- April 7, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Financial Dilemma: To Buy or Not to Buy a House
As a 27-year-old single individual living in Chicago with a $100k income, you currently have $10k in savings and $25k in your pre-tax 401k. The struggle you are facing is whether to focus on maximizing your 401k contributions or saving for a condo or house. Your lack of interest in homeownership stems from the fact that you do not foresee leaving the city in the next 5-10 years. You are skeptical about the potential appreciation of condos, coupled with concerns about escalating property taxes and HOA fees. This makes you question the value of building equity compared to the flexibility of renting.
### The Role of AI Legalese Decoder in Your Financial Decision-Making Process
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### Long-Term Financial Planning Considerations
While contemplating whether to rent or buy, you are wondering whether it is sensible to prioritize maximizing your 401k contributions over building a down payment for a property. Currently, you are contributing 10% to your 401k, with a 5% match. If you choose not to save for a down payment, you could potentially maximize your 401k contributions, utilizing all your disposable income.
Considering your long-term financial goals and the uncertain real estate market conditions, it is crucial to assess the benefits of homeownership versus renting. By consulting with financial advisors and utilizing resources like the AI Legalese Decoder, you can weigh the pros and cons of each option and make a well-informed decision that aligns with your financial objectives.
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****** just grabbed a
If you contribute to a Roth IRA, everything you put in can be withdrawn to buy a house/condi and $10k of earnings, without penalty (the latter after at least 5 years).
So if you get up to your match in a trad 401(k) and put the rest in a Roth IRA, you will have some flexibility.
I feel like this is not the prevailing wisdom on this sub but it’s what I did and I have no regrets.
5 years on 400k =
30 year mortgage interest 7% with 20% down~ 100,000
Taxes (8000 yr) ~ 40,000
Home owners (2000 yr) ~ 10,000
Hoa (total guess prob low 300) ~ 18,000
Closing costs ~ 7000
Increase in principle value ~ 15,000
Over 5 years ( not including repairs) 160,000 in sunk cost. So if you think property will go up 160 you’d break even.
Rent $2500 for 5 years = 150,000
Both cost about the same, if it was me I’d rent.
I cut my 401k investments while I saved for a down payment. I think I cut out like 10k/yr. Still made sure I got my employee matching.
I’m in a similar boat. I see no upside to buying a condo in Chicago right now. Renting is cheaper, easier, and gives more flexibility. When I saved my target amount, I just bought a rental elsewhere. I’m nominally saving for a condo now, but really, I’m just putting away money just in case something interesting comes up. I’m only buying if my landlord won’t renew.
Plan to buy a home only if you want to control your future housing circumstances, like staying in a certain school district for a young family, not as an investment or to build wealth. People who bought a home in 1995 and sold in 2005 are happy with their decision; those who bought in 2000 and had to sell in 2010 are not.
Also, don’t save only in retirement accounts. Some long-term savings should go into tax-efficient equity index funds in taxable accounts. Use a buy-and-hold strategy to mitigate taxes. Having some portion of your savings in regular brokerage accounts provides flexibility in future financial decisions.
I’m not known for logical decisions and I do best when it’s guy reaction so I’d buy.
If you’re already at $100k and only 27, you can afford five years of “minimum 401k while maxing employer match” while saving.
If you buy at 7 or 8% mortgage and rates drop again, **refinance** but when you buy, *that monthly cost is fixed for 30 years* while the market and economy do who knows what.
With housing costs set and fixed, max out the 401k.
The people clutching their pearls over 8% didn’t live through 17% and it shows.
Plus, at 27, the odds you’ll live there for 30+ years are low. Meanwhile you’re building equity. Ten years from purchase, when you move, you’ll be able to upgrade housing while still maxing retirement.
Buying a house shouldn’t be priority #1.
You’re a mid 20s something, you need to focus on income. Your goal is $150k and then $200k ranges.
Being mobile and not tied down with property is key. When you feel comfortable in the career trajectory then you can probs buy.
Don’t buy a condo, unless it’s super cheap and you can fix it up for equity. Condos are getting murdered due to insurance premiums and property taxes going up. Your HOA fees will eat any equity you want to build.
Focus on the income, then you can consider buying a home.
You’re not crazy. It’s better to rent than own financially.
This means perfect sense.
This will probably get down voted to hell, but for me, a real physical asset like a house is more important than a hypothetical paper return 40 years from now. You have to believe that the US and broader world is stable enough that 40 years from now that the money is still gonna be there and actually worth what you expect it to be worth. That would have been easy enough in 1980, but now? And that’s assuming they don’t push the retirement age up. They can’t even put together a package to build housing, but they can and will move the retirement age up.
I have so little faith in the US govt to even identify problems correctly, let alone put together policies that could reasonably improve outcomes, that, were I in my 20s, I don’t think I would have an investment horizon that includes retirement. I question whether 20 years is too far out.
So, with that as my personal starting point, a house has value beyond its monetary value. Even if the dollar value of the house decreases, its real value remains unchanged. Therefore, that is my personal focus. Own the house completely, then buy another. We are in the middle of an AI bubble and a market that is being supported by 7 trillion dollar per year governmental outlays. Putting all your eggs in the stock market…idk. That’s not diversity and it’s wealth you may never benefit from.
Moreover, owning a house protects you from the worst parts of unemployment. You might, and almost certainly will, live through a major economic downturn. Should that happen, your monthly expenditures would be significantly lower if you owned a house than if you were still renting, and your emergency fund would last a lot longer. You get neither of those benefits by maxing a 401k.
Do both. You are far away from a downpayment anyways.
10k savings, whatcha been up to? Should have more
No you’re not crazy at all. This sounds fine to me. I would just suggest that if you’re going to trade, at least put part of it into something less risky. I think its fine to trade aggressively with a small portion but so many people blow up their accounts. So try to strike a balance. If you blow up your account, you might have been better off buying real estate.
Why 1 or the other? You could do a healthy mix of both
I’d say work within your priorities. Both options benefit from buying earlier, but you don’t know enough about your housing needs to pick the right house. Go all in on investing in your retirement accounts, it’ll be a huge benefit to get a head start. Look into saving for a house once you have a list of requirements for a house you’d like to live in for 10 years (just a rough guideline). If you suddenly need house money, you can pull back on retirement because you’ll have funded early.
I’m in the same boat. What I’ve decided was to max my 401k contribution until my 401k reaches $100k, then I’ll decrease my contributions quite a bit to start saving for a house.
I live in Chicago. Wait for the market to dump and then buy is always the best strategy. Eventually rent will become more appealing than condos in the short term leading to a Buyers market. If you can find a 2 BR for less than $250K in a safe neighborhood with cheap HOA….go all in.