Buy House or Sailboat?

[senormechanico]

The answer is simple! Houses don't float!

Steve B.

[neelie]

30 years ago, I wish I had read and understood the following Mark Twain quote .

“Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.”

I've spent the intervening years banging on a calculator trying to figure out the exact "right" moment to stop work. I got pretty close and then a bunch of %$#ing bankers simply gambled away half of what I and a lot of other people had saved.

That pretty much defines my wasted years.

So the short answer is... screw the house, buy the boat and live.. I wish I had.

[Arch Stanton]

Originally Posted by imagine2frolic

QUIT renting as quick as possible. It's money being thrown away.

I strongly question the wisdom that renting is throwing money away.

If you are a good investor, renting can be a really good situation.

Everyone was yelling at me "buy a home! buy a home!" a few years back, and I ended up going for it. I got a good deal on a great house, but I still question the notion that buying is always better.

I have owned my home for three years, six months. In that time, I've paid $46,200 in mortgage payments. My principle has decreased less than $7000. In that time I've also spent at least $4000 (and hundreds of hours) maintaining the property. Going to need a new roof soon, there goes another $5000. And if I ever want to sell it, that will cost me 3-5%.

I could have rented a similar house in the same neighborhood for $800 / month (total $33,600), and spent NO money or time maintaining the property, and been free to leave whenever I want.

It's a difference of over $20,000 vs. buying a house, in just three years. That money could be wisely invested and build and edge toward $100,000 over ten years.

Of course I'm hoping the house will appreciate somewhat, and I plan to pay it off within 10 years anyway. But I just wanted to make the point that renting can be a smart option in the right circumstances if done smartly.

[imagine2frolic]

And you did report the interest in your taxes? There had to be a positive there? You could not have had that positive renting. Buying 3 1/2 years ago was at the peak. Unless you bought the house in foreclosure, or one heck of deal. I would say timing could've been better?

While making payments why not throw in extra money towards the principal? My suggestion was if he wanted some security, or he wanted to sail. At 30yrs old for 10 years he can make a lot off the house, and nothing off the boat.

He needs to figure out what his priority is, and set a plan. Yes, some people do get sucked in, but not all. Many can form a plan, and work through it. That's why I gave a couple of ideas.......i2f

[Arch Stanton]

My point was just that renting has a definite set of benefits and, like buying a house, can be part a financially sound plan.

[Maren]

Originally Posted by SteveMH

Owning one's home in my humble opinion is highly over rated and this is coming from someone who in one capacity or another has worked in the real estate field all of my adult life (presently a remodeling contractor). The only distinct advantage of owning one's home is the tax advantage. With the upheaval in our economy, banking, real estate and federal deficit this may change. We are one of the few countries in the world that have a tax deduction for interest charges on our residence. This may change.

And yet, according to the census bureau, the average net worth of renter across the US is about 5k$ vs 130k$ for homeowners. It’s not likely that all that is from a tax benefit.

Now, the skeptic will respond with things like “when are the numbers from?” Recent but let’s say it’s only 100k$, that is still a significant difference. It also happens to be the easier question. The tough question – one that you and your wife, kiteboarder, need to answer – is what is important to you? Do you go down the path most folks in the US do? Do you go the romantic, often impoverished, unsecure but free route? Or do you try to get a bit of both? There is no right or wrong, but you only get one shot. You two may as well plan what you want to do with your family's life, as the time is going to pass anyway.

Originally Posted by SteveMH

As to living aboard with children, it takes courage, endurance and just a little insanity.

Agreed. And good on those that choose to.

[Guard Bum]

Good fiscal sense and owning a boat are not always compatible, but they don't have to be mutually exclusive. As a general rule, buy the things that grow in equity (property, homes, etc...) and rent everything else. I know this can't always be done (hard to rent a boat), that's why it is a general rule.

Every individual case is unique, I think the bottom line is to review all the facts and do what you think is best for you and your family. Best of luck.

[TaoJones]

Originally Posted by Maren

. . . according to the census bureau, the average net worth of renter across the US is about 5k$ vs 130k$ for homeowners. It’s not likely that all that is from a tax benefit. <snip>

No, the tax deduction for mortgage interest is not the source of the greater net worth, but owning a home vs. renting isn't necessarily the reason for the difference, either. Rather, it's the opposite, in my view.

My guess is that the correct interpretation of the discrepancy is that those who have a higher net worth also have higher paying jobs, higher credit scores, more disposable income and/or savings, more education and much more opportunity, which generally accompanies the above, and that those materially blessed are more inclined to home ownership. It would be my guess, as well, that those who are fortunate enough to have all that, also come from backgrounds that place a higher value on material success and enjoy the support of a more extensive network of family and friends who are similarly motivated.

Until the debacle of the sub-prime and alt-a mortgage fiasco, it took most of the list above to even get into a starter home, and those who couldn't qualify were forced to remain in the renter pool. The unbelievable experiment which allowed anyone who wanted a mortgage to have one has, not surprisingly, gone completely awry. And while it allowed renters to join the ranks of homeowners, it can hardly be considered an unqualified (pun intended) success.

TaoJones

[SkiprJohn]

Aloha,
You certainly are getting lots of advice over the whole spectrum. I'll just add that now is the time to buy real estate. It is a buyer's market. Of course, its also time to buy boats. You'll appreciate much more with the real estate in about 10 years and if you choose you can sell the real estate and buy a really big expensive shiny boat. If you buy a mediocre larger liveaboard boat now it will be a mediocre larger liveaboard boat 10 years from now that will have taken much more $ in maintenance and slip fees and will not have appreciated as much.
So, in my opinion, buy the real estate and get a small trailerable that you store at the house (check subdivision CC&Rs to make certain it is permissable) or join a club that has boats to use. Get lots of sailing experience on other people's boats and then in 10 years see if the cruising life is for you.
Good luck in whatever direction you choose.
I don't believe the Newport is a trailerable? I'd pick a Catalina 27 over the Newport.
Kind regards,
JohnL

[Aussiesuede]

During my 20's I use to counsel my friends to look at home ownership not as an investment, but rather as forced savings. I was lucky enough to have a dad that drilled into my head early on that it was in my best interest to buy a home as EARLY in life as possible - no matter how painful it might seem at the time. I purchased at 22 in California, and missed out on a few nights at the bars with my buddies since I simply did not have the disposable income at the time. At age 24, I took a job that saw me traveling all over hell and back - and found myself spending less than 40 days a year in my own bed. Selling the house seemed to make a lot of sense, but thankfully my dad talked me out of it and got me to rent it out instead. By the time I was in my late 20's, I could see the wisdom and had started to try to get all my friends who were still renting to buy. The one thing that seemed to get most of em to finally take the plunge and buy was when they recognised that while we were all living pretty much the same lifestyle, I had this rather significant chunk of change that I could unload at anytime, for any purpose - and that they did not have this potential chunk of change. The amount of choices that gave me was pretty obvious to all. I paid off that first mortgage through accelerated payments by age 32. I was technically homeless at that point since the house I owned was a full time rental, and I didn't even bother renting an apartment since 8 months a year was spent in hotels on the company dime, and 3 of the other 4 months were being spent in a hotel vacationing on my dime. For about 4 years, that remaining month a year was spent on the sofas of friends in cities spread far and wide. The big joke use to be "Where do you live?" to which I never had an acceptable response.

By 35, I'd sold that original house in California for a tidy profit, used the proceeds to purchase 4 more rental properties in other states near universities, and was still technically homeless. Then the real estate market went totally crazy, property values soared to insane levels, I flipped two of the rental properties and purchased 4 more in university environments and purchased a boat to live on - for cash.

The point being, all of these choices became available to me because of the original home purchase that was basically looked at as a savings account at the time. $1000/month over 10 years is $120,000. I could have cared less if I never made a penny from appreciation over that period of time. At age 22, I could see that having something to sell that would put that much cash in my hands at one time was in my best interest since the thought of saving it on my own otherwise seemed remote at best. For that reason alone, I'd always suggest that one would be better of purchasing. Don't even think about the potential asset appreciation. Just look at that as potential icing on the cake. The real benefit is the forced savings, and the attendant choices which come with being able to put your hands on a significant chunk of change all at one time. Renting simply isnt very likely to allow that for most since the propensity is to both spend, and live a lifestyle, based on the cash on hand. Sure some are naturally more disciplined, but the majority of us would just eventually spend excess cash on hand - thus the value of the forced savings that home ownership represents.

Now at age 41, living on my boat, and having quit my job about a year ago - I'm the happiest unemployed homeless person I know! Now most of my friends are trying to figure out how to join me in the ranks of the homeless as well!! LOL And after all this time, when someone asks where I live - I still happily volunteer that "I'm Homeless without a permanent address". Always gets a good snicker from my friends that are present...lol So Kiteboarder, don't look at it as an either or equation. Purchase a home and look at it as a savings account. Rent it out and let someone else pay off that mortgage for ya, move aboard a modest boat you can afford now and enjoy being a "homeless" houseowner that lives aboard. I can't reccommend it highly enough!

[Maren]

Originally Posted by TaoJones

... but owning a home vs. renting isn't necessarily the reason for the difference, either. Rather, it's the opposite, in my view... those who have a higher net worth also have higher paying jobs, higher credit scores, more disposable income and/or savings, more education and much more opportunity, which generally accompanies the above, and that those materially blessed are more inclined to home ownership. It would be my guess, as well, that those who are fortunate enough to have all that, also come from backgrounds that place a higher value on material success and enjoy the support of a more extensive network of family and friends who are similarly motivated.

You bring up two excellent points, Tao. But my point was trying to de-link the causation issue SteveMH brought up:

Owning one's home in my humble opinion is highly over rated .... The only distinct advantage of owning one's home is the tax advantage.

and replace it with the weaker claim. But regardless of whether or not the house is the source of the wealth, the factors you outline are the source of wealth or if it’s a combination both, what needs to be answered by kiteboarder is: Is this what I really want in the first place?

It's like that old saying. The real problem with the rat race is, even if you win, you're still just a rat.

[imagine2frolic]

Aussie,

Great post, and as I typed I am of the mind of go now, but if you want larger things in life, and at the age of 30 you can buy a house. That house will buy you a nice bigger boat, and have money left over.

I did the same thing as you in commercial property. It took 5 years, but I paid cash for Imagine, and my home without working for 4 years.

skipperjohn,

You said that much better than myself. If you can wait that house will appreciate, and the boat won't.....nice post.......i2f

[TaoJones]

Originally Posted by Maren

You bring up two excellent points, Tao. But my point was trying to de-link the causation issue SteveMH brought up . . . <snip>

Ah, yes, I see now and I agree with you.

As to kiteboarder's conundrum, Aussiesuede's advice is excellent, but I would only provide this caution: The "appreciation" evident in real estate in California from, say, 1995 to 2005 or '06 was not what one might typically expect in a normally functioning real estate market. Rather, it was the blow-off phase of a wildly inflated market driven by excessively loose credit, especially the '01-'06 period.

My point is that it is unrealistic to expect a repeat performance any time soon. That doesn't mean that home ownership isn't worth considering - it depends completely on one's circumstances. If your particular circumstances indicate that it is the best choice for you, then do it, but Aussiesuede's advice that it is best to consider appreciation the icing on the cake is spot on. Don't let it be your sole, or even primary, motivation.

Realistically, real estate should only "appreciate" at the same rate that the currency "depreciates," ceteris paribus. There will be factors that pertain to any given locale that skew things, however, such as the fact that California's population was exploding after the second World War and they couldn't build houses fast enough. While other places may have been subject to the vagaries of the marketplace, it never seemed to affect California real estate to a great degree (with the exception of the turndown in the defense industry in the early 90s, and the current chaos in the credit markets).

And while Skipper John is correct that it is currently a buyer's market in real estate, that doesn't mean that it won't become an even more attractive buyer's market going forward. In other words, it may very well be that this isn't the bottom. Not yet. Too much structural damage has been exposed in the credit markets, and without a smoothly functioning credit market, real estate will continue to suffer.

And, even if it is the bottom, don't look for a quick reversal and re-launch of the wild euphoria that got so out of hand in the early years of this decade. When a market corrects, it often overshoots to the downside just as much as it overshot to the upside before it reverts to the mean.

That said, I too would counsel buying a home before buying a boat. The buyer's market in real estate will probably not last as long as that in boats. How could it - the buyer's market in boats is perpetual.

TaoJones

[Dockhead]

Well, you've gotten all different answers to your question. That's good. There isn't one right answer, and only you can choose.

Owning a house gives you a certain kind of security which you can't really get any other way. Now is the best time in living memory to get that. It's a double witching hour of ridiculously low interest rates and relatively low prices. We are in for a burst of inflation, which will send interest rates back up, probably into double digits, and probably for many years. If you have bought a house on a fixed-rate loan, what you owe on the loan will just inflate away, and you will end up with handsome equity in your house, which represents real financial security.

But financial security is not the only value in life. If you are just crazy to be on the water, and you're ready for the long-term sacrifices -- go for it. No one ever died wishing he had just $100k more of home equity; but plenty of people died regretting they never climbed that mountain or got out on the water. The price of that approach is that you will either have to earn money every month, day in and day out, to cover that rent which automatically adjusts to market every year (funny thing that), or you'll have to live a very spartan life, which makes sailing pretty tough, as this is not the cheapest sport ever invented. If you build some assets now, you will have more options, and buying a house right now is just the best thing you could ever think of.

Like I said, there's no one right answer. Plenty of people have wasted their whole life energy on "building assets" they never got to enjoy. Probably there is some balance between these goals, which is best for most people -- the right amount of work balanced by the right amount of play; the right amount of hard financial assets balanced by the right amount of toys.

[Dockhead]

Originally Posted by Guard Bum

Good fiscal sense and owning a boat are not always compatible, but they don't have to be mutually exclusive. As a general rule, buy the things that grow in equity (property, homes, etc...) and rent everything else. I know this can't always be done (hard to rent a boat), that's why it is a general rule.

My father loved to say: "If it flies, floats, or f**ks -- rent it."

Hardly anyone here has followed the advice on the last two points, because here financial good sense and pleasure (not to mention love) are at cross-purposes.

But if you've done reasonably well with the "things that grow in equity", it makes it a lot easier to put money into something which makes no financial sense, like a boat.