Home Ownership?

[Young Spark]

Before everyone considers me starting another useless topic, this is one that I am quite big on hearing thoughts on.

I was thinking earlier about home ownership and how good it would be for home ownership at an early age compared to waiting until your early 30's. What does everyone believe in home ownership, is it (in your opinion to be an asset, or a liability?) This will possibly become part of an article on my youth entrepreneur blog in the future (the one I am working to start up.)

Would this be a beneficial way of "building wealth?"

[radreality]

for the general public, there is probably no argument against home ownership. But for entrepreneurs and investors, its a case by case basis. It all depends on what your goals are and how quickly you want to achieve them. You have to live somewhere, so you are going to either pay rent or a mortgage, if they would be the same amount, then you might as well own a house. But usually a house will be 2 to 3 times the monthly payment that an apartment is. If your business or investing relies on your personal credit, then you might want to reconsider buying a house, just because owning a home will often drastically increase your debt to income ratio.

Plus, unless you are receiving a W2 like a normal employed person and/or putting a 20% down payment, you will find it harder these days to get financing. You will most likely have to go "stated income", and lenders have really tightened up with these types of loans because of the record amount of foreclosures.

In conclusion, home ownership is a good thing 95% of the time. But ask a financial advisor or a very qualified mortgage broker (not just a typical one) about what is best for your situation.

______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[pacificfame]

If you can afford the mortgage go for it. Live in it for 5 years then sell.

According to an accountant it's an asset.

Now is a good time to purchase a home, since the market is in the shits. So it's a buyers market. The market will go up again sometime so when it does you can sell and make some money out of the deal.

[silversurfer]

But usually a house will be 2 to 3 times the monthly payment that an apartment is.
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When I bought my house the mortgage was approx 1.5 times rent. Rent was $1200-1500 and the mortgage was $1800. No brainer. The 2 to 3 times the monthly payment is only related to location and renting dynamics there. Is it a "buyer's market" or not? That changes dramatically in different parts of the country/world.

In 1997 I came very close to buying a $50k condo where the mortgage and condo fees would have been $25 less per month than my current rent (it was 10% smaller). Instead I saved up another 2 years and bought a more expensive house. I wish I bought the condo and then bought the house, but I would never have bought the house when I did if I owned the condo. Plus it could not be rented out, which is partly why it was so cheap.

If you buy a house and have a reasonable amount of stuff, you will not want to sell after 5 years. All my friends got shaky loans planning to do that and only one did, the others felt it was too much work and expense to sell and move. Moving can cost $2000-5000 which eats into any profit.

I could sell my house now for about $800k, maybe less. Where I grew up a house just sold for about $2 million. So great, yeah, I made money on my house, but so did everyone else- there's no place for me to move up to without spending more. A friend sold his house and bought a villa in Mexico, but I don't want to leave the country under any circumstances.

If I was in college I'd buy a house or condo near a college and then rent out the rooms to my friends while living there. I would even be interested in discussing this idea as a partnership with a person in that situation.

SS

[jasaunders]

Yes, buying a house is a great thing for a young person to do. When facing the decision between renting and buying, you should be buying (assuming you could afford it). You are throwing money away if you are renting.
This is independent of whether the housing market is good or bad, this point is moot. It is good to buy a house and build up equity instead of giving equity to someone else by renting.

Robert said "If your business or investing relies on your personal credit, then you might want to reconsider buying a house, just because owning a home will often drastically increase your debt to income ratio."
This isn't really true. If anyone is looking at your DTI, they are looking at your revolving debt balance. A mortgage is not considered revolving debt and wouldn't figure into this ratio. In almost every case, a mortgage will increase your credit score and make you much more attractive to receive personal or business loans.

[radreality]

Robert said "If your business or investing relies on your personal credit, then you might want to reconsider buying a house, just because owning a home will often drastically increase your debt to income ratio."
This isn't really true. If anyone is looking at your DTI, they are looking at your revolving debt balance. A mortgage is not considered revolving debt and wouldn't figure into this ratio. In almost every case, a mortgage will increase your credit score and make you much more attractive to receive personal or business loans.

It helps your credit score as long as you are in good standing. But your debt to income ratio does not take into consideration any equity. It looks purely at ALL your debt and your income. If you are trying to get a credit card, this probably won't matter; the investing I was referring to was additional real estate investing which will look very closely at your debt to income ratio. Its hard for someone with average income to be able to finance an owner-occupied house AND an investment property. Its a numbers game, and it depends on what is more important to you.

For me personally, I'm not able to buy property and a house for myself at this time. Luckily I found this out before I bought a house. If I had bought a house I would actually be losing money, just because the money I make on investment properties is far greater than any equity I would of made on a personal house and any rent I pay out in the mean time.

So, thats why it depends on your situation. Its easy to say buying a house is a good thing, because it usually is. But before you do anything, you need to take a look at the bigger picture and see how it affects your short term and long term goals. Don't be afraid to ask questions to your lending company, and make sure you are comfortable with them. There are tons of them out there, and if you think they care more about selling you a loan than your personal goals, then you should find a new place.

______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[Young Spark]

Great responses everyone, I am liking it.

Here are a bit more things I'd like to get some advice on:

Mortgage To Income Concept:
To take this topic a bit further... I'd like to hear input on a idea that me myself labeled as "MTI" which is short for Mortgage To Income. I can't precisely remember how I picked up on the concept, but it works simple: You apply for a mortgage on a home and then you rent the home out with the price being a bit higher then the mortgage companies amortized schedule... that way the mortgage company makes money and you get a small monthly income. Then you can start saving to purchase a second property to rent out or owner finance.

Just an idea... of course, like everything else, MTI has flaws as well but I'd like to hear opinions on such a thing.

Tax Deed's:

I was discussing this with another person over at the cash flow note forum I go to often and I learned much about tax deed's and tax lien's. My question is first, why isn't everyone doing this as it seems like a promising way of getting a return on your money... its a win-win situation.

Allow me to explain, why its a win-win: Let's say the property owners are behind their taxes, so what you do is you attend the tax auction and bid on the tax lien. Now let's say you win the bid, well, you win the bid, the government gets paid, and now the property occupier gets a little more time to get money together. How you're benefitting: Well, since you paid the fee's, now (depending on state laws) the property occuiper gets so much time (ranging from 6 months to a year (or more)) to pay you back what YOU paid !PLUS! interest. If they don't, then you become the owner of the property, free and clear of any mortgages or other lien's.

So its either get paid your money back WITH interest or get the property, so its a great investment.

The question I wanted to ask was: wouldn't it be better to purchase a tax lien and then claim home ownership possibly that way. Only owing the backtaxes. BTW: I know there totally is more to tax sale's but I am being brief here.

[pbradish]

I recently decided to rent for a little while longer (two years). Between selling and starting new businesses, the girlfriend gearing up for med school, and my own time constraints I didn't feel that I could justify purchasing a new home.

We have a great deal on our new place though. It's brand new, 3 bedroom 3 bathroom place with about 1600sq ft. and the rent is a fraction of what the mortgage would look like, even with our good credit situation.

Basically, what we had to do was research both renting and owning the same place and figure out the pros and cons. A home is an investment yes, but it's also so much more than that.

[Young Spark]

The fact I started this topic was because I am 18 and I was looking to purchase a home in a few years, unfortunately, my credit isn't the best as I am lagging behind on a credit card bill... therefore I am having quite a problem getting that situated, fact is: what are some tips on constructing my credit score back up?

Sorry to roam off topic for a second, if I could get these tips added with your opinions on the original "home ownership" topic.

[pbradish]

Do you know your credit score?

I use freecreditreport.com and paid the $30 for the premium upgrade. It gave me my exact score from the major 3 credit report companies.

It's a great place to start because then you can resolve your past credit issues and start fixing your score. Be sure to pay those CC bills on time every month because they will work against you. Just remember you're 18 and it definately isn't too late to fix the credit problem but don't slack or get lazy - fix it now!

[pacificfame]

The purchase of a tax lien certificate is not always a win win situation.

You have to do plenty of research before purchasing.

Look at this article on Risks In Going It Alone.

http://www.savewealth.com/taxes/taxliens/

[ProLogic]

Make sure the mortgage doesn't go over %30 of what you make yearly, if this is the case you can't afford it. Also be sure to pick a desirable spot. Which means pick a house near major locations such as schools, shopping malls, popular transportation e.t.c. When it comes to selling time the best time to sell is right before summer break. Good luck!

[jayk]

its better to get a home now than wait later, ultimately house prices tend to go up, so even after 5 years you'd have good equity in the house.

[silversurfer]

here's the thing on Tax lien certificates. Do you personally know anyone who has successfully bought these? I read a series of articles on these and went to my city's tax lien auction with $5k to bid on some properties with 10-15k liens. At this auction were three large local banks. The three banks bought all the liens. Let's say a house owed $45k taxes. Someone I talked to big $5k, 7k, 9k, 11k, 15k and was out bid consistently by a bank representative who easily was spending $200k that day. No matter what the banks outbid everyone and the only groups that won any liens were banks. It went like that except for the properties that had $75k-100k in taxes owed. These were in terrible locations, and of course I didn't investigate areas outside my own section of the city. No one big on those and the more the banks ignored them the worse the fear was that they were worthless.

So, I would LOVE to hear anyone who took on a tax lien. I tried it once many years ago and was completely outbid by corporations. I do not believe that tax liens for the general public are "real." I think they're all hype.

[Young Spark]

That's why you should always propose something of an "real estate investment" club. This'll allow people to invest money into the "club" and in return get maybe 5% of their money back within' a set period of time. just figure out ways... and who says it has to be YOUR money