7/16/2023 5:36:30 PM Ikeh89 |
**Question for the Group**: I am currently looking for a new home in a different state. My current home is being put on the market for $370K and I owe $150K on the current mortgage. after 6% sellers fee I will have $200K in the bank on the home. When looking for the next home do I buy one for $160K cash and be debt free, but house has less room to appreciate as its smaller and older. -OR- Buy a $250K home and have a 75K mortgage @ 6% (after closing costs), but the house is much newer and will appreciate faster as its in a better part of town. Thoughts? Strategies? Experiences? |
7/17/2023 2:05:45 PM jbmil |
IMO, it's a no-brainer to get the mortgage. 6% in the scheme of things, isn't that high a rate, and there is probably a coin-flips chance that you'll be able to refinance lower in the coming years. A 75K mortgage for a house that you'll likely stay in longer is how I would think about it. I'd think if I had the smaller house, would I then want to move 5 years down the road... then you'd pay another set of transaction costs to buy another house. I think your still being VERY prudent with a small mortgage. |
7/17/2023 5:44:31 PM azphx1972 |
I've always considered a primary home purchase as a lifestyle decision and not as an investment. Historically speaking, housing appreciation has only kept up with inflation. We are currently experiencing a weird period due to a supply shortage, but I suspect that it will correct at some point as more houses get built and boomers age out of their homes. So if I were in your shoes, I would opt for the least expensive option that meets my lifestyle needs, so that I can throw as much as I can into income generating assets and build wealth that way. Also, I've read that the wealthy generally keep no more than 15% of their net worth in (primary residence) home equity, so that they can keep the bulk of their money working in more productive assets. Hope that helps. |
8/3/2023 9:04:23 AM girlnextdoor |
I wouldn't think of a primary residence as an investment, but instead think about what do you really need/want in a place you will live for (potentially) a long time. And make the decision based on that. Since you can only get the money out of your house if you sell, how much it's worth at any given point doesn't really matter if you plan to keep living there. My husband and I were in a similar situation (debating between cash purchase and mortgage) and we have been 100% happy with our decision to skip a mortgage and have never second-guessed it. If anything, we're now leaning toward NEVER having debt again. |
8/5/2023 11:16:16 AM mydogwantsmetoretire |
The less cash in your home the more you have to invest. We have always bought less expensive homes and used the free cash flow for investing. Always exceptions to the rule but generally housing is not a good return on investment when figuring for appreciation, expenses, and maintenance costs. As a personal rule, I don't have a house that is more than 20% of my net worth. |