6 ms·

why "the biggest house you can reasonably afford"?

protonbob 1y ago
In the US, the mortgage markets are propped up by the government and are basically subsidized as good investment vehicles. You can pretty much guarantee that governments aren't going to get their act together and make housing affordable (change zoning laws etc) so it makes sense to buy ASAP.
- no_wizard 1y ago
  >In the US, the mortgage markets are propped up by the government and are basically subsidized as good investment vehicles. You can pretty much guarantee that governments aren't going to get their act together and make housing affordable (change zoning laws etc) so it makes sense to buy ASAP. I have some thoughts on this. Not because owning a home is a bad idea, but because you should really factor what you're buying and why. None of this is to say your premise is incorrect, but merely there should be more nuance when thinking about this. Buying a place you want to live in is fundamentally different than buying an investment vehicle. I currently rent an apartment, but also own multiple investment properties. Why? Because it makes more sense for my situation, where I myself may need to move more often and therefore some aspects of being in a home that isn't turning profit into my pocket are undesirable, where as buying a house where I am going to live has a very different set of checkboxes, namely between economic issues in the macro and personal health stuff where myself or my wife have to travel a bunch, we're regionally limited and have determined we may or may not want to live in our current metro long term. That said, I absolutely did buy one of the properties with the future intent of living there myself, I simply am delaying that to make money on the property rather than letting it sit empty. I'm easily a few years away from permanently moving into it myself, but in the advent I decide to live elsewhere long term than where I am right now, I at least have the income stream. and absolutely, the regulations (and there by, the law) favors home owners every time. Renters get screwed in this I even tell this to young renters who rent from me. You simply can't get a break on the ever growing rise of rent vs a fixed rate mortgage, but you gotta understand what you're buying and why, and don't conflate the difference between a home and an investment vehicle, as many people do.
  - bombcar 1y ago
    This is really good advice - the "your home is an investment" is realtor talk to get you to overspend. A house is a depreciating thing you can live in, and is expensive! Once you correctly account for ALL the expenses (not just mortgage, insurance, and property tax!) you discover that renting may be advantageous. But they do often go up in value over time (ignoring maintenance keeping them together) and sometimes beat inflation (especially when leveraged).
    - psunavy03 1y ago
      All renting gets you is the "privilege" of paying someone else's mortgage. The entire point of homeownership is to build equity and pay off the mortgage. That way, when you retire, your nest egg can go further because you only have to pay the property taxes, and when you die, you can pass the value along to your heirs and build generational wealth. Houses are not index funds; ideally they should only appreciate at the rate of inflation. But they are absolutely long-term builders of generational wealth through the equity in the home. Heirs can sell them and then invest the proceeds, or live in them themselves without a mortgage.
      - bombcar 1y ago
        They can be great, but you need to really run the numbers and check the assumptions. Housing where it is "affordable" (read: median salary can afford a house) is a great way to get a leg up on the pile - though remember that the average age of a person RECEIVING and inheritance is 60. But in places were buying a house is $2m but renting the same one is $3k a month, it's hard to ever make the numbers work.
      - BobaFloutist 1y ago
        >All renting gets you is the "privilege" of paying someone else's mortgage. The entire point of homeownership is to build equity and pay off the mortgage. Where I live, what renting currently gets you is an enormous discount compared to the cost of a mortgage and the opportunity cost of parking your cash into a downpayment. Renting and investing downpayment level money is literally a better deal than buying a house. Why do I care if I'm "paying someone else's mortgage"? The interest payments to the bank aren't building me equity either! It's all money, going one way or another, equity is just more money, and sometimes buying a house means more money goes out than in compared to renting, even if it's more intuitively satisfying.
bombcar 1y ago
Because in the USA the deck is stacked so hard toward home ownership that it's completely batshit. Nothing else will let you take a government-protected 30 year fixed rate loan at rates barely above what the US government itself pays, that you can pay off anytime and cannot be called, leveraged to 80% or more. And then the loans are often non-recourse, and the asset protected in bankruptcy. https://johntreed.com/collections/real-estate-investment/products/an-american-principal-residence-is-the-most-advantaged-investment-on-earth-maximize-yours https://johntreed.com/collections/real-estate-investment/pro... has even more ways that the government is fighting hard to force you to accept leveraged appreciation.
toast0 1y ago
I don't necessarily agree with the advice, but I think there's a few reasons to consider it. A lot of people find their first house too small and buy a larger house later. IMHO, most people have an idea of how many children they'd like to have and some idea of when. I think the idea of the advice is not to buy a small house that fits your needs as a single person and wait until you have a family to buy a larger house that fits your needs as a family, but to just buy the big house? a) If you buy your first one big, maybe it will be big enough and you won't need to switch. That saves transaction costs, and keeps you price anchored to your first purchase. If your house is in a state with something like Prop 13 that effectively anchors property tax to purchase price, buying the final house earlier can save you a significant amount of property tax over the years. b) I think house prices rise faster on larger homes than smaller homes (especially condos and things). If that's the case, buying a right size house first then a new right size house later if your needs grow means you'll have a larger gap to cross over time. c) probably something about house prices always going up, it's implied in a lot of arguments (and it works except when it doesn't ...)

In the US, the mortgage markets are propped up by the government and are basically subsidized as good investment vehicles. You can pretty much guarantee that governments aren't going to get their act together and make housing affordable (change zoning laws etc) so it makes sense to buy ASAP.

no_wizard 1y ago
>In the US, the mortgage markets are propped up by the government and are basically subsidized as good investment vehicles. You can pretty much guarantee that governments aren't going to get their act together and make housing affordable (change zoning laws etc) so it makes sense to buy ASAP. I have some thoughts on this. Not because owning a home is a bad idea, but because you should really factor what you're buying and why. None of this is to say your premise is incorrect, but merely there should be more nuance when thinking about this. Buying a place you want to live in is fundamentally different than buying an investment vehicle. I currently rent an apartment, but also own multiple investment properties. Why? Because it makes more sense for my situation, where I myself may need to move more often and therefore some aspects of being in a home that isn't turning profit into my pocket are undesirable, where as buying a house where I am going to live has a very different set of checkboxes, namely between economic issues in the macro and personal health stuff where myself or my wife have to travel a bunch, we're regionally limited and have determined we may or may not want to live in our current metro long term. That said, I absolutely did buy one of the properties with the future intent of living there myself, I simply am delaying that to make money on the property rather than letting it sit empty. I'm easily a few years away from permanently moving into it myself, but in the advent I decide to live elsewhere long term than where I am right now, I at least have the income stream. and absolutely, the regulations (and there by, the law) favors home owners every time. Renters get screwed in this I even tell this to young renters who rent from me. You simply can't get a break on the ever growing rise of rent vs a fixed rate mortgage, but you gotta understand what you're buying and why, and don't conflate the difference between a home and an investment vehicle, as many people do.
- bombcar 1y ago
  This is really good advice - the "your home is an investment" is realtor talk to get you to overspend. A house is a depreciating thing you can live in, and is expensive! Once you correctly account for ALL the expenses (not just mortgage, insurance, and property tax!) you discover that renting may be advantageous. But they do often go up in value over time (ignoring maintenance keeping them together) and sometimes beat inflation (especially when leveraged).
  - psunavy03 1y ago
    All renting gets you is the "privilege" of paying someone else's mortgage. The entire point of homeownership is to build equity and pay off the mortgage. That way, when you retire, your nest egg can go further because you only have to pay the property taxes, and when you die, you can pass the value along to your heirs and build generational wealth. Houses are not index funds; ideally they should only appreciate at the rate of inflation. But they are absolutely long-term builders of generational wealth through the equity in the home. Heirs can sell them and then invest the proceeds, or live in them themselves without a mortgage.
    - bombcar 1y ago
      They can be great, but you need to really run the numbers and check the assumptions. Housing where it is "affordable" (read: median salary can afford a house) is a great way to get a leg up on the pile - though remember that the average age of a person RECEIVING and inheritance is 60. But in places were buying a house is $2m but renting the same one is $3k a month, it's hard to ever make the numbers work.
    - BobaFloutist 1y ago
      >All renting gets you is the "privilege" of paying someone else's mortgage. The entire point of homeownership is to build equity and pay off the mortgage. Where I live, what renting currently gets you is an enormous discount compared to the cost of a mortgage and the opportunity cost of parking your cash into a downpayment. Renting and investing downpayment level money is literally a better deal than buying a house. Why do I care if I'm "paying someone else's mortgage"? The interest payments to the bank aren't building me equity either! It's all money, going one way or another, equity is just more money, and sometimes buying a house means more money goes out than in compared to renting, even if it's more intuitively satisfying.

bombcar 1y ago

Because in the USA the deck is stacked so hard toward home ownership that it's completely batshit. Nothing else will let you take a government-protected 30 year fixed rate loan at rates barely above what the US government itself pays, that you can pay off anytime and cannot be called, leveraged to 80% or more. And then the loans are often non-recourse, and the asset protected in bankruptcy. https://johntreed.com/collections/real-estate-investment/products/an-american-principal-residence-is-the-most-advantaged-investment-on-earth-maximize-yours https://johntreed.com/collections/real-estate-investment/pro... has even more ways that the government is fighting hard to force you to accept leveraged appreciation.

toast0 1y ago

I don't necessarily agree with the advice, but I think there's a few reasons to consider it. A lot of people find their first house too small and buy a larger house later. IMHO, most people have an idea of how many children they'd like to have and some idea of when. I think the idea of the advice is not to buy a small house that fits your needs as a single person and wait until you have a family to buy a larger house that fits your needs as a family, but to just buy the big house? a) If you buy your first one big, maybe it will be big enough and you won't need to switch. That saves transaction costs, and keeps you price anchored to your first purchase. If your house is in a state with something like Prop 13 that effectively anchors property tax to purchase price, buying the final house earlier can save you a significant amount of property tax over the years. b) I think house prices rise faster on larger homes than smaller homes (especially condos and things). If that's the case, buying a right size house first then a new right size house later if your needs grow means you'll have a larger gap to cross over time. c) probably something about house prices always going up, it's implied in a lot of arguments (and it works except when it doesn't ...)