Wizened FIE board gurus, if you could go back in time to when you were fresh out of college, and, for hypothetical kicks, you had no debt, a decent job (reputable firm, mid 30s salary, 401k plan options), decent savings (20-25k), and found you had no problem saving 15-20% of your after-tax-and-insurance monthly paycheck, what would you do that you didn't (or did!) do, or what advice did you wish that you had received, back when you were young and foolish and chasing girls and far-off dreams? (Not that I'm fresh out of college and have a decent job and savings and am generally clueless about investing, just saying...) ((Also, please keep up all the good talk on this forum, I've been lurking in it for three days and have already learned a ton. You all will be properly repped for your efforts.))
Honestly, I would have bought a condo about 2 years ago. But, hindsight's 20-20, and I really thought I would be better off waiting. My thought process was logical at the time, and I could probably defend it today (without the 50% runup in housing in the Arlington-Alexandria area as a factor).
Footer, good point. I rent in Arlington within walking distance of the metro (for commuting purposes), which is not cheap, but is certainly doable with a roommate and not living in a swank place. But when I look at what co-workers are paying for condos around the area where I live, I'm mystified at how they afford it. Having done some preliminary research in regard to what to do when my lease is up this fall, it looks like buying around Arlington-Alexandria is out of my range (and many people who are making less than median in Northern Virginia, which is well into the 80s, is it not?), unless I buy a really run-down place or live in a pretty undesirable neighborhood. I've lived in the area all my life, and my parents are stunned at what their neighbors are selling for. I wonder how much more prices can go up before potential buyers throw up their arms and say it's just too much for them to afford.
You consider $20-25k decent savings?! From everything I've read, it's rare, very very rare for some schlub in his mid twenties to have that much in just savings. Besides, it's doing no good being there. Move that money into property ownership. Personally, and this is neither her nor there, I would have help off having kids. We decided early on in our marriage to start having children (23 for the first). I was still in the AF barely making any money. My wife had no career to speak of. But we still went for it. Don't get me wrong. I love my kids more that oxygen. But I can totally see the benefits in waiting until we would have been more financially secure. That will probably the strangest response you get.
I think I stated this already, but I would have not spent my money on beer, travel, more beer, and hoes.
But you will be happy when your kids are at least beginning to move out of the house when you're in your 40s. You're peak earning years will coincide with a time of lowered child care expenses, with any luck. I'm presuming you've had all the kids you're going to have by now, of course. Sachin
The things I did buy that were needed... a little more invested to get a lot more quality. Too many things that needed to be bought multiple times because I skimped on price the first time.
I can assure you that I am without a doubt a schlub in his early-to-mid twenties. As for the savings, I was lucky -- I reffed a ton of soccer as a kid and in doing so made money doing something I liked, my parents worked some magic (saved when I was growing up, my grandparents helped out some, pre-paid tuition -- it also helped that I went to a state school) and I had no student loans, and I worked both during school and summers during college. I don't spend much money, so I have a chunk saved up, I just am not sure what to do with it. Unfortunately I live just outside of DC, where property prices are insane. For those who know the area, would 20-25k even be a down payment on a 1 bedroom condo near Landmark? Very good advice.
Depends on what you earn. 22,500 as a 5% down FHA, you're looking at a $450,000 place. Here in San Diego (where things aren't too cheap, either), that gets you a decent 1BR in an upscale urban neighborhood or a cheap 2BR in an OK neighborhood. Or, if you're into such things, you could probably move into your metro area's world-famous sprawl and get a townhouse. Being young, I'd imagine you'd rather go for the former, though. A quick peek at realtor.com will give you a good ball-park for your options. Oh, and that "Oh my god, what if the bubble bursts?!" thing? That line of thought is also known as "market timing". Don't do it. Real property is just that: it's real. No one ('cept the bank or eminent domain) can ever take it from you. It's tangeable and has real value. So, if you buy now and the housing apocalypse happens next week, you've still got a place to live at a price you can afford. And then just sit on it... it'll go back up. Unlike my shares of (insert company here... )
Should be. Try this site for pricing info. If you go to the individual communities, they list recent sales for each condo community. http://www.arlingtoncondo.com/maps/arlingtoncondomap2.htm
I believe we are done having any more. And you are correct about being in my early 40's when they hopefully have moved on. In fact, my initial thought was specifically geared towards having them young so that when I am in my 40's, I'm not worried about shuttling them all over town from one activity to the next. However, what's most likely to happen is that right in my peak earning years, I am going to need to help them get started. Things like college expenses, first home purchases, weddings, etc. are all real possibilities during those years of my life. Hopefully I've planned well and I can help them without denting my financial goals. Still, part of me still wishes we would have waited. I don't think that my girls are being denied anything. Quite the contrary. They've already experienced more in their very short lives then I ever did growing up. I just think I could have had more resources to better help them when they do get older. Also, we're the youngest parents out of all of their friends. We tend to get strange looks from people because we look so young, even relative to our actual age. The wives are the worse, though. They really give the nasty staredown to my wife. It's not my fault she's still young, pretty, and skinny compared to those deperate housewives. Anyway, if you do decide to have kids at a very young age, be prepared to say no to yourself for a long time. Also be prepared to own a smaller home because it's highly unlikely that you'll be able to afford both children and that big home in the 'burbs. Finally, there is one major upside to having children young: energy. I have no problem keeping up with them. And there is an economy to youthfulness. I'm not going to be that doddering old codger when my girls are teenagers. And I still be young enough to whip the sh!t out of their dumbass boyfriends if the time comes.
Reminds me of that old George Best quote: "I spent a lot of my money on booze, birds and fast cars... The rest I just squandered."
I agree with one caveat. I would not recommend financing with any type of ARM. This way you have a legitimately fixed (and budgetable) mortgage payment for the future.
I'd go a step further... with interest rates this low get a 15 year loan rather than a 30. My mulligan… not buying my primary residence sooner. You run an amortization schedule and freak. I had the chance to buy a house @ 128k in the late 80's, great location and I knew was a great deal, but I baulked. I could probably sell the thing for 400k today. Had the same opportunity with another house I was renting. 175k in the prestigious Buckhead area of Atlanta... I hate to think what that house is worth today.
That's great if you can afford it. We won't be able to if we stay in the DC area. Although I think with rates this low, you'd want a longer loan rather than a shorter one.
Prices in DC are absurd so I can commiserate. But if you live somewhere where prices are reasonable why would you want to extend the length of your loan? My philosophy is live debt free.
I ran some numbers on one of the handy mortgage calculators, and I don't see how any 20-something can afford a 15-year mortgage without the benefit of a trust fund or a recently deceased and very generous wealthy great aunt. However, one thing I'm not figuring in because I'm generally clueless about it and my accountant roommate is still sleeping off tax season, is how much the tax write off helps. If I understand correctly, one can write off the interest paid on a mortgage, and your first few years of mortgage payments are mostly interest. Am I way off here? How much does such a reduction bring down the tax bill, and therefore de facto raise income?
I wasn't disagreeing. It's just not an option everywhere, and with a low effective rate like you'd be paying now, I think financial planners would suggest a longer loan. (But the no debt part is great.)
There are a ton of variables, but a VERY rough rule of thumb is that you can get back ~1/3 of the interest you claim on schedule A. Of course this will differ for every situtation and income level but you can use that as a rough guide. One note, and not that you were doing this, but I would not recommend to carry a mortgage for the tax benefits. It is a very common mistake people make. If you have the ability to pay off your mortgage, do it. If you feel you can make more in the market instead of paying off your debt service than do it. But never make the decision to keep the mortgage based on the tax benefits alone. Never let the tax tail wag the dog. If its a side benefit of your decision great, but don't let it be the driving force. Andy
You can always do what we did. We hedged our bet. We got a 30 year loan and then just paid it off as fast as we could. We had the safety net of the lower monthly payments in case something bad happened but still benefitted from paying it off early. Just make sure you get a loan with a no-prepayment penalty (I am not even sure these exist any more though) Andy
Now, only subprime loans or loans from bad lenders have them. Reputable lenders no longer have prepayment penalties. Sachin
OK, I misunderstood the statement. He meant there aren't generally pre-payment penalties anymore. What I read was that there weren't generally loans without prepayment penalties anymore. Color me stupid.