Buying Your Primary Residence: Would you pay FMV??

Dean has always taught that if the figures are right and you can make the monthly PITI without a problem, then buy it. We as investor's always are on the hunt for the deal of the day, but if this prop is what you want, than go for it as long as the numbers make sense. We have paid full price for a props in the past but the numbers work out in our favor and the props generate a good monthly cash flow. Of course we are buy and hold investors, so owner financing plays a huge role in our business plan.
Short and sweet---If you can afford it, buy it.....Jan

Would any smart investor pay 100% FMV for anything?
Correct answer is: IF AND ONLY IF they can secure some kind of profit from it later. Maybe the profit for you is buying $200K worth of house for $100K, BUT $100K is the true FMV right now because of market and economic conditions. That's RE speculation, not investing, there is a difference, and it can cost you big time but, if you get $200K worth of "use" from the place, it's not a loss mentally or on paper now, is it? That's the type of thinking you apply to your "dream house" plan. Treat everything else as a stepping stone towards that.

Is your primary residence going to be your "here and now" dream house, or is it an investment that will propel you towards affording your dream house? The answer to that question will also solve the question you asked.

The ONLY house you should ever be emotionally drawn to is your own, but even then, "retail is NOT investing." 100% FMV? - I wouldn't, but I'm not you. What does this place have (that you have to have) that makes it irreplacable? Asking and answering that question will also help you decide.

Your financing abilities will also help decide for you. Many mortgages are structured (30 year's and ARM's especially) so that all of your payments go to interest the 1st 5-10 years you pay for the house. A 30-year mortgage will typically mean the buyer pays for their house 3-5 times over before they actually own it free and clear - YIKES! That interest is tax deductible, which can help you that way, but you won't start building up equity until the end of your 8-year window.

This 8-year place may be the best you can get here and now, but what if you lived below your means for 3-5 more years? Can doing that get you into your dream house plan that much sooner? Sorry to answer your question with more questions but, if you don't ask and answer these for yourself, you may wind up buying something that makes you happy, but costs you later on. Best of luck to you...

People live where they live for one of two reasons...
1) Because they want to
2) Because they have to

If you want to live in a great house, in a great neighborhood, with a great school system and retail works for you, go for it. You are the one that will be living there, you might as well enjoy it. As the old saying goes, you either rent the home or you rent the money. That being said, I would try to be creative and get the best deal possible.

I bought a great house right where I wanted to live but it took about a year & a half of looking before I found it but I HAD to get a DEAL because I couldn't afford FMV but it was worth the fight to get it(REO bank from hell)Like they say make money when you buy RE

Realistically I know I'm saying dream home in future tense, but this place is definitely the dream home for now(lots of space, walk in closet, new kitchen, finished basement, playroom, but the most irreplaceable thing is a $20-$25K 3 tier deck that the owner put on this place. This place has many of the features that our dream house will have but I want to be clear that when I say dream home, I mean 5000+ square feet, library, basketball court, gated, to be even clearer, you guys have seen Dean's house right? That's what I mean, The Drummond Compound.

With that being said, we have a 30 year fixed rate at 3.75% and what we plan on doing will be to live here for 8 years while we expand our Rent to Own/Wholesale business and buy or build The Drummond Compound. At that point, we'll either rent out the house or sell it. We plan to pay off the house in 8 years with my bonuses and real estate profits. Now our financial adviser, along with Suze Orman has always taught to pay the house off early and we agree, but in this case, what benefits would that give us. Anyways that's the plan and we will modify if necessary as we counsel and get advice from those wiser in these areas.

The last purchase of this house was in 2004 and it sold for $50,000 more than my offer. I really don't go by what happened during the bubble, but I do look at prices before that. If I can buy the house for that much less than it sold for 8 years ago, I hope to be in a pretty safe position. Some moderate appreciation is all we would expect over 8 years, but you never know, just wanted to add that bit of info.

don't let the beauty of the decks cloud your vision... if you pay full price for it, and 6 months later another buyer purchases a home down the street from your house for less that what you're paying, will it matter to you? If not, go for it and enjoy it!
As everyone here has pointed out, if the numbers work for you, go for it; if this is the house that you want to live in, go for it...
Me personally, after everything I've learned through DG, I don't think I could pay full price for a property... even if it was my primary residence.

Keep us posted on your decision!

"Now our financial adviser, along with Suze Orman has always taught to pay the house off early"

Why would you want to pay off a 3.75% mortgage? Would you buy a 30 year CD for 3.75%? Of course not. You now have the bank over a barrel. Let's say for the sake of discussion the house is worth $200k. Would you rather have a house paid off saving you a $1200/month payment or would you rather have $200k that you could be a cash buyer with or a hard money lender. The payment will save you $14,400 a year or basically give you a 7% yield. But it will actually be less than 7% because you will still be paying taxes and insurance and will lose the interest deduction so you will be paying more in taxes, so let's call it a 6% yield. So are you saying you can't generate more than a 6% yield if you had $200k CASH to invest/lend in real estate? In my opinion, you give up too much earning potential by paying your house off early. But then again, I'm no Suze Orman with a TV show.

Deshone, It comes down to
Do You like the house
Can you afford the house
Do you want the house

Then Buy it!!!

Holy Moly, Nobody can predict what will happen in the future, but REI will always be around making money. We have in an up market and in a down market. If you want it and it will make you and your family happy. Buy It...Just my 2 cents worth of advise...Good luck with whatever you do...Jan

This is great advice, so what do you think would be the best way to deal with this when it's time to buy our dream home. We would pay it off early to save on the interest, but that scenario you pointed out makes sense. Do you think we should rent the place out after the 8 years or sell it provided the market has rebounded. If I hold onto it for 30 years, it would of course appreciate dramatically. What do you guys think about the wisest strategy. Thanks again for all the input.

P.S. I'm also thinking if I plan to hold onto it long term then I could pay the $10,000 more than I put my offer in for because the seller just counter offered me. It wouldn't really make a difference in the long run. Does that make sense.