First Time Home Buyer

Okay im a grad student with no real job or income at the moment.

Say I had 300k in savings and I want to buy a home.

Would it be better to buy a 135k house with a mortgage at 5.0% and put 10k down on it

Or simply pay the house off.

I was thinking just buy the house straight up... and let the rest of the savings gain interest, I think a mortgage is dumb, but Ive heard other opinions, just wanted to hear other rollitup members thoughts...

mattman said:

Okay im a grad student with no real job or income at the moment.

Say I had 300k in savings and I want to buy a home.

Would it be better to buy a 135k house with a mortgage at 5.0% and put 10k down on it

Or simply pay the house off.

I was thinking just buy the house straight up... and let the rest of the savings gain interest, I think a mortgage is dumb, but Ive heard other opinions, just wanted to hear other rollitup members thoughts...

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If you can afford the house outright, go for it. Why would you pay money to borrow from someone else when you have it yourself?

You gotta ask yourself with no real income, can you afford to keep the house running? It get's expensive, espically in the winter...

Mortgages are good in alot of cases, like mine. I just closed on a 170k house in November 09 and I would not have been able to do it so soon without a mortgage.

Now I am paying myself rent and the bank is in it for 2.9% for the next 5 years.

I bought my house outright you can get a way better deal if your offering cash and a closing time of two weeks.

When I sold my business and retired the first thing I did was pay off my mortgage. I can't tell you how good that feels. If I were you I'd pay it off in a second.

Yeah, buy it outright if you can. You are going to send a LOT of money down the drain in interest on a mortgage.

Even with money in the bank, it is unlikely that you'd be able to finance a house without a full-time job.

I would buy the house outright and not bother with PMI's or interest.

pinkpipe said:

Even with money in the bank, it is unlikely that you'd be able to finance a house without a full-time job.

I would buy the house outright and not bother with PMI's or interest.

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That's a fact, the banks are real skittish right now. My daughter put in a bid on a 70k house in Chicago today (the house sold for 300k three years ago). She has 44k but low income. She couldn't get a mortgage even with a guarantee from her mother who has sizable real estate assets in Bellingham, Wa but no liquid cash. She turned to the Daddy Dearest Mortgage Company and is working on the contractual details now.

youd have a hard time getting financing without income. and if youre a grad student i assume you already have a few loans...you dont want to pay interest on something as major as a home if you dont have to. pay cash if you have it. a debt-free life is a beautiful thing. at least it looks that way from down here...

how much interest does your savings account have?

I've been in Commercial Real estate for 15 years and own my own brokerage in SoCal. My wife owns her own Financial Planning company as well.

We both feel that having a home paid for is a good thing. There are many arguments as to why you shouldn't, but there is a tremendous piece of mind that comes with having your home free and clear.

However, here are some reasons why you should't pay your house off.

My wealthy friends all have fairly significant debt on their homes. Primarily because those who may want to sue you (this day may come), the first thing they do is look to see how much equity you have in your home. Those with debt are probably less likely to get sued.

One thing I would seriously consider...and this is totally up to you and your pallet for investing and risk. I would consider getting a mortgage on this house and buy an apartment building with your cash. You can easily buy a $600k apartment building and put 40% down while keeping some cash in the bank.

In California a decent return on an apartment building is about 5% of your down payment...but you also pay litteraly no taxes on those returns due to a deduction called "depreciation." $250k down with 5% returns is $12,500 a year. In other states returns on apartments is well over 7 and 8%. The apartment market (5+ units) is down right now. You can get a really nice return with minimal risk and have a chance at some significant gains in value over the next 5-10 years.

Real estate is a thirsty animal though. It's also a bit of a bitch. But if there ever were a time to buy a nice building now is that time.

Or buy a 10-15 unit apartment building and live in a unit. I'm not into self managing real estate but it would be a really solid learning experience for you.

so DubsFan, what do you know about all this reo inventory thats supposed to flood the market here in cali? im lookin to pick up a couple foreclosed fixer-uppers, but my agent is telling me to wait a few months. any thoughts?

I'm not the king of residential...but in Ca prices are moving up. Write offers now and buy now. More inventory is not going to bring prices down. As we head into spring and summer it's only going to get harder. As I'm sure you've noticed anything priced right has 10-15 offers on it. People have been saying there is a new wave of inventory for over a year now. Everyone talks about unemployment affecting residential real estate...I look at employment. 90% of this country still has a job. We went from 95 to 90% employment. There are still too many people and not enough real estate.

Buy now. Waiting is not going to lower prices. That train has left the building.

thats along the same lines as i was thinking. the banks may have quite a bit of property on hand, but theyre not gonna give it away. thanks for your input, DubsFan, ill definitely take it under advice.

if you have 300,000 you should allready know the answer to that if you dont youll soon have 00,000$$ EARNING intrest is better than PAYING intrest

I would not pay off a 135K house if I had 300K in the bank....

I would take the 300K and put it in a savings account yielding 5%. That would give you 15K a year in interest.

I would then finance the 135K house at 5% interest rate. That would leave a mortgage of roughly $1,000. a month depending on taxes and insurance.

I would then use the 15K I am making off of my savings account to pay my mortgage.

You will end up with a house that will be paid off by your investment. So in the end you would end up with a house that is paid for and your 300K still in the bank untouched.

GrowRoom said:

I would not pay off a 135K house if I had 300K in the bank....

I would take the 300K and put it in a savings account yielding 5%. That would give you 15K a year in interest.

I would then finance the 135K house at 5% interest rate. That would leave a mortgage of roughly $1,000. a month depending on taxes and insurance.

I would then use the 15K I am making off of my savings account to pay my mortgage.

You will end up with a house that will be paid off by your investment. So in the end you would end up with a house that is paid for and your 300K still in the bank untouched.

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Just what I was about to suggest. Great minds think alike

GrowRoom said:

I would not pay off a 135K house if I had 300K in the bank....

I would take the 300K and put it in a savings account yielding 5%. That would give you 15K a year in interest.

I would then finance the 135K house at 5% interest rate. That would leave a mortgage of roughly $1,000. a month depending on taxes and insurance.

I would then use the 15K I am making off of my savings account to pay my mortgage.

You will end up with a house that will be paid off by your investment. So in the end you would end up with a house that is paid for and your 300K still in the bank untouched.

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you would run out of funds... interest is taxable my friend.... especially at that level of interest.

Making mortgage payments on time will really help your credit and increase your borrowing power. I bought my place free and clear and then took out a line of credit against said property to have emergency cash and help my credit score.

Depending on where you live you can earn up to 10% cash on cash (cash flow after all expenses) if you buy an apartment building. The beauty of real estate is depreciation. Depreciation is a deduction that takes into account the physical life of the structure/building. If you buy a 600k apartment building I think the economic life of the building is 30 years (per the IRS). If the "improvements" or the structure (not the land) is worth 500k you would see a deduction of 15k a year. 500k divided by 30 years is 15k a year...that is your annual deduction on the income you earn.

So, you put 150k down on that 600k building. You earn 10% cash flow annually, that's 15k a year of earnings. Because of the depreciation deduction your earnings are offset. The 15k you earned is earned with zero tax.

A 600k apartment in todays market was worth about 1mil back in 2007. You have great upside potential, good income potential and you should pay zero income tax. Of course real estate is a thirsty beast. There are risks. But a good broker knows how to calculate expenses and cash flow can be projected pretty easily.

Real estate is not the perfect investment. But for some it's a great way to shelter income and possibly earn some appreciation. Even with zero apprecation the income alone can be very nice.

the only reason to own is for a write off. Lease or Rent you can move anytime. Your house is not an investment as much a tool or cornerstone of a financial Portfolio. But how liquid is a house? Ive owned a lot of houses. Made some good money on them, And now I am stuck in a place cause it is to nice to rent and cannot sell it for a decent price. A home is how the govt taxes you, they lean on all homeowners and feed off us any time there is money needed for this bond or that. However they are a necessary thing as someone always needs a place to live--whether or not it is affordable or not?