Anyone buy a house knowing you'll take a loss?

[lanyac]

We bought this house because we knew we'd be living here at least five years. Our goal is to not lose less than we would have renting (about $48k). Does anyone feel the same, or did you all buy your houses assuming you'd make a profit?

[aurora]

I'm not quite sure what you mean. I get that you would have spent $48k renting for 5 years, but when you consider your housing loss are you including interest/taxes/insurance, or the full PITI, or comparing buy price to expected sale price (which of course is hard to predict over 5 years)?

To answer your question, though: we neither expected to lose money or to make a profit, but rather to have a place to live that we did not think would go down in value.

[rosiedozie]

I don't assume that we'll make a profit, but I'm not sure why you'd buy knowing that you'll lose money.

[noodleoo]

No, I would never buy a house knowing I'd need to sell it in a timeframe where it could be a loss. It is just too risky, you can't predict and the loss could be way more than rent. We bought our house knowing we plan to be here a long time and hoping to eventually make a profit. If not, it could be our forever home. If I knew we HAD to move in 5 years, I probably would have just rented.

[Deleted]

We didn't plan on taking a loss, but we also didn't buy our house with making a profit after x amount of time. We wanted a place to which we could do anything (DH is a big gardener, and especially wanted space for that.)

Our house did go down in value so we're stuck here for a few years.

[Deleted]

Initially, yes. We are building so we are paying a premium to be the only people that have ever lived in our house and all of our upgrades are rolled into the mortgage. The next buyers won't be the ones that hand picked the counter tops, floors, colors, etc. so they will pay less. We plan to stay in this home at least 10 years and maybe forever so I am not too concerned. I figure that within 5 years (or less if the market is favorable) we will have broken even.

[lanyac]

Its highly unlikely we will sell it with a $48k loss. That would mean we would sell it for $71k. We live in a really LCOL area, but I don't think the market will go THAT low.

[zacksbride]

Sept 8, 2012 10:36:19 GMT -5 lanyac said:

Its highly unlikely we will sell it with a $48k loss. That would mean we would sell it for $71k. We live in a really LCOL area, but I don't think the market will go THAT low.

But if that 48k number is purely sale price numbers, you also need to factor in realtor fees etc which can be 5-6% of sale price. We sold our house for what was owed on the mortgage, but ended up writing a check for an additional 25k at closing to cover closing costs and realtor fees. Plus we had put about 30k of improvements into the house. We sold due to job change, but when we bought we thought we'd be in the house 10 years, turned out it was only 3 Would not have bought if I knew that ahead of time.

[lolc]

Sept 8, 2012 10:12:24 GMT -5 aurora said:

I'm not quite sure what you mean. I get that you would have spent $48k renting for 5 years, but when you consider your housing loss are you including interest/taxes/insurance, or the full PITI, or comparing buy price to expected sale price (which of course is hard to predict over 5 years)?

To answer your question, though: we neither expected to lose money or to make a profit, but rather to have a place to live that we did not think would go down in value.

This exactly.

[lanyac]

Our monthly PITI is less than rent in the area, by about $200. I just felt like all that rent money was going to waste when we could be putting it into a house.

My husband is not unemployed, and was not when we bought the house. However, the mortgage is completely based off my income.

[Deleted]

Well, the main problem I can see with doing something like this is that even if you would have paid 48k in rent, you're not actually paying 48k off on your house in that time so if you sell your house at a 48k loss you're going to have to bring money to the table.

To clarify, if you took out a 100k loan (for simplicity, I know that's unrealistically cheap!) and paid 1k a month for 4 years you've paid 48k but you probably still owe at least 90k since for the first few years of the loan you're mostly paying down interest. If your house loses even 20k in value you're going to have to pay 10k to get the loan paid off when you sell. That doesn't make much sense IMO.

We bought our house expecting/hoping to break even. We've lived there 3 years and I can't tell if it's gained a bit of value or held steady - there is a house identical to ours for sale right now for 10k over what we paid. We're planning to stay another 2-4 years and I hope to break even or even come out a few grand ahead after paying selling fees. Not sure if that's realistic or not - as long as we don't have to bring money to the table to sell our house, we'll be ok with it.

[zacksbride]

Sept 8, 2012 11:48:38 GMT -5 @buckybells said:

Well, the main problem I can see with doing something like this is that even if you would have paid 48k in rent, you're not actually paying 48k off on your house in that time so if you sell your house at a 48k loss you're going to have to bring money to the table.

To clarify, if you took out a 100k loan (for simplicity, I know that's unrealistically cheap!) and paid 1k a month for 4 years you've paid 48k but you probably still owe at least 90k since for the first few years of the loan you're mostly paying down interest. If your house loses even 20k in value you're going to have to pay 10k to get the loan paid off when you sell. That doesn't make much sense IMO.

i agree with this as well. our PITI on our previous house was about what we would have paid in rent. In 3 years, we paid about 75K in PITI, but the amount our mortgage decreased was NO WHERE near 75K. Plus we had renovations, repairs, other home expenses during that time. And in the end when we had to sell sooner than anticipated, we had to bring a good amount to the table to cover fees.

I think looking it at it with the mindset "i would have paid this much in rent, why throw that money away on rent when i could put it into a house" is an oversimplified way to look at home ownership. Right now, i "throw away" a good amount of money on renting our house. I could buy a house where we moved to for the same or less PITI, however after our last experience i will never buy a house unless i know we will be in it for over 5 years.

[lanyac]

Sept 8, 2012 11:48:38 GMT -5 @buckybells said:

To clarify, if you took out a 100k loan (for simplicity, I know that's unrealistically cheap!)

Our loan was $96k, lol.

I understand what you all are saying. Do you think that we will end up taking a loss with this?

[EmilieMadison]

Sept 8, 2012 12:49:37 GMT -5 lanyac said:

Sept 8, 2012 11:48:38 GMT -5 @buckybells said:

To clarify, if you took out a 100k loan (for simplicity, I know that's unrealistically cheap!)

Our loan was $96k, lol.

I understand what you all are saying. Do you think that we will end up taking a loss with this?

It all depends. How much do you owe? How much could you sell it for? How much would you then pay in realtor fees/commission? How much have you spent on the house that didnt go towards the mortgage?

I think people (in general) grossly underestimate the value of renting in a real estate market that's down. Spending $800/month for 5 years for rent, vs spending $800/month for a mortgage for 5 years will both equal out to $48K. But $48K in mortgage payments doesnt factor in taxes, down payment, real estate transaction fees, commissions, and the cost of upkeep you've paid etc, and that's if you break even on the sale. Plenty of people have to sell for less than they owe. Many people would actually come out ahead if the are renting.

[sillygoosegirl]

We're ex

[M]

Sept 8, 2012 12:49:37 GMT -5 lanyac said:

Sept 8, 2012 11:48:38 GMT -5 @buckybells said:

To clarify, if you took out a 100k loan (for simplicity, I know that's unrealistically cheap!)

Our loan was $96k, lol.

I understand what you all are saying. Do you think that we will end up taking a loss with this?

What's your interest rate? Term? Monthly payment? I assume rent was $800?

[lanyac]

30 year, 3.99%, $639. 20% down, $96K mortgage.

To clarify, my goal was not to buy a house and take a loss. Nor do I think it will happen. I was just curious if anyone bought a house and said "If I lose 50k on this, it's alright."

[steph96]

I don't think that people buy a house expecting to make a profit. I also think it wouldn't be wise to buy a house if you expect to lose money.

A large DP would hopefully keep the average person from having to bring money to the table when they sell.

[M]

My calculator is saying your payment should be more like $460. Does that $639 include insurance payments, property tax, or something else?

[lanyac]

Yes, the $639 is PITI... minus mortgage insurance. So PIT. Lol.

[M]

Oh ok.

I think I did the math right here (been a while haha). In 60 months you will have paid approximately $38k saving you $10k in rent. $9k of that $38k went towards your principal. So you saved $19k (minus insurance) off the top by buying.

So in 60 months if insurance, repairs, any costs related to selling your house, and the decrease in value doesn't add up to more than $19k then you'll come out ahead.

[lanyac]

Sept 8, 2012 14:13:39 GMT -5 M said:

Oh ok.

I think I did the math right here (been a while haha). In 60 months you will have paid approximately $38k saving you $10k in rent. $9k of that $38k went towards your principal. So you saved $19k (minus insurance) off the top by buying.

So in 60 months if insurance, repairs, any costs related to selling your house, and the decrease in value doesn't add up to more than $19k then you'll come out ahead.

Thank you! We've never really laid it out like that.

[thumper55]

we sold our first condo after 2 years for about 80k profit
we then sold our next home after 2 years for a HUGE profit
we bought our 3rd home planning to make a profit on it later - it's not happening. We closed on the house just before the real estate crash

I very much regret committing to the 3rd home since the economy has tanked. Its a big financial commitment from us, and we won't see a return on it.