
Ask HN: Is buying a house in 2017 a good idea? - udkl
I&#x27;m sitting down this week to think about my finances.<p>One option is to invest in a house.<p>I&#x27;m researching the topic and will appreciate links to related HN discussions, analysis - calculations, past experiences, current market conditions &amp; future predictions (interest rate increases et al) ....  keeping duration of holding and investment capacity variable.<p>(especially in the bay area)
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snowwrestler
If you get a fixed-rate mortgage (which I would recommend), the payment is
fixed for the length of the loan. This means that long-term inflation will
take 2-3% out of your real housing cost every year. It's like rent control for
yourself.

If you put down 20%, you are creating 5x leverage. Even if the market value of
your house only appreciates at 2.5%, your initial down payment (the cash you
actually invested) will experience 12.5% return.

Of course there are the payments too, and maintenance, etc. But you have to
pay to live somewhere. So make sure you're doing an apples-to-apples
comparison with renting--including the mortgage interest deduction. Make sure
you really know what your _investment_ is--the amount you're paying over
renting--and calculate your return on that.

Finally, the mortgage tax deduction is not the only tax advantage to a home.
Another big one is that you can keep up to $250,000 of capital gains from your
home, tax free--a 15% advantage against most other investments. Again, make
sure you take that into account when comparing.

All of the above are only really advantages if you live in your house for a
while. I agree with the other poster who said it's probably only worth it if
you plan to live in that home for at least 5-7 years.

~~~
kspaans
The NYT has a pretty good online calculator for comparing renting vs buying.
You just plug in a house price, mortgage details, and how long you're willing
to stay in the house, and it will tell you what the better-deal level of rent
is.

[http://www.nytimes.com/interactive/2014/upshot/buy-rent-
calc...](http://www.nytimes.com/interactive/2014/upshot/buy-rent-
calculator.html?_r=0)

~~~
secabeen
The NYT one is good. If you need more features, like adjusting for renting a
room, the Michel Blue Jay one is great too:
[http://michaelbluejay.com/house/rentvsbuy.html](http://michaelbluejay.com/house/rentvsbuy.html)

------
codegeek
In my opinion, buying a house is never a good idea unless you intend to live
in it yourself for at least 5-7 years (usual real estate cycle) AND you have
put down at least 20%.

Anything less and you are exposing yourself to higher risks. I am not saying
that you should not consider investment capacity etc at all but those should
always be secondary motive, not primary unless you are an expert real estate
investor (even they struggle in bad markets)

~~~
flukus
> AND you have put down at least 20%.

I'm not sure how universal this is, but in my area this is also about the
point where you're loan repayments will become cheaper than renting the
equivalent. And your loan repayments will only go down over time, rent will
only go up.

~~~
amerkhalid
I put down 5% and had to get PMI. But even after that my payments were less
than renting an equivalent house. So 20% is definitely not a cut n dry rule.

~~~
odonnellryan
You sound like the exception, however. Are you taking into account
maintenance, taxes, etc..?

~~~
amerkhalid
Yes mortgage payment did include taxes, insurance, and PMI. (PMI is removed
now, more on this below). But it doesn't include maintenance. I am paying
almost $200 a month in HOA also which I didn't consider in my earlier comment.
My guess is if HOA is considered then renting would be cheaper. (For context,
I live in suburbs of Dallas).

Regarding PMI, my wife wanted to get our own house as soon as possible even if
we had to pay PMI. I wanted to save 20% down first. It would have taken us
more than a year to save 20% downpayment. So in end, wife won.

But that that time I didn't know that you could remove PMI as soon as you have
20% equity in the house. So we did our best, made extra payments, and built up
equity to 20%, and removed PMI in about a year.

If we had tried to save for 20% downpayment like I wanted, we would have paid
$12,000+ towards rent instead of about $1200 towards PMI (and a little more
interests). So I tell all my friends that don't let PMI scare them, as long as
they can afford to make extra payment and be able to remove it within a year
or so.

~~~
jdash
For FHA backed mortgages the FHA changed the rules on PMI in 2013 where you
are no longer able to remove the PMI after the loan reaches 78% loan-to-value
and annual MIP has been paid for at least 60 months. For FHA mortgages
finalized after June 3, 2013 the payments are there for the life of the loan.
So can be worth considering refinancing once you are in the position to
qualify for conventional financing and pay 20% down.

------
hijinks
I'm a Bay area home owner. We bought 4 years ago. For us it was a great
choice. Our our first child was 2 years old and were looking to find a place
to settle down and live. We didn't want to worry about rent going up 30% to
re-sign a lease. We wanted a place where she could go to school and not have
to move around each time a lease is up.

In the end it turned into a great decision for us. The house went up 350k in 4
years and we are looking to cash out and move to a cheaper area where I can
take my remote job and pretty much buy a house in all cash and not worry about
a mortgage anymore.

So it really depends on your situation.

Are you willing to stay in a house for 5+ years. If you want to sell.. can you
ride out a dip in the market?

~~~
gigatexal
That's such an awesome position to be in.

~~~
hijinks
We got super lucky. Bought a house at the lowest rates possible and pretty
much have been living house poor for 4 years now.

------
jasonkester
Houses don't make particularly good investments.

While it's true that you can sometimes come out ahead compared to, say,
investing the same amount in the S&P 500, it's very rare that the S&P will
need you to put a new roof on it or spend the better part of every weekend
pulling weeds and doing DIY. The S&P will just wait until you ask for your
money back, then give you lots more money back than you gave it. Houses make
you work for that money.

Now, lots of people enjoy DIY as a hobby, so if you're looking to include
"maintaining a house" as a new hobby then by all means buy a house. They're
also quite pleasant to live in when compared with crappy apartments that are
the usual alternative.

But only buy a house if you want to own a house. Buying one just because it's
a good investment or what you're "supposed to do" will only leave you unhappy
and wondering what happened to all your free time. If you don't believe this,
pick any one of your homeowner friends and ask them what they did this
weekend.

------
bsvalley
Buying a house since 2008 has always been a great idea. So To answer your
question - yes.

If you're coming with only %20 down in the Bay Area, you will turn cash poor,
unless you're a millionaire. So think about that first, buying a house is the
best mid-long term investment in life. But property tax here on a $1 million
house is $10-12k per year. Home owner insurance is about $2-3k per year. So
you're at about $12-15k extra per year (+$1000/month) just for the fact that
you own a property. Now, the property itself will cost you about $4500/month
at %3.8 APR for a $1 million house with %20 down.

Total of about $5500 net per month. Basically a bit below the average salary
of an experienced software engineer in the bay area. And for $1 million, you
don't get much here...

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ChrisNorstrom
It depends on the market in that area. Some markets are growing over the long
term, others over the short term. Just talked to a lady a few months ago who
bought a home in Boulder, Colorado for about $400,000 and sold it 3 years
later for $900,000. She got out of there fast as property taxes were
increasing constantly. In other places, you can buy a home for $250,000 with
low property taxes but the neighborhood is going downhill, more crime, schools
are worsening, and their home is losing value. It's going to be hard to sell
in the future.

This is what you have to think about when buying a home. Is the area you are
in good or bad right now, and will it be better, the same, or worse in the
future. If you're not sure about a location's future. Rent.

------
gigatexal
Buy one cheap and rent it. That's my plan anyway. Already have one. Our
current one will be our second. And I've already begun eyeing the third. But
do your homework and never pay more than it's worth. So yes. Buy one but only
as an investment because it's a huge money pit regardless but at least when
renting it you can write off a lot of it on your taxes and others are building
the equity in the home for you.

~~~
siquick
>>you can write off a lot of it on your taxes

Can you explain this please? Excuse my ignorance of the US tax system.

This sounds like a pretty shitty thing for the government to allow, giving
existing home-owners a huge advantage to build up property portfolios over
people not yet orable to get on the ladder. (similar to negative gearing in
Australia where I live)

~~~
bogomipz
You can write 100% of the interest on your primary or secondary residence in
the US. You can not write off the interest on a house that is strictly an
income property.

[http://homeguides.sfgate.com/irs-rules-mortgage-interest-
ded...](http://homeguides.sfgate.com/irs-rules-mortgage-interest-
deduction-7356.html)

The intention is the incentivize people to own their own home, it is not to
incentivize them to build up property portfolios. Indeed that would be
perverse.

I'm sure you can show a loss on an investment with real estate just like you
can with any investment but I think continuing to buy subsequent houses and
showing losses on all of them as part of your personal tax returns might raise
some flags.

~~~
quesera
> You can not write off the interest on a house that is strictly an income
> property.

That is not correct. The article you posted seems to imply it, but it is
absolutely not true.

Pure rental property is treated as a business property, and mortgage interest
on business properties is an expense that is deducted from rental income
before determining tax liability. You can even carry a net loss over to your
personal return (subject to some limits).

Details in IRS pub527:
[https://www.irs.gov/publications/p527/ch01.html](https://www.irs.gov/publications/p527/ch01.html)

~~~
bogomipz
Oh sorry that sentence was meant to be "you can not write off 100% of the
interest that is an income property."

For instance if you have bought a property as a pure investment property and
the total mortgage + interest is being covered by the tenants monthly rent.
You can not then write off that interest at 100% since you are not actually
incurring that interest payment yourself correct?

~~~
gigatexal
Incorrect. Interest expense is a line item that is deducted from the company's
tax burden. It's the same with a rental regardless if everything is being
covered.

~~~
bogomipz
>"Incorrect. Interest expense is a line item that is deducted from the
company's tax burden."

We weren't discussing a company though, we were discussing one's personal
income tax filing.

~~~
quesera
100% of mortgage interest on personally-owned rental properties is deductible.

Mortgage interest is itemized just like any other cost incurred, e.g.
maintenance, utilities, advertising, property taxes, etc.

The net profit/loss on the Schedule is then applied to your personal return.
You might be limited in the size of loss you can apply, but that's an
unrelated calculation.

------
kspaans
If you are thinking strictly of investments, using a house as your first may
not be the wisest. Portfolio theory suggests that it's not ideal to have lots
of your net worth tied up in any single asset or asset class. "Real Estate" is
one such class (specifically the combo of a permanent structure with land
underneath, buying a mobile home doesn't count because they are usually on
rented land).

------
JSeymourATL
Crystal Ball on Bay Area Real Estate says...

\- Bay Area Projected to Lead U.S. for Home Price Gains in 2017 >
[http://blog.pacificunion.com/bay-area-projected-to-lead-
u-s-...](http://blog.pacificunion.com/bay-area-projected-to-lead-u-s-for-home-
price-gains-in-2017/)

\- Bay Area Home Sales Projected to Decline Again in 2017 >
[http://blog.pacificunion.com/bay-area-home-sales-
projected-t...](http://blog.pacificunion.com/bay-area-home-sales-projected-to-
decline-in-2017/)

What to do? Find the ugliest place that needs tons of work in a solid
neighborhood, that most retail buyers won't touch. That gives you a good
margin of error. You can make $30-50K worth of fix-up fluff & buff go a long
way.

------
cylinder
Find the shittiest house you can on the best piece of land and hold it for 30+
years and you should be fine.

