Housing analysis


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A friend from high school purchased a nice town home back near where we grew up.  He owns his own business.  I decided to map out in what scenarios it would conform to Dave Ramsey’s rules.  I quoted tho home at the listed price, but he likely got some kind of discount.

15 year only.

0% down not allowed.

20% down and $140k.

50% down and $100k.

The 30 year scenarios aren’t allowed, but I listed them anyway for fun.  I think he has a girlfriend he’s moving in with.  Maybe they’re planning on getting married.  Anyhow, it has 3 bedroom, so if 2 people live there, they each only need to make around $70k to do the 20% down plan, and that’s not too difficult if a person picked a good college major (in fact, less than $70k b/c they’d have a better tax situation splitting the income that way).  If he’s not making $70k with his business, he should probably quit.  I think he’s probably doing much better than that.

Here’s the same analysis done on my condo.  I’ll use 10 and 30 year, since that’s the history of my mortgages.  I’ll also include 0% down and 20% down, since those are the two options I seriously considered back when I bought the condo (when I was dumber).  I’ll also use the actual interest rates.

I still need to include the property tax and mortgage interest writeoffs in this calculation.

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For the 20% mark, I used the actual loan amounts, $122k and $117k, since when I refinance from my 30 year, I’d only paid down $5k in like 5 years.  That’s why 30 year mortgages suck!  I also included the cost of my HOA fee, since I know exactly what it is.  It started at $290 but is now at $320, so I just kinda took $310 as an average.

When I bought the condo, I was making around $105k and I put 20% down, so I hit the Ramsey guideline… but not on the 15 year mortgage.  Nowhere close.

On the 10 year, you can see it’s hard to hit that 25% take home pay guideline unless you make really good money.  I was making $135k in 2014 when I refinanced, so I likely made it just under the wire.  Also, I was living with my girlfriend, and she paid a (low) rent which helped offset housing costs.

After the condo is paid off… or any time really, you’d think like, “hey cool now you can trade to something else for cash!”  but not really.  At $400k, the cost to sell it is like $30k, so it feels like, what’s the point of saving on mortgage interest or whatever if you’re going to turn around and lose $30k.


IN BRITAIN, if you want to sell your home, an estate agent will list the property, find a buyer, help you negotiate a deal and guide you through the transaction, all for a commission of 2-3% of the sale price. In America, realtors provide the same services for roughly double the fee.

Are they worth it? The shouty realtors in David Mamet’s film Glengarry Glen Ross (pictured) certainly think so. (“[My] watch costs more than your car…that’s who I am.”) Others disagree. Chang-Tai Hsieh of the University of Chicago finds that American property brokers cause “social waste” of $8 billion a year via overcharging and inefficiency.

Economists are baffled. The internet has squelched inefficient middlemen in other industries, from insurance brokers to travel agents. Why not American realtors? Although scores of discount brokers and for-sale-by-owner websites have sprouted up, traditional full-service realtors have somehow maintained their market share of 80% without reducing fees.

Damned either way though.  If you stay in the home, you lose the investment opportunity cost, which is for sure > $30k… but you have to have a place to live, right?

Don’t worry about a 6% market drop, b/c if that’s all that happens, you would’ve lost 6% while trying to sell the condo to avoid the market drop.  It’s just noise.


Another theory is that clients are suckers. Agents routinely tell buyers not to worry about the fat commission because “the seller pays it.” Meanwhile, they tell sellers not to worry because they will jack up the price of the home to cover it. According to Steve Murray of REAL Trends, two-thirds of clients choose an agent because of a prior personal relationship or referral. They may be reluctant to haggle with realtors to whom they have social ties.


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