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  #391 (permalink)  
Old 07-01-2009, 07:30 PM
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If you are in bay area, it is unlikely you will not find an opportunity in bay area or better one outside of bay area. So flexibility if out of question for those people.

But overall ca now sucks for high income taxes and gas prices and distances you need to drive and not to forget the traffic jams.

Sucks!

True, US needs immigration, but more than skilled they need in numbers, hence the CIR. Its better we support CIR and get something for ourselves instead of nothing.
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  #392 (permalink)  
Old 07-01-2009, 07:44 PM
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Fittan,

See my post below where I have shown the tax savings that homeownership would provide. The assumption is that the loan is for $370,000 and interest in 5%.

Quote:
Originally Posted by fittan View Post
Puddonhead,
Although you do "lose" the standard deduction (i think it is $10,500 for married filing jointly), a chunk of it is the state income state. I live in Mass and paid about $6K to state income tax. You get to "add" this $6k to your itemized deduction. Assuming that one pays $20K in interest and property tax, the "net loss" is only $4500. Throw in things like charity, church donation, vehicle excise tax, the "net loss" would be less than $4500.

My point is one would save more than the $50 you stated when going from standard to itemized.

Fittan
Quote:
Originally Posted by sledge_hammer View Post
Rent Vs. Own

Let's say a renter and me both make $150,000 household income. We are both initially in the 28% tax bracket (married, joint). Tax table at http://www.irs.gov/pub/irs-pdf/i1040tt.pdf (page 92)

Me:
I itemize my deductions and subtract $30,000 (mortgage interest+property tax+state tax + car tax) from $150,000 = $120,000. I immediately fall into the 25% bracket and pay tax on $120K only. Per tax table my tax is - $22,687

Renter:
Uses standard deduction of $11,400 (2009) and subtracts it from $150,000 to have a taxable income of $138,600. He is still in the 28% bracket. Per tax table his tax is - $27,384

So the renter is paying $27,384 - $22,687 = $4,697 more in taxes per year!

or $391 more per month!

Bottmon Line
Me: I pay $2,550 on housing cost minus $391 (IRS insentive for homeownership) = $2,159
Renter pays - $2,000



And people who don't realize this are giving me reds instead of appreciatin the fact that I've done all the math to help them save money! Some courtesy!

Below are the comments from some genius that claims tax benifits of homeownership is overrated!

Last edited by sledge_hammer; 07-01-2009 at 07:46 PM.
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  #393 (permalink)  
Old 07-01-2009, 08:09 PM
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Quote:
Originally Posted by sledge_hammer View Post
Fittan,

See my post below where I have shown the tax savings that homeownership would provide. The assumption is that the loan is for $370,000 and interest in 5%.
Well - a house that sells for $370k but rents for 21k/year is a good investment. I'd buy one with that kind of a rent-to-buy ratio in a heartbeat if I can find it and afford it. :-)

Why?

A house cost about 6% a year in interest + tax + maintenance, after it is adjusted for tax break. So if the rent is 6% or higher per year than the price - it is a good investment.

6% of 370k = 22k.

So in your case - it makes a lot of sense to buy instead of renting. :-)

If the rental ratio is indeed what you are saying they are in Fairfax county - then it would appear to me that it is very highly unusual (probably almost unique) in the whole of US when we are still inside the biggest bubble in the rent-to-buy ratio. My anecdotal experience seems to suggest it is almost impossible to find such places.
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  #394 (permalink)  
Old 07-01-2009, 08:17 PM
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1. Follow this link to lookup rentals in zip code 20171. Look at Townhomes that are no older than 15 years, 3BR, good condition (a must).
Rental Properties, including vacation home rentals, at LongandFoster.com

2. Look up the same types of homes on this website - FranklyMLS.com Virginia & DC MLS via Keyword Search & Wiki. Homes for Sale
Look at similar homes that are both for sale and under contract. One thing you DON't want to do is look at any foreclosures/short sales.


3. Use a site like zillow to see if those same types of homes were SOLD for more or less the same price late last year or early this year.

Keep in mind that even if about 60%-80% of cases you find that price-to-rent ratio are affordable, then it is safe to suggest that Fairfax has been relatively steady. For a home of $370,000 and a conserative rent estiamte of $1,800, the PR ratio = 17.12 which is well within the norm (16-18). If you take rent to be $2,000 then PR = 15 which is AWESOME! Consider the fact that $370,000 is the price after a bubble burst!

EDIT:
http://homes.longandfoster.com/Real-...rndon,VA-20171 $2,000

http://homes.longandfoster.com/Real-...rndon,VA-20171 $1,895

http://homes.longandfoster.com/Real-...rndon,VA-20171 $1,875

Quote:
Originally Posted by puddonhead View Post
Well - a house that sells for $370k but rents for 21k/year is a good investment. I'd buy one with that kind of a rent-to-buy ratio in a heartbeat if I can find it and afford it. :-)

Why?

A house cost about 6% a year in interest + tax + maintenance, after it is adjusted for tax break. So if the rent is 6% or higher per year than the price - it is a good investment.

6% of 370k = 22k.

So in your case - it makes a lot of sense to buy instead of renting. :-)

If the rental ratio is indeed what you are saying they are in Fairfax county - then it would appear to me that it is very highly unusual (probably almost unique) in the whole of US when we are still inside the biggest bubble in the rent-to-buy ratio. My anecdotal experience seems to suggest it is almost impossible to find such places.

Last edited by sledge_hammer; 07-01-2009 at 09:21 PM.
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  #395 (permalink)  
Old 07-01-2009, 09:27 PM
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I agree..No matter which way you calculate, except for some bubble-prone areas, it would make sense to buy a house if you are planning to live in it for more than 5 years. One of the biggest mistake one could make with home-buying is treating it as a primary investment option. At best, it could supplement other investment options.

By the way, I put a contract on new house (closing early next year).However, I live in TX where housing hasn't shown any sign of slowing down.


Quote:
Originally Posted by sledge_hammer View Post
1. Follow this link to lookup rentals in zip code 20171. Look at Townhomes that are no older than 15 years, 3BR, good condition (a must).
Rental Properties, including vacation home rentals, at LongandFoster.com

2. Look up the same types of homes on this website - FranklyMLS.com Virginia & DC MLS via Keyword Search & Wiki. Homes for Sale
Look at similar homes that are both for sale and under contract. One thing you DON't want to do is look at any foreclosures/short sales.


3. Use a site like zillow to see if those same types of homes were SOLD for more or less the same price late last year or early this year.

Keep in mind that even if about 60%-80% of cases you find that price-to-rent ratio are affordable, then it is safe to suggest that Fairfax has been relatively steady.

EDIT:
View Property Details- 2619 TARLETON CORNER DR, Herndon, VA 20171 $2,000

View Property Details- 2503 BRONZE STONE PL, Herndon, VA 20171 $1,895

View Property Details- 13620 VENTURI LN, Herndon, VA 20171 $1,875
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  #396 (permalink)  
Old 07-01-2009, 09:57 PM
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Quote:
Originally Posted by puddonhead View Post

6% of 370k = 22k.

So in your case - it makes a lot of sense to buy instead of renting. :-)

This is not true at least in NJ


For 370k house--->

Mortgage -> 370k*0.05 -> 1900
Property Tax---> 7500/12 -> 650
Association Fee -> 250
Insurance 50
mostly old house
so maintenance on average 300

3150
Tax advantage -400
Owenership cost 2750

But I can rent same property for 1850 without worrying about downside or job opportunities so i went for rental

my yearly saving is 12k, I do not think house will appreciate 5% next two two years . i will use my two years savings as a down payment once dust settles.

Last edited by 21stIcon; 07-01-2009 at 10:01 PM.
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  #397 (permalink)  
Old 07-01-2009, 10:29 PM
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Your PR ratio fits well within the norm. Your prolems areas are tax, HOA and age of the homes. The rest matches the THs here.

Your taxes are two times as much as us.
Your HOA fee/month is 4 times as much as mine.
THs here are on a avg 10 years old.

Are you sure your HOA fee is that much? You must be confusing with that of a condo? If it really is $200 a month, what does it cover? Roof replacement, all exteriors?

Quote:
Originally Posted by 21stIcon View Post
This is not true at least in NJ


For 370k house--->

Mortgage -> 370k*0.05 -> 1900
Property Tax---> 7500/12 -> 650
Association Fee -> 250
Insurance 50
mostly old house
so maintenance on average 300

3150
Tax advantage -400
Owenership cost 2750

But I can rent same property for 1850 without worrying about downside or job opportunities so i went for rental

my yearly saving is 12k, I do not think house will appreciate 5% next two two years . i will use my two years savings as a down payment once dust settles.

Last edited by sledge_hammer; 07-01-2009 at 10:32 PM.
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  #398 (permalink)  
Old 07-01-2009, 10:55 PM
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here is a good article ..both for and against buying a house and it sums up what everyone has been debating on this thread. definitely worth reading as it comes up with good examples

3 bad reasons to buy a home - MSN Money

since the article is so good ..I am pasting some of the key points ..at the end of the article, she talks about 3 key tests ..unfortunately for those on temporary status / visa ..we fail in the very first test due to USCIS / GC delays.
------------------------------------------------------------------
After dropping more than 20% in the 1990s, for example, Los Angeles home prices took almost 10 years to regain their peak, says real estate expert John Karevoll, an analyst with DataQuick Information Systems. Anyone who lived here during that time knows people who were upside down -- owing a bigger mortgage than the home could be sold for. Thousands of people simply walked away from houses they couldn't sell, trashing their credit ratings in the process. Lenders slashed the prices on foreclosed homes to get rid of their burgeoning inventories, which further drove down property values. It was an ugly cycle that, once started, was hard to stop.

Even when prices are perking along normally, though, your home may benefit your bottom line less than you think. Home-price appreciation figures don't take into account the considerable amounts homeowners shell out along the way. The Wall Street Journal once estimated a typical homeowner over 30 years would pay nearly four times the house's purchase price in maintenance, repairs and improvements.
A home is primarily a place to live. Its value as an investment is secondary and certainly is no replacement for a well-diversified portfolio of stocks and bonds.

Normally, renting is cheaper than owning. But in some cities, soaring real estate prices have made renting so much cheaper that it's getting really tough to make the case for becoming a homeowner.

You're not really throwing money away when you send a check to your landlord, anyway. You're exchanging it for a place to live. You're also getting flexibility and freedom -- things you sacrifice when you buy a home.

When you're a renter, it's the landlord, not you, who is generally responsible for maintenance, repairs and the toilet that blows up in the middle of the night. If the neighborhood should start to slide, or you get or lose a job, you can up and move, often with just a few weeks' notice.


Homeowners, however, are often stuck with rising taxes and maintenance costs, as well as recalcitrant neighbors.

Moving is never fun, but moving when you own a home is an expensive, time-consuming process. Finding a buyer can take months in all but the hottest markets, and you should figure selling costs will eat up about 10% of your home's value, once you add agent commissions and moving expenses. On a $250,000 home sale, that's like piling up $25,000 in cash and setting fire to it -- that much of your equity is gone for good.

Buying a house just for the mortgage break would be like giving somebody a buck just to get 35 cents or less in return.

That's because your write-off is limited to your tax bracket.

Most homeowners should plan to spend at least 1% of their home's purchase price each year on maintenance and repairs, says finance expert Eric Tyson -- and more if they plan to hire someone else to do all the work. Tyson, a co-author of "Home Buying for Dummies," recommends setting aside some money each month in an emergency fund. You may not spend the whole amount every year, but sooner or later a big expense will come along -- a new furnace or roof, for instance -- that will consume several years' worth of savings.

Last edited by hiralal; 07-01-2009 at 11:15 PM.
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  #399 (permalink)  
Old 07-02-2009, 10:01 PM
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Quote:
Originally Posted by hiralal View Post
here is a good article ..both for and against buying a house and it sums up what everyone has been debating on this thread. definitely worth reading as it comes up with good examples

3 bad reasons to buy a home - MSN Money

since the article is so good ..I am pasting some of the key points ..at the end of the article, she talks about 3 key tests ..unfortunately for those on temporary status / visa ..we fail in the very first test due to USCIS / GC delays.
------------------------------------------------------------------
After dropping more than 20% in the 1990s, for example, Los Angeles home prices took almost 10 years to regain their peak, says real estate expert John Karevoll, an analyst with DataQuick Information Systems. Anyone who lived here during that time knows people who were upside down -- owing a bigger mortgage than the home could be sold for. Thousands of people simply walked away from houses they couldn't sell, trashing their credit ratings in the process. Lenders slashed the prices on foreclosed homes to get rid of their burgeoning inventories, which further drove down property values. It was an ugly cycle that, once started, was hard to stop.

Even when prices are perking along normally, though, your home may benefit your bottom line less than you think. Home-price appreciation figures don't take into account the considerable amounts homeowners shell out along the way. The Wall Street Journal once estimated a typical homeowner over 30 years would pay nearly four times the house's purchase price in maintenance, repairs and improvements.
A home is primarily a place to live. Its value as an investment is secondary and certainly is no replacement for a well-diversified portfolio of stocks and bonds.

Normally, renting is cheaper than owning. But in some cities, soaring real estate prices have made renting so much cheaper that it's getting really tough to make the case for becoming a homeowner.

You're not really throwing money away when you send a check to your landlord, anyway. You're exchanging it for a place to live. You're also getting flexibility and freedom -- things you sacrifice when you buy a home.

When you're a renter, it's the landlord, not you, who is generally responsible for maintenance, repairs and the toilet that blows up in the middle of the night. If the neighborhood should start to slide, or you get or lose a job, you can up and move, often with just a few weeks' notice.


Homeowners, however, are often stuck with rising taxes and maintenance costs, as well as recalcitrant neighbors.

Moving is never fun, but moving when you own a home is an expensive, time-consuming process. Finding a buyer can take months in all but the hottest markets, and you should figure selling costs will eat up about 10% of your home's value, once you add agent commissions and moving expenses. On a $250,000 home sale, that's like piling up $25,000 in cash and setting fire to it -- that much of your equity is gone for good.

Buying a house just for the mortgage break would be like giving somebody a buck just to get 35 cents or less in return.

That's because your write-off is limited to your tax bracket.

Most homeowners should plan to spend at least 1% of their home's purchase price each year on maintenance and repairs, says finance expert Eric Tyson -- and more if they plan to hire someone else to do all the work. Tyson, a co-author of "Home Buying for Dummies," recommends setting aside some money each month in an emergency fund. You may not spend the whole amount every year, but sooner or later a big expense will come along -- a new furnace or roof, for instance -- that will consume several years' worth of savings.
Very good post.
Infact Realtors have brain washed people over time.

I have stopped listening to realtors and shun any realtor who bullshits me.

I have a realtor to whom I have asked to find a house for me. I have given him specifications along with my price range. And I have told him not to give any bull shit and push me into a deal.

Here is the logic I have heard from realtors:

Year 2004: It is the best time to buy as houses are appreciating fast.
Year 2005: It is the best time to buy or you will be priced out of the market.
Year 2006: It is the best time to buy as inventories are rising and there are more houses to chose from.
Year 2007: It is the best time to buy since prices are coming down and wont stay down for long.
Year 2008: It is the best time to buy as Prices have come down.
Year 2009: It is the best time to buy as HOUSING HAS BOTTOMED!

They always have a reason why it is the best time to buy a house.
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  #400 (permalink)  
Old 07-03-2009, 01:17 PM
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Default 40% down from peak

say if a detached home in bay-area a mile from commute train was sold for 600K in 2005 4th Quoter. We know thats the housing bubble peak time.

40% down from 600K => 600 - 240 => 360K
45% down from 600K => 600 - 270 => 330K

I will buy if i find a home within this range. becoz if you wait for 50% or 60% down from peak then the affordability becomes possible for most of us and that will drive the price UP another 10%. So i would take 40% to 45% down as bottom and take the risk and stay ahead of market reaching bottom and stay ahead of competition. Also this will give me to choose from inventory and buy in buyers market.

again, i am talking about the home in bay-area and a mile from commute train and freeway.

Last edited by dreamworld; 07-03-2009 at 01:51 PM.
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  #401 (permalink)  
Old 07-07-2009, 10:43 AM
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good article especially if you like probability and statistics (or speculate) ..in other words the home prices will be lower in half of the cities through march 2011 !!!
--------------------------------------------------------------
U.S. Home Prices to Fall Through 2011€™s First Quarter, PMI Says - Bloomberg.com

July 7 (Bloomberg) -- Home prices may fall in more than half of the largest U.S. cities through the first quarter of 2011 as unemployment and foreclosures rise, mortgage insurer PMI Group Inc. said.

Thirty of the 50 biggest metropolitan areas have at least a 75 percent chance of lower prices through March 31, 2011, Walnut Creek, California-based PMI said in a report today. The decline is likely to spread to “all regions of the nation” from California, Florida, Nevada and Arizona, the states most affected by the housing slump, PMI said.

“The housing market has been hit by a demand shock of high unemployment and a supply shock of distressed foreclosure sales,” LaVaughn Henry, senior economist at PMI, the fourth- largest U.S. mortgage insurer, said in an interview.

Unemployment rose to 9.5 percent in June, bringing the total number of jobs lost to 6.5 million since December 2007, the Labor Department said July 2. Foreclosure filings may hit a record 1.8 million in the first half of the year as more jobless homeowners default on their loans, real estate data service RealtyTrac Inc. said last month.

Home prices in 20 major U.S. metropolitan areas dropped 18.1 percent in April from a year earlier, following an 18.7 decrease in March, according to the S&P/Case-Shiller index. Prices are forecast to fall 41.7 percent from their peak, Deutsche Bank AG analysts led by Karen Weaver wrote in a June 15 report.

Florida Drops Predicted

“Affordability is no longer the driving issue in the housing market, and we believe prices still have a ways to fall in many areas before home prices reach their trough,” the Deutsche Bank analysts wrote.
The 15 areas with the highest probability of lower prices in 2011 each have a 99 percent chance, PMI said. They include Miami, Fort Lauderdale, West Palm Beach, Orlando, Tampa and Jacksonville in Florida; Riverside, Los Angeles, Santa Ana, Sacramento and San Diego in California; Las Vegas; Phoenix; Providence, Rhode Island; and Detroit.

Edison and Newark in New Jersey have a 97 percent and 96 percent chance, respectively, and Nassau, New York, has a 92 percent chance. New York City showed an 88 percent chance of lower prices, according to PMI.

“The New York area has gone from a moderate level to an elevated level because of the big hit from the financial crisis,” Henry said.

Washington showed a 92 percent chance of lower prices; Portland, Oregon, and Baltimore each have 90 percent; Atlanta has 81 percent; Boston has an 80 percent chance; San Jose, California has 78 percent; and Minneapolis has a 75 percent chance, PMI said.

The areas with the least chance of lower prices, each with less than a 6 percent probability, include Cleveland; Pittsburgh; Columbus, Ohio; San Antonio; Houston; Dallas, and Fort Worth, Texas, according to PMI.

The insurer compiles its “market risk” index from income, interest-rate, home-price and affordability data going back to the early 1980s

Last edited by hiralal; 07-07-2009 at 10:48 AM.
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  #402 (permalink)  
Old 07-07-2009, 02:37 PM
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Default The updated tipping point theorem

Quote:
Originally Posted by puddonhead View Post
If you buy - and take a mortgate - you end up losing (the same way you "lose" your rent)
1. Interest you pay
2. Property taxes you will pay forever.
3. Maintenance you will pay forever.

On the other hand - if you rent and,
A. IF you pay less in rent than #1 + #2 + #3,
B. IF you invest the remainder plus your mortgage principal amount in some other investment vehicle with superior investment returns than real estate.
.... Then you will come out ahead renting.

The tipping point is whether your rent equals interest + property taxes + maintenance. Based on which side is higher - either renting or buying could be good for you. I don't think there is a clear cut answer. This does not take into account the flexibility associated with renting - which is important for non-GC holders. If you assign a non-zero dollar value of $X with that flexibility, then your rent needs to be interest + tax + maintanance + $X to get to the tipping point. On the other hand, if you are not forced to save (in the form of mortgage principal payment every month) - you may just spend that money instead of investing that. If you assign a dollar value of $Y with that (probability multiplied by actual dollar value) - then the tipping point is at
$rent = $interest + $tax + $maintenance + $X(dollar value for flexibility) - $Y(dollar value for probability of spending money instead of saving).

Now as soon as you plug in the numbers in this equation - it will give you your tipping point and will tell you whether it is right for you to rent or to buy.

Think about it. It is not as clear cut as you think it is. :-) Based on your earlier posts - you got an absolutely faboulous deal on your house (maybe because of your timing) and the tipping point equation would probably highly favor buying in your case. For many other (specially for those without a GC) - it may not be so clear cut.
Well - thanks for Sledge_hammer for pointing out at least one more factor which should figure in this tipping point theorem. Man - this is getting complex. But then - didn't I tell ya?

The current factors are
1. Interest
2. Property taxes.
3. Maintenance.
4. Opportunity cost for flexibility
5. Savings factor (dollar value for probability of spending money instead of saving)

We need to add two more factors:
6. Inflation favoring net borrowers
7. Dollar value for probability for buying more house than you need.

Let me explain.

Inflation:
Inflation always favors those are net borrowers. If you have a net worth (home equity + cash position + stocks + any other assets - ALL loans) of less than zero - then inflation is your friend, as you are borrowing more costly "money" and paying with "cheaper" money which has a lower Net Present Value. If you have a net worth in the positive - then inflation is your enemy. In case of housing - you will most probably be in the negative territory since your total loan would far outweigh your equity and other assets for a few years.
Its very difficult to attach a dollar value to this factor. A few things that play into it are
A. Risk associated with being a net borrower. Some people have high risk tolerance - in that they are willing to take risks for very little return and some other people demand much higher return. So this is very subjective.
B. You will probably not stay a net borrower forever (unless you have far more serious issues beyond the scope of this discussion). After the first 10/12 years (whatever time it takes for your loan balance to fall below your equity and other asset values) - you will be a networth positive individual as far as your house is concerned. From that time onwards - inflation works against you. Your house prices will probably keep up with inflation. but that same equity tied up in a better investment vehicle would probably give returns exceeding inflation.

Dollar value for probability for buying more house than you need
I currently rent a 2 bedroom apartment. A common psychology I have seen in buyers is to buy a 4 bedroom house because he is buying with future needs. First of all - I cant imagine why a family of 4 will need 4 bedrooms (and I grew up in a huge house with 9 bedrooms myself). Secondly, even if you will need it X number of years in the future - you are paying for cost to carry this house for those X years.
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  #403 (permalink)  
Old 07-07-2009, 03:23 PM
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bajrangbali has a spectacular aura about bajrangbali has a spectacular aura about
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Folks, I am getting into the market with 340K townhome(3BR/2BA). With 5% down, here are the monthly costs:

mortgage: 1800
hoa: 200
prop. tax: 500
pmi: 200

total: 2700

tax benefits: 1400+500 * .25 = ~500
net total: 2200

current rent: 2150

sacrifices: 30mins added to commute in current job

That said, my upfront costs came upto 20K for downpayment, searching travel(gas+tolls).
Got 20K in credit cards to recover that cost in case... you know why
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  #404 (permalink)  
Old 07-07-2009, 03:47 PM
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sujijag will become famous soon enough
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I don't see a reason why you should not buy in US. Assume if you are in rental you pay for three yrs $36k minimum or probably even more based on your locality. If you own a small condo in US and spend a little bit more for mortgage that you would have spent on rental. Also at the worst case if real estate does not appreciate at the end of three years, you can still foreclose losing the same amount or a little bit more than what you would have lost in rental. Thats a worst case anyway. The best part is if it does appreciate you don't loose the money that you would have spent on rental. This is subject to you are able to sell again for the appreciated value or again sell it for the same price you bought. That another worst case option. If you're not getting appreciation when you sold after three years or foreclose. But remember you have advantage of tax credits on mortgage interest and property tax in addition to your equity on principle. At the end it's win win situation, but you will have satisfaction of having home there and carry those memories if you happen to return.

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  #405 (permalink)  
Old 07-07-2009, 03:52 PM
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us_employee is on a distinguished road
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bajrangbali,

can you please mention the city you are buying your condo?

Thanks
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