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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Paul Viapiano who wrote (5444)	9/19/2002 10:03:44 PM
From: GraceZ	Respond to of 306849

out here in LA, CA...things are different here and always have been. Because all is madness around you doesn't mean you have to do as they do. The only time I suggest that people vary from that formula is when one or both is likely to happen: 1. your income is likely to rise over the life of the mortgage term (you are young) without a significant rise in expenses (as in having children or rising medical expenses) 2. the house is likely to experience price appreciation above the rate in inflation, as in the house was under priced for some reason that is easily corrected. Most people in their low to mid thirties haven't peaked out income-wise so as much a burden as that mortgage is when you first get it, it seems smaller as the years go on. If someone is 45-55 without a significant amount of money in investments, I'd say they shouldn't count on their income rising. I don't care what field you are in, people peak out between 45-55. Don't forget you have to factor in those housing expenses that have an inflation component, like taxes and insurance, repairs. As long as I've owned houses these things have never gotten cheaper. Also a new house always brings on a whole vista of wants, like new curtains, carpet, furniture, landscaping, entertaining, etc. This is especially true if you are moving up to a bigger or nicer house in a better neighborhood. The first house I bought thinking I'd live there five years, I bought at a short term peak. The house didn't appreciate a dime in the ten plus years I owned it. The only thing that saved my ass was that the mortgage was affordable the day we bought it and both mine and my husband's income rose significantly while we lived there. Because we lived below our means we were able to save and invest 25-30% of our income in the time we lived there. That enabled us to buy a house we really wanted to spend the rest of our lives in. The second house was bought at a cyclical low in a rising area with a significant down payment and shorter term mortgage. But, I still followed the one third net rule and its a good thing I did because now I'm now in a situation where I'm switching out of one occupation while I'm gearing up for another, taking a significant hit on my income. Something I see my husband having to do in the next ten years as well. Chit happens, you have to plan for it. You can't just go in there max out your income and HOPE nothing bad will happen to you. When you are young you can do that because its likely your income will rise or parents will bail you out, as you get older you can't always grow your way out of dumb money mistakes. I've helped a lot of friends and clients repair their money situation. I can tell you just about every sad tale I've ever had to listen to started with a debt. A lot of times it was either a car loan or a house loan that was up to the limit of what the person could afford if everything went well. People want to live in a nice house, in a safe neighborhood. No one can fault them for that desire, but sometimes the greatest affordable luxury is living within your means and the peace it gives you when you lay down at night. I've never met anyone who slept well with a big debt hanging over their heads (except maybe a developer, but then they seem to think paying it back is optional).