Buying cars in yo 20's

[KaiserRolls]

I'm Not single.

I just try to be smart with my money before committing 30years of my life to something I most likely won't get my money out of. Equity can be made elsewhere if need be.

[Bassboy3313]

This is a big reason why I chose to purchase a duplex instead of a single family home. I rent the upper to people I know and I live in the lower. Half the mortgage is paid for me, all major renovations and appliances were done/replaced by previous owner, I get to do whatever the crap I want (just like owning a single family home as you guys previously mentioned) and at the end of the day, could just as easily rent the whole thing out and put money in my pocket.

[B C]

I'm Not single.

I just try to be smart with my money before committing 30years of my life to something I most likely won't get my money out of. Equity can be made elsewhere if need be.

Congrats! When's the wedding?

[KaiserRolls]

Congrats! When's the wedding?

Whenever earls car is done

[i_love_cars]

The way that a mortgage amortizes makes homes in your early 20's a bad investment vehicle. The first 10 years of a 30 yr mortgage are going to be almost entirely interest. Your only equity at that point is in upgrades or market appreciation. In raw dollars, a house usually is worth 80%-100% more than when you bought it if you pay it off at term of 30 years. However, you have also paid nearly double your original purchase price in interest, plus repairs, potentially PMI, potentially HOA, and HOI. So in reality you aren't really coming out ahead. All you're doing is at best breaking even unless you're in a housing bubble, but you can't plan for that or bank on it. That's just stupid. If you turn around and say "well I am paying extra on principal every month", ok great, except for the fact that the money is doing utterly nothing for you right now because you won't see any of that money come back until you sell the house (maybe) X number of years down the road. You aren't doing yourself any favors. Time/value of money says that's a bad idea when you're starting out. Especially on a secured piece of debt like a house. If you meet LTV ratios you can potentially take a line of credit out, but only if you put 20% down and then after that over the course of let's say 3 years if you are paying down principal, you are freeing up what? A few thousand bucks? Big deal that won't be you much at all if you are taking out a HELOC. 

 

also, most of the money you sink into a house is money you won't ever see back. Furnace, A/C, water heater, roof, windows, landscaping, driveway/walkway/stoop repair, or foundation (god help you at that point), are tens of thousands of dollars that contribute absolutely nothing to increasing the value of a home in the real marketplace. The majority of buyers don't give a shit about anything other than floor plans + whatever the current trend is in kitchens and bathrooms. Those are your biggest money makers. 

 

If you get a house for let's say 32k like Rowley, there's really no harm in that because you can realistically pay it off very quickly. But you aren't going to get much house for 32k and certainly not as much resale value if it's that small (as noted smaller than 24x36) in the starter home market. But you also can't say it's cheaper than renting because right now in real terms it may be, however, any time you own a house you are taking a risk on what will break and it could be something significant. If you start having water problems in a basement before 5 years is up and you want to sell it? Have fun. You're either fixing it or sitting on it for a long time, or you're selling it for next to nothing because buyers will beat your ass up on the price. 

 

But if you're renting? You have 0 liability for stuff like that. All you need to do is not be a shitfuck and don't destroy the place you live at. 

 

It's about risk mitigation - if you are trying to achieve something that requires X number of dollars like start a particular business that has particular overhead costs or whatever, your best bet is to mitigate your risk of out-of-pocket expenses as much as possible. 

 

I started out with duplex with my wife and daughter, we lived there for 2 years. Then I bought a rehabber, lived in my in-laws' basement for 6 months while I went to my day job and then worked 6 days a week till 11 p.m. every night redoing 4 bathrooms, 2 kitchens, 1500 sq ft of hardwood floors, the list goes on. Then I moved in there for 2 years and it cost me 400 bucks a month to live there. I was able to sell that place for a significant profit. That place paid for the down payment on my business partner's single family home for himself, it paid for my absurd 15k engine build on my Acura TL, and eventually helped me get into the house i'm in now. Meanwhile I was looking for other duplexes. I found a place near Mt. Mary college that my partner and I bought. Looking hard at cost per unit - it was about 60k per unit for that duplex, and market rent is 750-800/mo per unit. 1 unit rented literally pays for everything at that point. The rest is just profit that all gets either repair escrow or goes to paying down the principal. 

 

all of these things have something in common which is mitigating cost by being patient for proper deals and understanding neighborhoods, cap rates, likely scenarios, etc. , and mitigating risk by never taking anything for ourselves. In 8 years all my cash flow from property has gone into principal or escrow for repairs. 

 

I pay my mortgage on my house that I live in now out of pocket because I have a wife and 2 young kids and we lived light for years and I shuffled them around and moved them from one place to the next 6 or 7 times probably in the past 7 years. Eventually there is an intangible benefit when you have a family to just stabilizing some things for them first, and then re-focusing on investments. But I still can't help but see myself as throwing money away at interest and risk of repairs here which will eat into my investing power. To me, I can't see it any other way - I hate the fact that I pay for my house out of my pocket and can't use other people's money to do that. i.e. profit from investments. But I made the decision to have a family and not sacrifice everything for the sake of just money. I acknowledge this and I never would criticize someone for going the route I did but I also will advise any early 20-something to be serious about what they want out of life and figure out how to get there, understand the roadblocks/events that can happen to slow that down, and understand what you are willing to live with and be happy with. 

 

For me, it all comes back to the OPM formula. Renting to people to have them pay your taxes, mortgages, interest, and repairs is a form of OPM , and the money to get the property they rent in the first place is from a bank of course which is OPM but again with cash flow from tenants, I'm insulated. So when I say buying a house in your 20's that you aren't using to either A) flip short term and can make actual money on, or rent out , is a bad idea, that's what I'm getting at. If you have 0 aspirations to do more with your life, fine do whatever you want and buy your house. If you have some amount of aspirations but obligations like family get in the way, then balance it at least and buy a cheaper starter home in a stable area. Exit strategy is everything. I never buy anything without an exit strategy. It either needs to be cheap enough under market value that I can sell it for what I paid for it even with my back against a wall or with minimal loss, or cash flow like a mofo so nobody can beat me up bad enough on price because I can always justify the cap rate, or it has to be in a neighborhood that has 1 in a million chance of going downhill (like the neighborhood I currently live in). Thirdly, if you have nothing but aspirations and 0 ties to anyone like kids or a wife, then don't a screwup - mitigate as much as you can.

 

Why? Time/value of money says so, that's why. Your time is cheap in your 20's, so every dollar you can push for yourself to get closer to your goals whatever they may be is amplified that much more because you have tons of time to fail fast and recover with your ideas and aspirations. 

[KaiserRolls]

I'm trying to "not be a shitfuck" currently.

That line cracked me up xD

[Rowleym]

Man all this stuff is making me seriously rethink all the choices I've made in my life thus far haha. I thought for once I made a good decision to buy a house. I asked many very successful people for help and they all said it was a great idea.

If the real goal was to buy one big ass piece of property and build my dream house/shop/raise a family, am I doing it right? Should I not continue to throw lots of money towards the principle?

Secondly, the back up plan if I can't sell it, is to rent it. The house was actually a rental for many many years, and they just put it for sale becauSe the landlords were very old.

I'm pretty clueless.

But I grew up in a 5000 sqft house with 3 master bedrooms, 10 other bed rooms, 6 bathrooms, etc, and what I know, is that all I wanted was a REALLY small house, and a shop. And I definitely got that haha. I couldn't imagine achieving that goal for any cheaper! And no matter what I can't lose that much can I?

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[i_love_cars]

I've gotten a lot of advice from a lot of independently wealthy people as well and the advice varies wildly. You don't take it all as gospel - you have to have some intelligence about you and self-awareness of the world you currently live in. What someone did 15-20 years ago is not necessarily going to work today. And similarly what works for 1 person won't work for another because some people's dispositions/mentalities and work ethics allow them to be successful in different ways.

 

For example - I know people who recommend buying multi-families in the ghetto of milwaukee because you can get properties for dirt cheap, but rent is still pretty similar whether you are on the North side in the ghetto or in a 800 sq ft rental in Tosa. Your cost per unit is super cheap, and tons of your tenants are on Section 8 government assistance which means the govt directly deposits rent into your bank every month, but you have to hire a manager to deal with other bill collections and you have to deal with shitty people who will destroy your property. You can make millions that way. But it's not for me. I'm not that type of investor.

 

I prefer to get places where I could see myself living, in predominately single-family home neighborhoods where there aren't a ton of other rentals which will keep property value higher, and attract better tenants. It's less immediate reward but also less risk. 

 

And when I talk about being self-aware about the world you live in - really we're talking about ways of investing change over time. Chew on the following for a minute:

 

What most people you're talking to don't understand is that we are not in a world anymore where housing is that much of a springboard. When those people were younger, even 10 years ago, it was a different story. There was a LOT more opportunity to exponentially grow. I know people who built huge homes and used the equity in them before they were even done being built to buy multi-family rental buildings. Banks won't let you do that anymore. That was happening when you could leverage a property for HELOCs at 100% LTV as opposed to 80/20, and when the market tanked it went down to like 70/30 - so literally you had to own 30% before you could even have a discussion about taking out a heloc to buy other property with. 

 

The key word here is "exponential". The people who are extremely wealthy/successful were in opportune times and seized that opportunity for exponential growth. That is no longer the world we live in - or rather, the opportunities are much much harder to come by. You have to be smarter, especially when you are starting out. Many people fail miserably because they overpay for their first duplex or 4 family, don't manage the cash flow right, and in 2015 there is very little in the way of good exit strategy at that point because the market isn't improving your property value. I looked at about 100 properties before I bought my first place in 2008. Took me about a year and a half, started looking in early 2007. 

 

I have had to put down at least 20% on residential, in some cases 25%, and as of a couple years ago, there are new Fannie/Freddie guidelines that explicitly say Fannie/Freddie won't buy mortgages from banks if the borrower has more than 4 properties. This makes it extremely hard for young people like us starting up to get in the game and exponentially grow, because nearly every bank you will ever talk to is going to want to sell your loan to F/F, regardless of if you got a conventional loan or an FHA loan. So after you've bought a few properties with 20%+ down payment, which basically is forcing 99% of all 20-somethings to spend every nickel and dime they have just to get a small foot in the door with such large down payments (for historical reasons leading up to the housing bubble burst), now if you want to go further you need to either have really wealthy networks of people who will bankroll you, or you need to be in tight with a small-business bank that will hold on to your loan. Neither of those entities are easy to get ahold of. Many small business banks require you to have deposits sometimes in excess of 1 million dollars before they will even touch you. 

 

Homes aren't increasing in value much right now, and certainly not at a rate where you can leverage them for anything. If you want to rent the home out, that's all good and well, but do not ever let anyone convince you that in the year 2015, buying a home in your early 20's is going to help that much. It won't. By the time you see any significant increase in value that you can actually use, you'll be over 30 years old. 

 

Again, time/value of money is the key to remember. What are you trying to accomplish and in what timeframe, and understand that a house right now is not going to propel you. You'll get more value out of a rental that cash flows at a really good cap rate so that it pays for itself/repairs, and also helps build cash for more property. At that point you can start thinking about finding partners. A lot of people, even successful people who are older in the commercial property space - they all have partnerships. None of those people got to that particular level on their own. So if you have something making cash for you that you can sock away, and can find likeminded people to invest with, you can go a hell of a lot farther.

 

Do you want to own 5% of something or 100% of nothing? The first property I bought I covered 25% and my partner covered 75%. I don't care because I needed to get going and I'd rather have that 25% in the long-run. 50% would be nice but the alternative would be......0%. 

[suspenceful]

I just want to say that there is a lot of great info in this thread. I might not be directly responding to it, but I'm definitely reading it.

Would love to hear other opinions as well. I was going to save to put $15k down on a $100k house, but might be better off renting. I'm not sure. The apartments I'd really like are $800/mo. I'm sure a mortgage and rent would be similar after all utilities and other expenses, I just wouldn't have any risk or duties in an apartment.

[YoungCR]

I'd like to build a 2 1500sq/ft unit shop condo for $96k and rent out the one unit to pay the mortgage. Saving for 15-20% down payment will take a while vs just renting a unit right now though. That's my long goal that I hope to achieve within a couple years. Buying a duplex home has always been one of my plans too.

[Earl]

I really need to start thinking about this. I'm already not being so smart with my money since my car has taken roughly 20K...

[KaiserRolls]

I really need to start thinking about this. I'm already not being so smart with my money since my car has taken roughly 20K...

Think of the scene point ROI though

[i_love_cars]

going in with less than 20% is common, normal, and doable if you are first-time buyer and are owner occupying the building. If it's an investment property (no owner occ), then you will struggle to get a bank to finance you at less than 20%. 

 

I've always done at least 20%, however, PMI is based on 5% increments, so you pay more at 10% down than you do at 15%. You can balance the PMI with rent you collect on a duplex that you owner occupy and still mitigate cost well, and with at least a 10% down payment you should be able to sell it if you had to without totally losing your ass (unless it needs major repairs). 

 

15k on a 100k house isn't awful because it is accurate to say that your month to month costs will be similar. If you are willing to do a little bit of work, though i.e. learn to be handy (the right way please - most handyman jobs i've seen at properties over the years are totally wrong/unsafe/not to code), screen tenants and whatnot - then I would never look at a 100k house with 15k down. I'd try to find a duplex to live in - I have looked at a lot of properties in the Oshkosh area over the past couple years - I know property managers in that area who would take 7-8% gross rent but the buildings cost 60-75k and you can still get around 1500/mo gross rent for the building at that point and make a killing. 

 

Some people just flat out want to live in a house and for that, 100k home in your 20's with 15k down isn't bad because you are not stretching yourself out too far. But for what it's worth, if you want a slightly better position for yourself, doing the diligence to find a solid duplex for cheap is smart. 

 

I would never, ever build a house. Incredible waste of money. You're paying at minimum 25% more than what you could get an existing home for in real terms of dollars per sq. ft and features. 

I would only build a shop if I was running my business out of it and living out of it. There are plenty of properties available for purchase that are dual-zoned for commercial and residential that will cost you a lot less money overall. There was a sweet foreclosure a few years ago I was looking at in Tosa on North ave. by the sendik's - it was a duplex with 2 attached garage slots for shop work and those garages had an office attached to them. We got beat out by investors who would walk in and pay cash - we actually had a higher offer but the bank will always take a cash offer for a few thousand less because it's a cleaner/safer deal. Guaranteed the bank gets their money then so they always lean towards that when it comes to foreclosures. 

[Rowleym]

In the mean time, before I buy a large piece of land, where i will build my house(I'm sorry, no one builds a house like I want my house to be like, and my father is going to build it with me. Always been a dream of mine, and i will do it), but that won't be for a while, and I want to get a good start on my business. But this requires me to either add on to my current shop, which I'm afraid I won't get any return on my investment when I go to sell the place(who buys a 750sqft house with a huge shop???).

would you simply find a shop to rent, find a shop to buy, or expand? 

 

[visian]

Interesting Rent vs. Buy Calculator from the New York Times recently.

 

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0&abt=0002&abg=1

[tsweers89]

I really need to start thinking about this. I'm already not being so smart with my money since my car has taken roughly 20K...

$20k and no turbo....sad day

[Rowleym]

Interesting Rent vs. Buy Calculator from the New York Times recently.

 

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0&abt=0002&abg=1

Just filled this out lol.

Supposedly I made the right move. Renting a place for around 250$ a month would be the better move, but no way in hell could I rent a place for that.

I love my tiny house.

Sent from my iPhone using Tapatalk

[i_love_cars]

Interesting Rent vs. Buy Calculator from the New York Times recently.

 

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0&abt=0002&abg=1

 

visian, I'm not saying this applies to you, but anyone who takes this calculator seriously is an idiot. 

 

This is the housing equivalent of taking life/relationship advice from EliteDaily.com  

 

There are so many holes in this. The numbers are incomplete, the numbers that are present are sourced from national data that is averaged, does not factor in cost of living differences or the fact that home price growth varies wildly right now and the majority of areas are not seeing growth. Some 70% of new construction in this country is currently rental buildings, NOT single family homes. People talk about the residential new construction market coming back and what's never represented is what % of the new construction is rental buildings vs. single family homes. I had an article last year that referenced this with all the data that I wish I had bookmarked right now.

 

This calculator also does not factor a person's age/demographics i.e. how much money they earn vs. how young they are and as such how much they stand to increase over 10 years time and what that means for what they could or could not buy as investment drivers, and because it doesn't include ANY data on cost of living and how wildly that differs based on city, it's impossible to account for the fact that a younger person will struggle a LOT more with maintaining a house and living there compared to renting because of ever-increasing utility costs that, commonly in rentals heat/water are covered by the landlords, and how much even small repairs on a house cut into a young person's limited cash flow/income. 

 

This is so misleading it makes my head spin. My god. There is no consideration for qualitative analysis here either - not that there can be because it's intangible and varies from person to person. But that's exactly why this cannot be taken seriously. If I had followed the output recommendation of this calculator without considering who I am and what my propensity is, I wouldn't even have half the net worth that I currently have at 32. And I'd have set myself back a decade in real terms as far as where my leverage and investing power would be. 

 

Holy fuck. I'm not surprised though because after all it is the NY Times. 

[REKIII]

Damn....going to tell the wife about elitedaily.com  we've been going strong because of it.

[Rowleym]

sir, where do you get your financial wisdom from? 

[KaiserRolls]

We now need an elite daily thread. REKIII, get us rolling

[suspenceful]

I will admit, that calculator seems biased towards buying a home. I think it can be a valuable tool, but it's generalized and there are so many other unique factors for every person.

[REKIII]

Buying a home will, in general, be a better option for most of the population.  The numbers don't work, when figured like ILC or I have described, but most people, or the average person, will not invest the difference when renting, therefore ending up with less than if you had bought.  

[i_love_cars]

Buying a home will, in general, be a better option for most of the population.  The numbers don't work, when figured like ILC or I have described, but most people, or the average person, will not invest the difference when renting, therefore ending up with less than if you had bought.  

 

this is so very true. You have to take what I say with a grain of salt because 99% of the population is not willing to sacrifice or do what I do. My friends used to think I was a millionaire because I was quote unquote "in real estate", meanwhile I'm sitting there on my hands and knees scraping up 4 layers of tile on a bathroom floor in a building that I was pretty sure was going to kill my health. 

 

But it doesn't change the fact that I'm being totally honest about everything if the goal for a person reading this is to actually do something more with their lives instead of go to work, come home and do the family thing and watch American Idol or whatever the fuck is on tv these days. 

[KaiserRolls]

I don't have cable. So it's the people's court for me.