
Rational Home Buying - alexandros
http://lesswrong.com/lw/7am/rational_home_buying/
======
forkandwait
We just bought a house, in a peripheral part of a big urban market. Here is
why:

The house was 3x our annual income (well, 2.5).

We can probably rent it for our mortgage. (This for me is the most important
thing -- basically we bought the rental we would have lived in).

My job is moderately safe.

We don't expect to sell for 5 years (which is the conventional wisdom unless
you are a professional and know what you are doing).

I hated our last four landlords.

We have to live somewhere.

No kids, so no worries about kid like things except in terms of n-hood value.

~~~
rcoder
> We can probably rent it for our mortgage.

I just wanted to weigh in and say how huge this is, not just for the question
of "is buying a better deal than renting," but also to allow you flexibility
in terms of job relocation and family changes.

My girlfriend and I moved to the Bay Area about 18 months after buying our
first house, and were able to do so in part because the rent from our tenants
(who are good friends, as well) basically covers our mortgage. Not having to
feel tied down to a particular city allowed me to take a risk on an exciting
new job that I probably would have passed up if relocation had involved
selling our house.

~~~
forkandwait
Possible rent seems like a really useful metric in buying a house, and it
would be really interesting to evaluate a market in these terms.

~~~
hammock
It happens all the time, usually found in the format "it is more expensive to
rent than to buy in xxx city"

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Estragon
I expected this to be about the wisdom of buying a house in the current US
market. It is an interesting article even though it doesn't address that
question. But for most people, financially speaking, buying a house at the
moment would be a really bad idea. Yes, there's cheap credit, but there is
also essentially no chance of significantly appreciating prices for at least
the next five years, and a strong chance of prices dropping further as a
result of further recession and uncertainty about the legal status of
foreclosure procedures.

~~~
e40
People with children should ignore your advice. 1/4 mile from where I live is
another city with horrible schools. People living there will need to send
their children to private schools, at about $20k/yr. Where I live, the public
schools are top notch. I know several families that moved here and bought a
house (there is very little rental available, and it's expensive). A family
with 4 children will save about $80k/yr living here. That changes the equation
quite a lot.

~~~
mapgrep
Are renters suddenly no longer eligible to send their kids to school?? Wow,
that's new.

~~~
e40
I never said anything like that. I said in the place I live, there are few
rentals available, so the decision is to buy in my town or live (rent/own) in
the other town (with bad schools). My point was, the savings on private
schools makes the "should I buy?" question much easier to decide.

~~~
mapgrep
Ah, I missed the "there is very little rental available." Sorry.

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mkramlich
I also like to inject into any discusion of home buying the point that nobody
truly buys a home, it's just a different variant on renting and serfdom to the
state. When I own a ball, it's mine, and absent me using it to hurt someone
with it, it will not and cannot legally be taken away from me. Additionally,
since I own the ball, and am not merely renting the ball, I do not have to
make any monthly or yearly payments to any other party in order to keep
ownership and possession of the ball. Where when you "buy" and "own" a home
(assuming current US, etc), you are required in 99.99% of typical situations
to pay taxes at periodic intervals. If you do not, eventually men with guns
will come use violence if necessary to force you out of that home and take
"ownership" away from you. If you squint your eyes a bit that should look like
renting. Rather, the government entities which claim dominance over the area
containing your home have a set of rules which allows you to acquire the
illusion of ownership over a home in exchange for paying rent/tax to that
government periodically. Whether you call that money transfer rent or tax does
not matter as much as the physical event that occurs and it's net effects and
consequences.

Now I understand there are some ownership qualities to so-called home
ownership, not denying that. There are shades of gray between pure renting and
pure owning. But what most people talk about is something clearly in the
middle of that spectrum, not on one end. Thus, I think the better description
is different variants on renting. Different lease permutations.

~~~
forkandwait
While some of my best friends are libertarians ... they tend to oversimplify
very complex dynamics that aren't really understood by anybody -- not
Bernanke, Marx, Milton, or Keynes, much less Ayn Rand.

Flip comments aside: "ownership" of anything -- a ball, a company, a piece of
property -- should be seen as a bundle of rights and responsibilities, and as
a (overall) benign socially sanctioned fiction like streetlights. Then you can
see that it is only in the trivial cases, like a ball that nobody cares about,
that ownership is straightforward and implies "It's mine I can do anything
with it I like".

So, duh, you pay taxes and have to conform to zoning codes. Get over it.

EDIT: Also, "government entities" aren't some weird uncontrollable force like
the weather or an invading army -- you live in a democracy, so get involved.

~~~
forkandwait
Just noticed that I cited "streetlights" as a social fiction -- I meant
"traffic rules".

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impendia
> Try to buy a house ... where you'll be relatively high on the social ladder

This is depressing advice, no matter how many empirical studies back it up. I
don't think I'd want to live around people that were wealthier than I'd ever
be, but I would certainly want to live around people that were more energetic,
socially outgoing, ambitious, and involved in the community than me.

Whatever you value -- you should hang around people that are better at it than
you are. If you are a hacker, work with people that are smarter than you. If
you want to exercise more, spend time with people who exercise twice as much
as you'd like to. Et cetera.

~~~
cbr
What you're saying is good advice for getting better, but I think the advice
is for getting happier.

------
TeMPOraL
"The second is the discovery that attempts to make your reasoning explicit and
verbal usually result in worse choices. This includes that favorite of
guidance counselors: to write out a list of the pros and cons of all your
choices - but it covers any attempt to explain choices in words."

Then what should we do? :(

Article says that making things explicit is bad, but on many occasions I read
that making them not explicit is also bad - because mind is a convoluted mess
and dumping things from head to paper helps see everything more clearly and
consider more details, freeing up mental resources for more ideas to come.
That's both Creativity and GTD 101.

Am I missing something here?

~~~
jannes
When you write things down for GTD it shouldn't be done to help you make
complex and preferredly rational decisions. It is done to help you remember,
to relieve your mind from having to remember. Writing a task down is different
from writing your reasoning for a decision down.

~~~
TeMPOraL
Fair enough; after thinking about it for a moment I realized that I probably
mixed explicit reasoning with dumping information out of my head.

But still, does that mean that explicit cost-benefit analysis is bad? Or, when
I'm confused about an issue I need to decide on, if I do a mind-dump of things
related to that issue, does that lead to poor decisions? I'm asking, because
so far I find it extremely helpful to do a mind dump, when I feel confused.

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njharman
> people so consistently under-count the pain of commuting.

I find this amazing. Commute (unless done on bus, etc) is __lost life __.
Every day, twice a day. Commute is almost top of my list, although it
influences choice of job more than choice of home because the former varies
more often and is less important than later. > 15min 1way commute is bad.
30min or more is non-starter. I factor in commute time as "time at work" to
compare if one job pays more than other.

~~~
mahyarm
Commute by bike is exercise. Most days it's the only exercise I get.

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typicalrunt
I've been watching the housing markets in Canada (where I'm based) and the US,
as it is an indicator of the economy, consumer saving and spending.

What's happening to the housing market in the US is incredible, but in case
anyone is interested in a foreign view, read on.

In the US:

\- Most types of mortgages in the US are tax deductible.

\- Interest rates are fixed for the entire term of the mortgage.

\- Houses cost 2-5x average family income.*

\- Some states allow homeowners to walk away from mortgages.

[http://www.ritholtz.com/blog/2009/02/us-existing-house-
price...](http://www.ritholtz.com/blog/2009/02/us-existing-house-price-median-
family-income/)

And yet with the housing market in the US is still in shambles. In Canada, we
don't have the luxury of these three things.

In Canada:

\- Canadian mortgages are not tax deductible.
[http://en.wikipedia.org/wiki/Home_mortgage_interest_deductio...](http://en.wikipedia.org/wiki/Home_mortgage_interest_deduction#Canada)

\- The average mortgage in Canada is a 5-year fixed rate mortgage. That means
you lock in your interest rate (approx. 5%) for at most 5 years, then you need
to re-mortgage. Interest rates can change drastically in 5 years.

\- Vancouver currently has a house price to average annual income at 10x. That
number is double the value of when the US peaked in 2005-6.

\- Homeowners cannot walk away from their mortgages. I think it's called
"personal guarantee" or something. IANAL, but bankruptcy doesn't necessarily
clear out a person's mortgage debt.

So while the US housing market is terrible, you guys have some amazing perks
for home owners. Just remember to never use more than 33% of your monthly
income to carry your mortgage, and don't look to your house as a way to make
money.

At the end of the day, a house is a consumable and not (necessarily) an
investment.

* I'm not counting places like Detroit, where I've heard rumours of plots of land going for < $100.

~~~
jbarham
Give it some time and the Canadian housing market will also correct itself.
Same for Australia where the situation is very similar to Canada's (i.e.,
asset appreciation bubble largely driven by a commodities boom).

As in most things, the Americans are just ahead of the curve. And as a
Canadian who lived in Southern California from 2006 to end of 2010, I think
our friends there who were finally able to afford to buy a house after the
housing bubble burst would dispute your conclusion that the US housing market
is "terrible".

~~~
marvin
Just adding to this, the same thing goes for Norway...our home prices are far
above the historical average when looking at average income and price growth.
You'd typically pay somewhere around 8x anual salary to buy a home, and prices
are still growing really quickly.

There isn't consensus that there is a bubble in the housing market, but some
economists have produced detailed and convincing analyses that this is in fact
the case. The price growth has been fueled by low interest rates, immigration
and low construction rates due to bureucracy.

------
mark_l_watson
My wife and I bought our very small house 13 years ago because it had huge
windows (good lighting, views of Arizona red rock/mountains) and is 150 feet
from a national park trail head. I much prefer a small house in a location
that I like to a larger house a mile away in an area that I like less.

I also agree with the advice about commuting. I made that mistake when I was
24 and bought my first home. The extra $15/month mortgage payment (this was in
the 1970s) for a comparable place near my job seemed like too much money, but
after a few years of inflation, transportation costs, and my time, I regretted
my decision until I moved and started using it as a good income property,
which I still have.

Also good advice in the article was the part of paying attention to relative
pricing (i.e., don't spend $35K more because the difference between $735K and
$750K psychologically seems small).

I have always favored buying less expensive properties to live in but also
have a few income properties.

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chaostheory
> There doesn't seem to be a big difference in price between $710,000 and
> $745,000 houses

There is a hidden difference. That extra $35,000 may mean the difference
between getting financing and not getting it. (I have a friend with good
credit who was almost rejected for an 800k house even though he put half
down.) I don't feel that most people have an extra $35,000 lying around that
isn't used as a buffer.

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roel_v
Same thing holds true for cars. I'm shopping for a car right now, and the
paragraph 'don't overshop and don't overthink' was an exact match to what I'm
going through right now. Panoramic roof? Didn't know it existed until a week
ago - yesterday I spend more than an hour contemplating about several options
that did or did not have one, and how the ideal choice would have one. Wanting
to be fully informed isn't all that.

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jpr
Rational advice for splurging 500K to 1M+ on a "nice" home? Isn't that an
oxymoron?

~~~
randomdata
Looking at the real estate listings for my area, the most expensive home for
sale is $1M; and it is a beautiful mansion. I couldn't imagine paying $1M for
just a nice home.

~~~
dagw
Looking at my area, the cheapest house I'd actually consider buying in an area
I'd actually want to live, is north of $600K. House prices having nothing to
do with the building, and everything to do with the location. It's
(relatively) easy to make an ugly house beautiful.

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joezydeco
Home buying advice from someone who has never purchased a house and is
currently not in the market for one? Pass.

~~~
petervandijck
I've both bought and rented.

The location thing rings true, you tend to underestimate it. I've rented 4
places in the past that weren't in an optional location, but cheaper, and 1
(now) in a great location, but smaller. I like the great location much more.

The money thing is also true: you tend to underestimate large costs (20K,
say), if they're part of a much larger cost.

And again, the third one (pool) is also true. Pools are really rarely used.
Living in the city becomes much more enjoyable once you realize this.

Light and nature, again, spot-on. As a sidenote: I'm enjoying nature almost as
much now (in NYC) as when living in the mountains of Colombia. Just to say
that living in the city doesn't exclude access to nature (parks!).

And finally, listening to your gut, again, spot-on.

So actually (and again, I've rented AND bought), pretty good advice.

~~~
joezydeco
I've bought and rented too. I'm on my third house. And I've learned a few
things as well.

It's nice to have a modest house in an up-and-coming community with lots of
light and easy access to the workplace. But then you discover that the up-and-
coming community has a fire and police district that can't keep up with the
growth. So either they try to get by with a shoestring municipal
infrastructure, or the taxes skyrocket.

Then you discover the county has overbudgeted during the boom times and hasn't
cut back on anything. Taxes are going up again to make up for the incompetent
government.

Then the poster starts a family. Whoops, that home that was so close to your
workplace is 10 miles from the school. Now you're driving the kids to daycare
or school or paying for bus service. Or you discover that the nearby school
sucks and is full of gangs but the schools in the next town over are light
years better and safer. Private school time.

Then the roof goes. The power grid cuts out every time a squirrel farts on a
wire. The 100-year flood plain is really a 10-year one these days.

It goes on and on. Trust me, home ownership has it's upside but a lot of it
sucks as well.

