Buy a House Outright?

[Seeker]

This is a very interesting concept.

My house is currently in shortsale, my mortgage payment is 2800, I can only afford 2200.

If when I go back to rent I put aside 1000 a month, I would have 172,227.52 after 10 years according to most savings calculators.
Meanwhile I would rent at about 1500.
So my housing expense would be 2500, 1500 for renting and 1000 towards house fund. Which I can afford after I paydown my cc debt.

I don't know what will be available for 172k in 10 years for now, but 172 would be a heck of a good downpayment.

So families would rent for 10 years and only then try to buy; a new model I think.

Does that make financial sense?

Radiance, the above is not a bad plan.... but most people do not tend to save well.

Yes, 172k would make a great DP, well over the 20% of today's ideal; unless houses cost a great deal more 10 years from now than they do today. Which I personally do not think will happen.

On the other hand, If you've "owned" a house for 10 years, and not paid rent of 1000 a month (or whatever), you've already paid yourself 120k... even if you cannot sell the house for that... you've realized a benefit (ie original price, plus repairs and taxes, minus rental costs over the months and years you would have paid otherwise).

Regardless if you sell the house at a net loss from the original price, there are other savings.

To my mind, the calculation is:

Original price + taxes + maintanace - rental should be less than future sell price. The "should be less than" is the uncontrollable part ... the part all owners hope for.

[Alex_Adviser]

My wife has accumulated stock options at work over the years and is thinking about cashing some in and using the proceeds to buy a house outright. She wants to stay at home with the kids and if we get rid of house payments, we could live just off my salary.

The company she works for, is still growing, so if she cashed in some today, there is potential that the stock price will be higher in 4-5 years and the options would than be worth a lot more. Maybe we could get a lot more money in the future, if she hangs on to them. Also, she would be cashing in only half, so she would still have the other half...

Is it good practice to do this?

I agree with you here. But you are considering only one side. That is the stocks can gain some higher value in 4-5 years from now. But looking at the other side of the problem, the property rates will also grow at a very high rate whenever the things start getting stable. The the situation will remain the same.

So i dont thing that its a bad idea to cash some of the stocks to buy a house outright.

[Radiance]

Radiance, the above is not a bad plan.... but most people do not tend to save well.
.

Seeker

With my recent experience (mortgage-refi-separation-shortsale) I've develop mortgage phobia.

This is the way I see it...
I am a very discipline saver, so in my case, it is very feasible to end up with 172k after 10 years. I don't think I can achieve that thourgh real state transactions.

I could keep it up and have 344 after 20 years. (more if I calculate the interests right) I could buy a house outright on my retirement years (I am almost 40) and have a reverse mortgage.

(ahh, a retirement home in the middle of the bunnies, a big, no, a huge lot)

What am I missing here? This sounds too easy!

Meanwhile I rent, never dealing with taxes, insurances or home repairs....ahhh
And I'd have the freedom to move, 5 of my friends had to decline very good work offers because they couldn't move due to their houses not selling...

[arthurb999]

Yes... absolutely buy a house.

[Zunow]

I had a somewhat similar situation and sold some stock about 2 years ago and just bought a new house outright.

At the time, it was a tough decision to keep the stock or not - I had been with the company about 9 years. Today, the stock would be virtually worthless. Whew.

The easiest way to make these decisions is to reverse it as-if you had the cash. For example, if you had $500k (insert your sale price here) in cash, and then had the option to buy those same options for $500k, would you? Probably not. And probably not even half like some suggest. Once you have the option to sell and get cash, what you're really doing is making the decision to purchase $x of options in this company.

I went through the whole sell none, some, 75% all dilemma, and in the end I sold all and it was the right decision.

Once you have cash, you have the ability to invest however you want. Would you really want to take half of that cash and purchase all in that one company?

> So families would rent for 10 years and only then try to buy; a new model I think.

Ummm... Not really new, that's how it should have always been.

[wnlbutterfly]

I just want to add there is something here that you can't put a price on....having mom staying home with the children (I would say that if it was dad wanting to do the same). Priceless. But that can be a hard adjustment to make also.

I would say go for it.