 2006, and if prices were even the same in 2011, what have you gained by waiting 5 years to start the PITI repayment cycle?
Far as I can tell, you are 5 years older, 5 years farther from finishing the PITI repayment cycle, and (in this case) down 180K in rent.
Who said anything about renting for five years?
I agree, if all things are held constant (prices, rates, jobs, etc) then it would be better to get that amortization schedule rolling. But if rents are cheaper than owning, you're accumulating a net savings which could pay down that principal and achieve the exact same result. Couple that with falling prices, and it's pretty absurd to say "well rent is just throwing money away". No, it's two different scenarios where you're paying for a roof over your head. The short-term cheaper scenario is renting. If someone rents for five years and then jumps into the market when prices are cheaper, not only is he making up for the lost principal payments (what, like $40/mo?), but he's likely to purchase the same house at a price far below what the guy who has owned for five years currently owes on the property.
You're doing yourself a disservice by believing and repeating this old realtor cliche about renting. It's only in the very long term that it holds true, in markets where renting=owning, and where prices aren't falling. Basically, none of those criteria are relevant in the context of this argument.
kevin,
Are prices falling locally? What is an example of your rent/buy scenario? Ex. this house would sell for X but it rents for Y.
"Kevin said...It's only in the very long term that it holds true, in markets where renting=owning, and where prices aren't falling. Basically, none of those criteria are relevant in the context of this argument."
There is one criteria which was entirely relevant in the context of this argument. Pat is trying to make the case why it was OK to pass on that house in 2006 @ 736K when its now 2011 and the house is 790K. Thats where we run into problems.
Anon-
I agree, although to be fair its not as much of a slam dunk as you are making it sound. I thought you said rent was 3K vs. PITI of 5K. Over 5 years this is 120K. Also you put ~140K into the house. If instead you bought a 5Y treasury in 2006 it would have made you an additional ~7K/year or 35K in total. So if you add all of this money to your principal you might be slightly ahead buying now vs 2006.
Although backward looking isn't that useful. The better questions is where do you think housing will be in 5 years. Myself and I think most people here think it will be pretty flat. With current interest rates PITI and rent are not that different so it is probably better to buy.
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