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View Poll Results: Should you overspend on your first house?
you should not be mortgaged over 3 x annual family salary 15 65.22%
yes mortgage over 3 x annual family salary, buy big and tough it out 8 34.78%
Voters: 23. You may not vote on this poll

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Old 09-16-2009, 05:04 PM   #1
Miguel
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POLL: Should you OVERSPEND on a house?



So, I know your first reaction "Fuuuck no! don't do what the americans did and get in over your head" but here is some logic laid down by a buddy that I can't really argue:

Using the example of a couple making a combined $100,000 a year
A couple can safely afford 3 X their annual household salary on a mortgage ($300,000).

So you buy a $300K condo, sell it and give 5% to brokers, buy another house, sell it and give 5% to brokers, buy another house, and 20 years later you may end up in a $450K-$500K house.

If the same couple bought the $500K house off the bat, they'd easily save $40K in commission fee's and in good market times, the bigger they are the more they sell for... in bad market times you pull a good ol' USA and walk away from the house, socializing the losses with a bailout.

Really, who is the sucker here? The crazy bastard mortgaged to the nines or are we all suckers for falling in line and not risking anything?
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Old 09-16-2009, 05:23 PM   #2
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There are some future factors that most (large percentage) of us dont even bother to see or research. I think it goes without saying that "stupidly/unrealistically" surpassing yours means doenst do any good what so ever.
If you do your research and give yourself 2-3 forecasts your investment will definitely pan out.
The "short term" minimal investment/risk that used to equal good returns are fewer and much further between than 5-10 years ago. If people arent planning on risking, educated and informed risk, then saving alone will not ensure financial confort for their furture! Thats for damn certain.

Just my 2 pennies rubbing together.
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Old 09-16-2009, 05:43 PM   #3
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At an average 5 year rate of 5% (today's ultra low rates won't last forever), one will spend 10 grand a year extra on interest on a 500k house vs a 300k condo. In the long run, that more than offsets the commission loss on flipping from condo to house. That 10k/year can be used to pay down your mortgage and build equity. That way, when you're ready for a 500k house down the road, your condo will have a neglibible mortgage balance. If you play your cards right, you may be able to keep the condo, rent it out, AND buy a house for yourself.

****, why do people ask stupid questions on here? Live below your means. Unless you're writing off your mortgage, it's bad debt. Don't overspend, be it on homes, cars or discretionary. To the people who answered #2, go to Chapters and spend some time reading personal finance books.
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Old 09-16-2009, 06:01 PM   #4
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Quote:
Originally Posted by europrince View Post
At an average 5 year rate of 5% (today's ultra low rates won't last forever), one will spend 10 grand a year extra on interest on a 500k house vs a 300k condo. In the long run, that more than offsets the commission loss on flipping from condo to house. That 10k/year can be used to pay down your mortgage and build equity. That way, when you're ready for a 500k house down the road, your condo will have a neglibible mortgage balance. If you play your cards right, you may be able to keep the condo, rent it out, AND buy a house for yourself.

****, why do people ask stupid questions on here? Live below your means. Unless you're writing off your mortgage, it's bad debt. Don't overspend, be it on homes, cars or discretionary. To the people who answered #2, go to Chapters and spend some time reading personal finance books.
I could have easily written a 1000 word post on the topic if you really wanted me to. I just VERY briefly offered a quick opinion.
Im gona assume that you think home prices down the road are also going to be roughly the same they are now lol.
I have extensive experience in real estate/investments. Im also involved in government and development organizations with views much less provincial that what you seem to have.
So keep your lil petty and rediculous online insults up your ass where they belong.
Thanks.
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Old 09-16-2009, 06:20 PM   #5
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Quote:
Originally Posted by TheLoneVR! View Post
I could have easily written a 1000 word post on the topic if you really wanted me to. I just VERY briefly offered a quick opinion.
Im gona assume that you think home prices down the road are also going to be roughly the same they are now lol.
I have extensive experience in real estate/investments. Im also involved in government and development organizations with views much less provincial that what you seem to have.
So keep your lil petty and rediculous online insults up your ass where they belong.
Thanks.
Insult me as much as you want. I didn't ask you for your resume, nor am I impressed with it.

I am not assuming prices will remain the same. I am implying that if one buys a house for life, as the second $500k scenario assumes, then future market values are irrelevant. All that matters is the initial purchase price. The only time the MV would matter in the future would be for a refinance, which typically means more debt! I know people who bought with that intention, leveraging themselves extensively over 25-35 years...not a fun picture to watch. I know other people who have six and seven figure investment portfolios. You know why? They didn't become house poor!
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Old 09-16-2009, 06:27 PM   #6
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why bother??? why get caught up in the materialism? do you REALLY want a 6 bedroom mansion in the suburbs when a small house willdo just fine?

why give all ur money to brokers?

this is what i would do

1. buy a camper van
2. get a mortgage to get a plot of land or a buy a run down shack.
3. live in the camper van and save the money & plan building your house
4. once summer comes along build whatever your heart desires (with skilled help of course)
5. document everything
6. move in
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Old 09-16-2009, 06:31 PM   #7
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first off Im not insulting you at all. I simple told you to keep your insults to yourself. (up your ass...)
I couldnt careless if your impressed or not, just mentioned to "even the playing feild".
I didnt negate your post at all, in that SPECIFIC example your right. There are many other options where Debt is a good thing. Thats what im referring to more directly. Becoming house poor as you mentioned is really sad, hence why I stated stupid or unrealistic risk taking.
Lets refrain from crossing swords here and help out Miguel, which is why he created this thread. Fair?
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Old 09-16-2009, 06:32 PM   #8
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Quote:
Originally Posted by BMW_7 View Post
why bother??? why get caught up in the materialism? do you REALLY want a 6 bedroom mansion in the suburbs when a small house willdo just fine?

why give all ur money to brokers?

this is what i would do

1. buy a camper van
2. get a mortgage to get a plot of land or a buy a run down shack.
3. live in the camper van and save the money & plan building your house
4. once summer comes along build whatever your heart desires (with skilled help of course)
5. document everything
6. move in
Not bad advice at all. If its an option for him that is definitely a route to take.
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Old 09-16-2009, 07:36 PM   #9
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I hate interest, over the long term,with the 500k house, you will end up paying much more interest and it will take you much longer to pay off, meaning you will take years longer to become debt free.

I'm on my phone right now but I'll try punching in some numbers into a mortgage calc. Also keep in mind interest rates are at an all time low, even if you qualify now of the 500k house if interest rates raise to 7-10% which hopefully NEVER happens, you may not qualify when renewal comes up. (but that's a little extreme)
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Old 09-16-2009, 08:10 PM   #10
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I've never been a fan of the upgrade process and I made sure to avoid it. I rented and saved until I could afford the house that meets all of my desires now and any of those in the future.

Even if your compromise property does go up in value forever (and those depending on that have been biting their elbows for the past year), things happen in life and you could be stuck with what you have.

My philosophy on credit, after having learned a lot the hard way, esp through my university years, is that it needs to be managed not avoided. If it's most important to you to have no debt, then that's different. But in my opinion, I can always make more money but I can't make more time. I have no problem paying a premium for having what I really want sooner and enjoying it longer.

I could share some things that I've gone through or what I've observed in friends that have made me arrive at this philosophy but at the end of the day, I'm not trying to change anyone's mind. I'm only offering my opinion and proposing that it's not as simple as credit being purely for the stupid.
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Old 09-16-2009, 08:51 PM   #11
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europrince hit the nail on the head with this one. How long of a mortgage would you take on the 300K condo?
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Old 09-17-2009, 08:57 AM   #12
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any house you buy is over spending, prices are rediculous!
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Old 09-17-2009, 11:45 AM   #13
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your right Arek, and that isnt likely to change!!
Thats why i am making sure i risk for investment not long term home to pay off.
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Old 09-17-2009, 12:03 PM   #14
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along side the added pressure of the mortgage, did you consider the financial impact of the additional property taxes, additional potential repairs/maintenance, commuting distances? There are many factors to be considered. The other thing is, while the interest rate is at an all time low and a lot of home owners are drafting between the 0.8-2.25% interest variable mortgages making them feel that they are better able to cope with an "expense" purchase. Who's to say that the prime rate doesn't go to 6% in the next 2-5 years. a 4% interest increase is equivalent to 20,000/year on $500,000. Naturally the rate is highly unlikely to jump that steep so quickly, but even assuming that it hops 1% over 6 months (which is not unlikely) you're looking at a $5,000 increment in interest per year. Listen, I'm not judging anybodies ability to make money and have a solid life-style, but to a lot of people, ~$500/month in additional costs doesn't blow over too easy. It's gotta come from somewhere. Regardless of your decision, try to identify all factors that have impacts on your ability to buy and continue to afford whatever it is you want to buy.
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Old 09-17-2009, 03:01 PM   #15
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On a side note, where would you guys want to live outside of the gta?

I'm not shopping yet, but i'd really love to buy a house instead of a condo. A semi detached in milton is not my cup of tea, i'd rather spend the same money elsewhere and buy a bigger house. Anything within 1 hour of toronto is fine, NOT barrie, as although real estate there is cheaper than toronto, its hardly worth living in barrie.
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