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Post by ca on Mar 8, 2011 11:17:54 GMT -5
Hey all. One of the recent threads on housing made me want to post this thread.
For most kinds of long term savings goals, there is a finite end in sight: Emergency funds, car funds, vacation funds--you eventually reach a point where you have saved enough and can stop.
Not so easily done for a housing fund in a HCOL area. I live in Toronto, and have a dream to own a 3 bedroom 1.5 bathroom townhouse with stairs someplace within a 30 minute walk to my office. That's about $500-$700k, and the bigger the downpayment the better obviously would be nice to get the mortgage to what I could afford single. That's not going to happen unless I save about 40% down tho on my current salary.
So - I want to wait until I'm engaged/married to buy such a thing, which is years away. I don't want to buy a condo in the meanwhile as I think they are overvalued here and I don't want to buy/sell in a period of years. I haven't previously purchased anything because I moved a lot for work until I took his new job in late 2009.
Right now I can manage to save about $18k a year, after saving 20.5% of my income for retirement of course like any good YMer.
I hold no debt of any kind, am 34 and living alone but in a stable relationship for the last 9 months that could become engagement in a year or two, and make about $105k + bonuses, expecting to make CFO in a few years which should see my income rise substantially.
I live in a reasonable rent luxury condo across the street from work which allows me to work weekends without being put off and late nights, helping my position for promotion.
The problem is, I am sick of saving that $18k a year. It just never ends!!! And I only earn about 1.5% on it, because it's for housing in the medium term I can't throw it in a low MER fund (maybe a bond fund but with interest rates rising soon...)
Once I reach $100k I kind of want to just throw in the towel; though the "frugal" answer is to save in perpetuity...
Just feels like buying a house is the ONE thing I haven't done on the "road to personal finance Oz", but the house I would actually buy is far far far away. So far away I am burnt out from saving for it.
Anyone have any opinions or experience with this?
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souldoubt
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Post by souldoubt on Mar 8, 2011 11:30:48 GMT -5
My situation is pretty similar to yours with some differences. I live in SoCal in an area where the average (3 bedroom, 2 bath home, 1,500-1,750 sq ft) house can still go for about 600K to start. So I'm in a situation where the likely destination for me is a townhome but a lot of the townhomes around here still leave a lot to be desired. This year I'll be saving about 28K after scaling back my retirement contributions (between what I put into 401K, company match and Roth IRA still 22% of gross) and in about 12-15 months I can be in a position to get a townhome because while I think they're still overpriced they're not as expensive as the one's you are looking at.
Obviously though there are trade offs because if I move one city over it's cheaper but the schools aren't quite as nice. There are some reasonably priced townhomes in the city I grew up in and want to stay in which would keep me in reach of good schools but they're older an don't have garages. Don't have a family but I'm seeing someone that I have a great time with and talk about the future with but I don't want to count on anything right now so anything I buy I want to be able to afford on my own.
Anyways my story aside I'm not burnt out on saving yet but I definitely know what you are talking about. You know you can get to that point some day but the only thing that will get you there is time and a bit of good luck in the way of not being out of work or some other unforseen event.
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Post by Savoir Faire-Demogague in NJ on Mar 8, 2011 11:32:50 GMT -5
Sounds like the standard chick strategy....LOL
Just kidding of course.... honestly...sounds like a plan.
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whoisjohngalt
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Post by whoisjohngalt on Mar 8, 2011 11:34:57 GMT -5
A few thoughts come to mind.
I would not ever consider relationship status into my house purchasing decision
I would not buy a house for any other reason than I want to live in a house and not a condo, appt, etc
I would calculate the difference in saving years for a DP vs potentially getting a higher interest rate on my mortgage and decide what is the better option.
Good luck Lena
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cronewitch
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Post by cronewitch on Mar 8, 2011 13:01:46 GMT -5
I would invest the down payment funds in mutual funds, not bonds. You might be saving for years and are fine waiting. You still have money left to live after savings and retirement savings so just chill and wait.
If your investments thrive you might sell in a couple of years to buy a home if not wait longer. If you hated your luxury condo across the street from work you could settle for less home than you want or worse location.
People have been known to live with only one bathroom even married people and two bedrooms so a 1,000 sq ft house 45 minutes from work might be doable but I don't recommend it. You would want something nicer and closer from the minute you bought. You have a perfect sounding rental now and no reason not to wait for a couple promotions to buy your perfect home.
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Post by Savoir Faire-Demogague in NJ on Mar 8, 2011 13:05:59 GMT -5
I would invest the down payment funds in mutual funds, not bonds. You might be saving for years and are fine waiting. The bond market is primed for a major blood bath. I'd stay away from anything longer than 3-4 years.
People have been known to live with only one bathroom even married people and two bedrooms so a 1,000 sq ft house 45 minutes from work might be doable but I don't recommend it. You would want something nicer and closer from the minute you bought. You have a perfect sounding rental now and no reason not to wait for a couple promotions to buy your perfect home.
I just read a short Q&A section of an investment advisors newsletter, fielding a question from someone, a couple, no kids, no debt...who were living in a 1800 sq foot house. They wanted to move up to a 4000 sq foot house because they out grew the smaller one.
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resolution
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Post by resolution on Mar 8, 2011 13:06:29 GMT -5
If you already have 50K saved and are able to save 18K per year, you are less than three years away from having a 20% down payment on a 500k home (or five years from the 700k home). Just hang in there and keep plugging away at it. The time will go by faster than you realize. If your income goes up in the mean time you may be able to swing the 20% instead of taking longer to save up 40%.
If you did stop saving at 100k, what would you do with the 18k that you are now saving?
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skubikky
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Post by skubikky on Mar 8, 2011 13:14:15 GMT -5
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souldoubt
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Post by souldoubt on Mar 8, 2011 13:15:12 GMT -5
Investing your DP in mutual funds or just about anything other than a savings or money market account is bad advice IMO if you plan on using the funds in the next 3-5 years.
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Post by Savoir Faire-Demogague in NJ on Mar 8, 2011 13:21:38 GMT -5
mama mia! das a lotta vacuuming
As I was reading that particular question, I was thinking the couple had one child and were expecting twins. It was a WTF moment when they said they had no children.
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skubikky
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Post by skubikky on Mar 8, 2011 14:52:37 GMT -5
Nature abhors a vacuum as it's said.. I suspect that they'll just fill up the extra space with possessions....and then have to spend additional time maintaining it all.
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Post by ca on Mar 8, 2011 14:54:47 GMT -5
Thanks for the replies guys!
Yah, well that may have worked well in the 1950's when a single income could buy a decent house in my area, but now you need double income to buy anything bigger than a 600 square foot condo. And I make decent money, still can't afford it on my own. I'm going to wait until I marry to buy something, otherwise I risk buying too much house compared to what I can afford. OR---putting down 40% in 3-5 years *sigh* and buying myself. Just sick of saving!
Not me. Sorry, my dream home is 3 bedrooms (could be very small bedrooms tho) and 1.5 or 2 bathrooms. I'd rather rent until I can afford my dream home than buy something less than I want. I don't think my dream is out of reach, even in the hugely HCOL Toronto real estate market.
Stop living like a miser, mostly. I only bring home about $70k after taxes due to both my 20.5% retirement saving and Canada's hugely high tax rate. The 18k is about 26% of my net pay. Hopefully my income goes up huge in the next few years.
I'd love to go buy some new work clothes (would help my CFO ambitions) and visit my family in Texas more often too, as well as buy a new car eventually (driving a 1999 oldsmobile now). Plus artwork and international travel like South Africa, the galapagos, a baltic cruise... oh I could spend it on many things!
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wewillsee
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Post by wewillsee on Mar 8, 2011 15:29:01 GMT -5
I would really think twice about why you want to buy that space. If you are renting a nice place now, I would keep doing that for a long time. Remember, even if you do move in together with your sigificant other and combine incomes to pay for the place, at some point you may have kids at a significant portion of income will be eaten up for daycare.
I am 36 and purchased a house a few years back for just under $500,000 and it is a big burden, even though I didn't put anything down. However, I am married and have 3 kids. I have several single friends that make good coin too but many of them prefer to rent a nice place in a good location. Besides, if you do eventually become a CFO or not, you may need to relocate. Buying and selling is expensive, especially when you are talking about selling a $600,000 place versus a $150,000 place. Renting gives you so much freedom, as long as you can find something you like to rent.
Living like a miser when you are 34 with no responsibilities and making good money might set you up well financially, but there are many other things you could be doing with that money that are much easier and cheaper to do now, such as travelling, etc.
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Post by ca on Mar 8, 2011 15:35:47 GMT -5
Thanks wewillsee. Yah I like where I am living now as it is a great location for me, right downtown and 5 minute commute from my bed to my office desk (literally across the street). Also the gym, my friends, my bars, my grocery stores, all within a few minutes walking distance. And the rent is reasonable ($1600 including parking, utilities--hasn't gone up in 2.5 years). It also has 1.5 bathrooms, which I love that way. On the point of kids tho, there will be no kids Not worried about that. The only way I could have children is if my parents were to both pass away as my mother has a 2 year old that I would become guardian of (written in her will) should they pass. But with that, I get a few million in life insurance bought term until my brother is not a minor. The few million would buy a nice house and full time live in nanny for day care until he was old enough to not need a nanny!
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phil5185
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Post by phil5185 on Mar 8, 2011 15:43:41 GMT -5
I would invest the down payment funds in mutual funds, not bonds. This is what I do - I make it work. I would invest the $18k in an Index Fund, if it grew as expected I would leave most of it invested and borrow a DP (using the fund as a reserve account to mitigate risk). And if the Index Fund did poorly (and the chance is 50/50 that it will since the Index is a long term product) I would either wait a couple years, or borrow a DP. So - in general, I keep our money in an Index and borrow for our shortterm needs.
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Post by ca on Mar 8, 2011 15:56:32 GMT -5
Thanks Phil. I was almost thinking of taking everything and dumping it in a REIT ETF that focuses on the Toronto market. That way if the REIT tanks, the housing market probably is lower too...netting out to about the same. Of course if the housing market takes off on fire...then I benefit too.
Just a thought.
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Post by debtheaven on Mar 8, 2011 16:35:33 GMT -5
The only way I could have children is if my parents were to both pass away as my mother has a 2 year old that I would become guardian of (written in her will) should they pass.
Of course it's none of my business but I don't see why you can't (in the worst-case scenario of losing your parents young) both raise your baby brother (kudos to you for being willing to do that) AND have a child or children of your own.
You're talking about needing two salaries to purchase your dream house in your HCOLA. I just wanted to point out that by nixing kids from the start, you are narrowing the "pool" of available women in which to find a future wife / partner.
There's nothing wrong with not wanting kids of course, but that's not what you said. Given people's tendency to reproduce, most people want kids.
My other concern is that house prices keep rising as you keep saving, but I don't know what the solution to that is.
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cronewitch
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Post by cronewitch on Mar 8, 2011 16:38:09 GMT -5
I know it is going to get me yelled at but save less. You are saving about 40K a year that is huge, you feel deprived. What if you only saved 30-35K a year? You could take a trip and buy new work clothes and the years would go much faster as a renter. Then waiting an extra year or so could see as much saved and you will have already traveled and dressed better.
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Post by debtheaven on Mar 8, 2011 16:40:39 GMT -5
What Crone said.
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Bob Ross
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Post by Bob Ross on Mar 8, 2011 17:32:41 GMT -5
Wash moar ziplock baggies.
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dcmetrocrab
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Post by dcmetrocrab on Mar 9, 2011 19:29:57 GMT -5
Being burnt out means you need some time out. Give yourself a break, take a nice trip, buy the work clothes, then get back on the horse. Maybe visiting an open house would help motivate? It really sounds like you're nearly there, especially with the CFO promotion happening.
I'm in a similiar situation, near the same age, making less than you, but already have my $100k DP. I burnt out last year and changed my budget so that I have more fun money to spend. I've been looking to buy for many years and just last weekend, I found THE house! However, it's out of my price range by a smidge. It's motivated me to pare back my budget again, but at the same time, I'm not 100% sold on what I want more, to not feel so miserly all the time or to get into my "forever" home. I need to find a compromise and haven't found a house that lands in the sweet spot.
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motherto2
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Post by motherto2 on Mar 9, 2011 21:07:23 GMT -5
Maybe you should switch gears about how your thinking is. Why not stop looking at the fact that you're putting x away for retirement and y away for house DP. Focus more on what you have left after both of those are taken out of your paycheck. Maybe have your DP automatically put into an account away from your usual account. Don't think of it as making $105K and only having $70K after retirement funds, etc. are taken out. Alot of the financial gurus want you to start your financial spreadsheet with your gross, and then deduct everything that comes out of your paycheck, such as medicare, ss, taxes, etc. I prefer to look at it the opposite way. After all that, plus my retirement amounts (I have 2 different retirement amounts taken out each payday), health insurance, flex spending account, etc. I look at what I have left and work with that. I try to not look at ALL that money that comes out of my check (because it would make me cry, and then make me angry). Pretty much half of what I make is taken out before I see my paycheck. I can't change pretty much any of it, but I do have control over what I have left over. That's what works for me.
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DVM gone riding
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Post by DVM gone riding on Mar 9, 2011 21:16:55 GMT -5
I agree with cronewitch, put the money in mutual funds, you are going to be saving for a long time and it is unlikely for you to need to take the money out suddenly so you can ride out dips.
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jk70
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Post by jk70 on Mar 10, 2011 8:52:29 GMT -5
This is what I am doing and my term is/was much shorter - 1 year (when I started last September). All of my down payment funds are in high yielding stocks - 3 REITS and 1 Energy LP that doesn't appreciate that much but pays a nice dividend. If you're 4-5 years away I would most definitely put it in the markets and do what Phil says.
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sunuva
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Post by sunuva on Mar 10, 2011 9:10:48 GMT -5
If you buy your dream house, would you consider yourself to be "living the dream"?
Once you purchase your house you are also framing your "lifestyle." Other than purchasing your dream home (living the ream) would you be planning on changing your lifestyle? If not, then there may be room to contemplate the "what about afterwards."
You will have purchased your dream home - now what? May be prudent to think more about your lifestyle going forward as you age and get closer to retirement. Think about it this way - assuming retirement at 65 (at the latest) you are closer to retirement than you are to when you were born. You have had a certain lifestyle up to now that did not include your owning a home. What would be your lifestyle once you move into your dream home?
Don't get me wrong, I am a full proponent of home ownership. However, I will throw out the caveat that my stance is definitely tainted by my own history which was lifestyle was significantly important to me. The house wasn't as important to me as the lifestyle I wanted. I'm quite the avid adventurer and volunteer rescue. I needed space for canoes, kayaks, outdoor gear, washer and dryer to clean said outdoor gear, and trailer for hauling items and immediately available storage for said items (garage, shed, basement). Throw in a wife who has a lot of hobbies into the mix and we're talking about pottery (wheel, kiln) and glassworks (propane/oxygen torch, ventilation hood and fan to outside) which are things that simply aren't doable in a rental situation. All of the stuff I mentioned above can be accomodated by renting by paying extra to go somewhere else to store/clean/partake of your hobbies. But that adfds cost and time and scheduling and is not convenient. For me, my lifestyle - our family's lifestyle was too expensive to be accomodated by renting. A home purchase made sense from every direction we could look at it (even before kids were thrown into the mix).
Sure, when we sell the house there are a lot of features that simply aren't a selling point to a huge pool of buyers. In fact, they may be detractions from the selling price of the house. Fortunately, that isn't much of a concern for us. At some point there will be a price that the house will sell for. So, as you can see, the house wasn't so much an investment decision as a lifestyle decision.
I think you have the money (earned, saved, and invested) to afford almost any lifestyle you can think of (other than lifestyles of the rich and famous). Does a dream house fit into your lifestyle or will you decide what your lifestyle is going to be once you have moved into your dream house?
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azphx1972
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Post by azphx1972 on Mar 10, 2011 11:16:18 GMT -5
This is why I chose to stay in a LCOL area rather than move to a more happening city after school. I wanted a nice house that I could afford on my (then) modest salary, as the thought of having to work the rest of my life (30 years seemed that way to me at the time!) to pay off a mortgage was extremely unappetizing to me. I'm so glad I made that decision, because my financial situation would be nowhere as well off today had I moved to a big expensive city. Good luck to you though, hang in there!
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Post by ca on Mar 11, 2011 10:15:21 GMT -5
Just wanted to say thank you to everyone for your responses. Passing karma along as I can, I really appreciate this. Trying to be subtle about this, but the "pool of available women" is um, the wrong swimming hole for me No children in my future other than the baby brother if God forbid something happens to my folks before he's 18.
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qofcc
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Post by qofcc on Mar 11, 2011 10:40:28 GMT -5
I would not ever consider relationship status into my house purchasing decision Yah, well that may have worked well in the 1950's when a single income could buy a decent house in my area, but now you need double income to buy anything bigger than a 600 square foot condo.
I think what Lena was getting at is that by tying your home to a relationship, you could find yourself in an undesirable situation if the relationship were ever to stop working or something was to happen to the other person.
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Post by ca on Mar 11, 2011 11:08:24 GMT -5
I would want to put more than 20% down, and not buy together until we're engaged/married, so it would be less likely to end without a lot of notice. And with more than 20% down, if the marriage DID sour, we'd have enough equity to sell and get out without it causing massive issues to my overall financial health. So not too worried about tying my home to my future marriage.
But I guess I see her point if I was to buy with someone I was dating only for a while and without a major downpayment and the house market sank and the person took off...that perfect storm could cause a major issue. Fortunately, I'm not quite that stupid (anymore).
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Nazgul Girl
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Post by Nazgul Girl on Mar 11, 2011 11:21:04 GMT -5
I love Toronto. It's a cool town and we enjoy visiting it once in awhile, plus I have relatives that live close by the city. That being said, Toronto is bubblish. Just because everything has been going up steadily doesn't mean that everything will keep going up steadily. I would put the money into index funds ( a variety ) and look for a foreclosed townhouse in the area that you are interested in. I would keep it in my name only. I would not delay life's other small fun activities. Life can be pretty short. Is there a chance that your present location will be going condo anytime soon ? You're all set up there, from the sound of it.
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