M, 26, best practices: land inheritance, should I sell, hold, do a new build or buy an existing house?

[lillo9546]

rent cost the same as mortgage nowadays.
but i don't understand your math:

i would buy a 250k house, then do renovations for 100k.
so total buy price it's 350k.
20% for mortgage it's 70k, so now I have 150k-70k=80k cash.
Mortgage yearly cost it's 10k.
The house has two room for rental vacation which makes yearly net income of 15k.
I still can invest that 80k for 4 to 6% a year, which means 4k+ a year in case I need.
I still have a job which Can make me 15k net a year.
So balance it's 30k-10k=20k which will still need to pay for COL.

Isn't this sounding good?


The renting option would be like the same, but with a higher income yes.
But how do you manage to make a family with renting and relocating to new places every 3 to 5 years to increase your "career" market value?

[loutfard]

rent cost the same as mortgage nowadays.
but i don't understand your math:

My main reservation is not about mathematics, but about flexibility and serendipity.

i would buy a 250k house, then do renovations for 100k.
so total buy price it's 350k.
20% for mortgage it's 70k, so now I have 150k-70k=80k cash.
Mortgage yearly cost it's 10k.

- You're forgetting closing cost and inevitable renovation budget overruns.
- What income are you going to borrow against?
- What bank will lend you 280k€ against a 1400€/month salary? If I would be deciding on the bank's side, your loan wouldn't get approved.
- Lending against discounted future rental income is typically possible, but at higher interest rates
- Available loan to value rates for rentals are typically lower for (partial) rentals.

The house has two room for rental vacation which makes yearly net income of 15k.

How much time would you have to invest to get to that point?

But how do you manage to make a family with renting and relocating to new places every 3 to 5 years to increase your "career" market value?

You don't _have_ to relocate every 3 to 5 years. You have the option to.

[lillo9546]

Maybe it's in my subconscious psychology, but my first security has always been to have a home for myself, whether it was small or big it wouldn't have mattered.

This would have made me independent.
With all its limitations, on a psychological level, it would be a strong impact for me to have a house of my own to repay with just 5 or 10 years of mortgage.

On the other hand, going to buy a house, like my friends do, with a 40 year mortgage, or going to rent, I see it as incredibly stressful. I couldn't sustain that life.
The house, on the other hand, would give me security. Do I lose my job? I always have a home. I can leave again.

I know my thinking is limited but this was taught to me in my family.

What is the right perspective?

[guitarplayer]

I am saddened you don’t consider my suggestion you move to Lugano.

[jacob]

What is the right perspective?

I don't think there's a right way, but there are in my opinion a bunch of wrong ways.

Ownership is just a matter of degree. Even if you "own" the home, the government still wants you to pay taxes which is a form of rent (real estate taxes = royal estate rent). Since you're now responsible for all the upkeep and maintenance, owning just means replacing your flesh&blood landlord with a brick&pipes landlord. In some sense, your home owns you just as much as you own your home. It's a lot easier to separate from a home you own than one you live in. This can be a feature or a bug depending on perspective. You seem very much tied down to your family/area. If so tying yourself to a home might not be a bad idea. OTOH, if you're more tied to professional career, but anchored this way will likely put a significant crimp on what you can do. This is why people don't tend to settle for ownership until they're well-established in their career.

Ahh.. the wrong ways:
First and foremost thinking of your home as an investment is a terrible idea. (Ditto: buying as much house as you can afford.) Your home is first and foremost a place you live. Pay accordingly. If you want to be wealthy, don't spend more than 10-15% of your income on housing upkeep; and don't have more than 10-15% of your NW tied up in your bricks. Most people as well as standard advice is double those numbers---and this is why the middleclass will never be wealthy.
Second, not think about your home's asset value in terms of how much someone else would be willing to pay for it in the future. There's a certain tendency in hippie circles to build "alternative housing" only to see it end up as a money sink that nobody wants to pay anything or much for should you ever want to sell. Dreams be damned. Best leave that to other people.

[guitarplayer]

Inverting the last paragraph, for people with an inclination for such hippie housing, might be a good idea to put themselves on the receiving end and purchasing such above for next to nothing from a disgruntled soon to be ex owner, though do check for upkeep costs.

In terms or ‘renting’, this is one way of looking at woofing, workaway, helpexchange. I have done quite a bit of these and romantic as they sound, looking back at the experiences, it is not inconceivable that some of the hosts locked themselves in such a money/time sink situations and actually needed a helper more than vice-versa. This way of thinking does not fit the romantic framework of volunteering around the world but if one can see things for what they are, this is better than projecting other more pleasant though less fitting ways of thinking,

[7Wannabe5]

it is not inconceivable that some of the hosts locked themselves in such a money/time sink situations and actually needed a helper more than vice-versa

This is always a matter of perspective, skill, goals and cash flow. For example, I could theoretically make use of a full-time general-purpose personal assistant willing to work for $2/hour even in my current semi-ERE, tiny garret apartment lifestyle, whereas I'm not certain I could "profit" from hiring a full-time general-purpose personal assistant for the going wage of more than $12/hr.

On the other hand, I'm not certain that the lack of imagination towards resource waste of the general public that defines resale value on the real estate market constitutes a good enough reason to do or not do anything. Current estimates are that over 60% of consumer spending in affluent realms is towards status/group signaling. Humans have very real psychological needs related to housing, beyond those related to status/group signaling, and very often the problems with alternative housing are related to how these psychological needs are not taken into account. For example, as "A Pattern Language" makes clear, humans like to have specific spaces designated (boundaried) to the relationships/roles they have with themselves and others along a gradient of intimacy. It's okay to just have your own bunk in a bunkhouse for a couple months while you are Workawaying in your 20s, but you don't want to be living on a bunk with your spouse and child in your 30s. If you are still energetic in your post-family formation empty-nest years, living in a "just" a bunk may again become pyschologically acceptable... or not. The resistance of the housing and mortgage market to accommodate the increasing number of years most adults find themselves not living in nuclear family formation constitutes a huge waste and an opportunity.

Humans who are primarily interested in Achievement (Wealth is a form of Achievement) are likely to avoid both the lowest risk (dull, low pay-off)and the highest risk opportunities. Since the highest risk opportunities are well associated with Creativity, there is a fairly clear trade-off between Achievement and Creativity. Of course, "housing" may not be the realm in which one might prefer to develop "creativity" although it is one of the largest expenses, so it seems like creativity in the realm of frugality would almost certainly require some degree of creativity in the realm of housing. On the other hand, Achievement in the realm of net worth would be better served by a more conventional approach inclusive of focus on increasing earned income.

[jacob]

Humans who are primarily interested in Achievement (Wealth is a form of Achievement) are likely to avoid both the lowest risk (dull, low pay-off)and the highest risk opportunities. Since the highest risk opportunities are well associated with Creativity, there is a fairly clear trade-off between Achievement and Creativity. Of course, "housing" may not be the realm in which one might prefer to develop "creativity" although it is one of the largest expenses, so it seems like creativity in the realm of frugality would almost certainly require some degree of creativity in the realm of housing. On the other hand, Achievement in the realm of net worth would be better served by a more conventional approach inclusive of focus on increasing earned income.

Perhaps I'm talking from a perspective of getting old. I was certainly more open to creative solutions in my younger (less wiser?!) days. I think the problem is when creativity becomes a value for its own sake (*cough* artists *cough*). As in "must do something different to avoid being ordinary instead of picking something that has been demonstrated to work". In such a case, risk no longer means expanding the outcome range from [higher rewards and higher loses] but making the average outcome becomes negative (E[creativity]<0). IOW, creativity begins to come at a cost. The housing "adventure" becomes a money pit.

Much of one's approach to this comes down to whether a home is considered an asset, a liability, an expense (rent, taxes, insurance,...), or an investment(*). Personally, I think of our home as an asset but not an investment.

(*) Either speculative as in hoping to sell it for more than was paid or income as in renting it out.

Inverting the last paragraph, for people with an inclination for such hippie housing, might be a good idea to put themselves on the receiving end and purchasing such above for next to nothing from a disgruntled soon to be ex owner, though do check for upkeep costs.

And the problem here is that "creative housing" is often uniquely personal. One artist's vision does not fit another's, and this contributes to why creative houses are hard to sell. We can basically run a "proof by contradiction" argument on this: "If this non-standard house was a good idea, there would be a lot more of them." Of course, this does not preclude herd behavior where a genuinely bad idea becomes popular (McMansions come to mind).

Thus my boring advice when it comes to real estate: Always think of the next owner whenever you buy/modify something. Houses tend to live longer than humans and so you're not the last one to occupy it.

[7Wannabe5]

Much of one's approach to this comes down to whether a home is considered an asset, a liability, an expense (rent, taxes, insurance,...), or an investment(*). Personally, I think of our home as an asset but not an investment.

Many or most humans would also imbue the word "home" with emotional, psychological and relationship connotations. As in "home" is the place where I feel safe. "Home" is the place where I can be myself. "Home" is where the heart is. They would use the word "house" or the term "real estate" in relationship to the range of considerations you offer above. As Jin+Guice has described in his series of journal posts, vaguely mixing up these psychological, emotional, and relationship needs with real estate purchase (or any purchase) can greatly add to the expense, but that's not to say they should be discounted.

Other humans view their homes as a site for production or a canvas for self-expression or relationship development. It is virtually impossible to subtract the concept of shelter from our societal or even species-level manifestation of pair-bonding.

Whenever you saw a young couple that had recently moved in together, you knew there was something substantial going on with them. All that love, all that fucking, all that flipping through catalogues on a treasure hunt for linens and furniture and small appliances that had been designed expressly with them in mind. The prices had to be slightly out of range, and yet, upon reflection, not! We can do it the couple said to each other. We can make it work. The prices spoke of the big step this would be, buying this table or chair or immersion blender; but unlike in the past, when men would leave home decoration and assembly entirely to women, putting together a life was now a joint activity. It could happen in bed, even, where you might study a website or a catalogue together- the new, engrossing literature of the first flush of adulthood- warm body to warm body, in a festival of imagining. To commit to actual things composed of wood and metal and fabric was to make real the vagueness and unreality of love.

- "The Female Persuasion" - Meg Wolitzer.

[jacob]

Many or most humans would also imbue the word "home" with emotional, psychological and relationship connotations. As in "home" is the place where I feel safe. "Home" is the place where I can be myself. "Home" is where the heart is. They would use the word "house" or the term "real estate" in relationship to the range of considerations you offer above. As Jin+Guice has described in his series of journal posts, vaguely mixing up these psychological, emotional, and relationship needs with real estate purchase (or any purchase) can greatly add to the expense, but that's not to say they should be discounted.

Other humans view their homes as a site for production or a canvas for self-expression or relationship development. It is virtually impossible to subtract the concept of shelter from our societal or even species-level manifestation of pair-bonding.

The same comments could be made about clothes or cars or basically any kind of self-expression through buying stuff. Yeah, this can quickly get expensive. It would be worthwhile for the OP to consider where their priorities are. I read somewhere---dunno if it's correct---that Italians would rather spend money on fancy clothes than fancy homes because a home is just a place where they sleep; and going out to cafes is where they get seen and actually participate in life. The American sentiment is more that a home is a roof for all your stuff. The only one's to ever see your home are your neighbors whereas coworkers and friends often have no idea. Same with cars. For some it's an expense that just transports them around. Others see their car as part of their identity. Ditto clothing.

I agree that people have other priorities than economic ones. What's important is being aware enough to make a deliberate choice. This avoids whining about "struggling" financially because the credit card bill from Bed, Bath & Beyond is too damn high. Choices must be made.

OP still has a trilemma to resolve: {low income, fancy home, financial independence}. Pick any two, but only two.

[loutfard]

First and foremost thinking of your home as an investment is a terrible idea. (Ditto: buying as much house as you can afford.) Your home is first and foremost a place you live. Pay accordingly.
[...]
Second, not think about your home's asset value in terms of how much someone else would be willing to pay for it in the future.

OP, do please read the above nuggets of wisdom. I'd recommend you to take your time to deeply understand this, chew on it for at least six months, and only then make any real estate purchase.

P.S. I stepped into both of these classical middle class traps to an extent. Limited negative consequences luckily. The experience will help inform my/our future housing decisions.

[lillo9546]

Really interesting talks.

In my current perspective, I suffer from the pressures of having a house "all to myself", because at my age, I am still living with my parents.

Having a home for me means:
- Be independent
- Being able to invite friends or people to dinner
- Being able to have parties, then
- Be able to make/raise a family in an indipendent place
- Have a place to focus on education, or any activity I want to.
- Have emotional stability, as I would be able to repay the mortgage in <10 years.
- Therefore being able to concentrate on education and work (opening my own business or being able to work as a manager in a large local company)
- Many other thigs.

Really, without a place to stay I feel lost.
The problem with renting would be the continuous pressure I would have, even in 10 years of having to pay an installment that changes depending on consumer prices and the cost of living.
The house, once the mortgage is finished, is paid for.
It's obvious that there are taxes and maintenance costs, but it's clear that they are also paid in a rented house (hidden by the landlord in your monthly price)...

I understand your different perspectives, and thank you for quoting those interesting words.
I am not as described in those posts, in fact I am frugal and minimal, and in fact my house would have been very small..

Furthermore, it's true, I give an emotional value to the house, because that's how we are in Italy

ps: I don't want a luxury house