One Life Stand

This post is answers to some of your questions.

Condo/townhouse vs house - which is better? 

Well there’s no definitive answer.  Only you know what’s best for you.  Price aside, the main difference between attached and detached housing is lifestyle.  Do you want to share common areas (and walls) with your neighbors or do you want your own (separate) piece of land?  Do you dream of planting a garden or do you dread the idea of yardwork?

Neighborhoods how to determine good vs. bad?

One major thing to look at is the school system.  It’s better to buy the worst house in a great school district than the best house in a crappy school district.  If you have children and live in a good school district, you will save money over living in a not so good school district and having to send them to private school.  Also, school district will matter when it comes time to sell.

Also, take a good look at the homes in the area.  Do people keep their homes and yards nice and have pride of ownership or are there broken down cars parked out front?  Drive through the neighborhood during the day as well as at night and on the weekends.  It is fairly quiet most of the time or does it become party central Friday and Saturday with music blaring?

How many houses are for rent or being rented out?  It’s no secrets that owners usually take better care of property and care more about the neighborhood than renters.  I would be leery of a neighborhood with a lot of houses being rented.

New construction vs. older?

There are pros and cons to both.  My first house was new construction and the house we just bought was two year old resale.  With a new house, it’s nice because you get to choose everything - carpet colors, cabinetry, fixtures, etc.  However that also means that you will have to buy a lot of things that don’t always come standard - blinds, bathroom hardware, etc.  You will have to pay for any upgrades upfront.  Also, all new houses will have little glitches or issues that need to be resolved.  The house will settle over the first year or so, so you may notice little cracks or nail pops.  They are not cause for alarm though.

When buying a resale, someone else has already paid to upgrade everything and the house has already settled so you know exactly what you’re getting.  The landscaping has matured and most likely looks better than with new construction.  HOWEVER, you have to live with (or replace) the choices the previous owner made.  In our case, that meant a pink bathroom, a pink bedroom, a purple bedroom, murals painted on the walls…  It’s not all bad though because it also meant the basement was already wired for surround sound and a projector and they left the custom curtains in the two story foyer.

Ideas to pay off mortgages sooner than 30 yrs?

First off, unless you have a high interest rate, you would be better off (financially) investing any extra money because the rate of return will be much higher than the mortgage rate you’re paying.  In simple terms, if you have a 6% mortgage but earn 13% with your investments, it’s better to invest.  That said, a lot of people want to pay off their mortgage early for piece of mind or to improve their cash flow later in life.  There is nothing wrong with either tactic.  You should determine what your goals and priorities are and do what’s best for your situation.  Don’t let anyone tell you that what you’re doing isn’t the best thing to do.  Only you know what’s best for you and makes you comfortable.

If you do want to pay your mortgage off early, there’s the real easy way and there’s the slightly harder way.  The easy way is to simply round up your mortgage payments each month.  Let’s say you financed $100K at 5.875%.  Your payments will be $591.94.  However, if you pay an even $600 every month, you will pay off your mortgage 14 months early and saved yourself $5000 in interest payments.  And I’m sure you won’t even miss that extra $8/month.  The slightly harder way would be to throw the majority of your extra money at the mortgage each month.  However, I wouldn’t suggest that unless you have a healthy e-fund and are maxing out your 401k and IRA.  That’s just my preference though.  Once again, you have to do what suits you.

Duplexes vs. just sticking with the basics for a first time buyer.

That all depends on whether or not you want to be a landlord and whether or not you can afford the whole mortgage on your own if you don’t have a renter.  Can you deal with collecting rent every month and having people knocking on your door at all hours because the sink is backed up?  Do you have the stomach to evict someone if necessary?  Can you afford to pay the whole mortgage indefinitely in the event you don’t have a renter?  If the answer to all those questions is no, you should probably NOT get a duplex.

How long does it take to build equity in thinking of upgrading houses later on?

How it takes to build equity depends on your interest rate as well as if you make extra payments.  I would say don’t go into your first house with your mind on your next house.  First, if you’re not going to stay in a house for at least three years, you don’t need to buy.  You will most likely lose money on the deal (unless you’re fortunate enough to have bought in DC/CA/NY) a few years ago.  Yes, lots of people have made lots of money in the last few years but the bubble is about to burst.  Also, bear in mind that you LOSE a big chunk of your equity when you sell because of realtor fees.  Let’s say you’re selling that $100K house for $110K two years later.  Guess what, you don’t walk away with $10K profit.  You have to pay the realtors which is generally 6%.  So you write a check for $6K and walk away with $4K plus any equity you had.  If you factor in all the home improvements you made as well as the property tax you’ve had to pay, you might have broken even.  From a purely financial point of view, you would have been better off renting.

Hopefully, these answers are helpful to you.  I’m headed to the airport in a few hours so I may post as much for the rest of the week but as usual, ask any questions in the comments section.