patrick.net

This is exactly my situation (all except the $400K in cash part).
In '04, I thought I would be "forever priced out" if I didn't buy in, so I started saving like mad: paid off credit cards, student loan, ride my bike to work, etc.

Now I have some savings and spend only the minimum required to survive and have fun. There's a lot less pressure and worry about "universal default" clauses and all that jive, since -- if I ever do use credit cards -- I pay all bills in full every month.

Would I *like* to buy someday? Sure. But now I know I can wait until prices come into equilibrium with fundamentals.

The reader wrote:

"...over $400k free and clear CASH..."
"...when you have money - ..."
"...or think you have money..."
"...I like the money and the power it gives me. ..."
"... how much money you can make..."
"...I have real cash that is MY money..."
"...not funny money..."
"...I love the smell of green money.."

free and clear CASH !
you have money;
think you have money.
I like the money.
Real cash,
MY money.
Funny money,
green money.

Money, as in USD (and currencies pegged to it) is down. Don't believe me? When the reader started hoarding money in 2000, it cost him half as much to fill his gas tank as it does now. He spent about one third less of his "money" on groceries then.

Conservative "investments"? Pick a modest financial investment: treasuries, stock market, whatever. Down in Euros.

The reader might want to think more about preserving or growing his CAPITAL than hoarding his MONEY.

I'm a little confused here? You do/don't have a mortgage? You did/didn't buy in 2000?

You say you will keep on renting but "have always owned your own house". What am I missing here?

sybrib,

That as well (thank you). The writer doesn't mention a family (or at least having any deductions) but somehow has been able to sock away 400k in 7 years by filing short form? It just seems a bit of a stretch to say you have the kind of income to bank that much and yet be totally unconcerned about *not having a Schedule A to "work"?

Hmmm. Sounds a bit like “Hey look! I saw the future, did everything right and now I’m on top of the world!” But does it add up? After running this personal decree of success through this
writing sample analyzer, I see that it is written at a 6.37 grade level.

”I got scared when I saw the housing bubble start. I knew it could be a tough ride, so I pretended that I was making a huge mortgage payment every month, I eliminated all extra spending for clothes, goods, cars, furniture, appliances, and I invested and saved for the housing crash…” For the last 6+ years?

Spread 400k worth of savings over 6 years, and that’s about $5555.00 each month. Assuming a portion of that is interest earned in your “prudent investments”. …and all after paying your other living expenses. How much did you start of with?

”Now I am taking an inventory in what I would “be worth” - if I bought in 2000 when the bubble started. I feel pretty good about things. I have a balance sheet of over $400k free and clear CASH from prudent investments…”

“Would be worth”? Is this balance sheet real or have you been playing some form of Fantasy RE Mogul?

”I have a modest income, and modest investments, I never would have had this amount saved if I bought the Real estate lie and bought when the bubble started expanding.”

None of that makes a bit of sense in the context of your post. What do you consider modest?
On second thought, never mind. Could this post be a recycled testimonial of success, selling Herbal Life products?

This post is a little irritating even to a housing bear like me, so I'm going to respond by saying.

- I own a McMansion
- I drive a car slightly more expensive than the Toyota Camry
- I go on vacation at least once a year
- I have a 50 inch big screen TV (HD hockey is a very good thing)

Bring on the flames :)

Messed up the HTML tag...

Writing Sample Analyzer
http://obsidian.sktyler.com/tools/writer/sample.php

I find that when people have real money that they "earned" and "saved", they are less likely to spend it as freely as someone who uses credit; this is why unmanaged credit and the enormous debt it creates can potentially destroy the user of it.

Any time I use a credit card, I pay it off before the end of the month; in fact I purposely overpay so that if by some very unlikely chance I forget to pay on time, I will not be hit by their insane finance changes. People who carry a balance on their credit cards are only ripping themselves off. Taking an interest only loan on a house is like putting a house on your credit card.

The dollar will continue to weaken and yes, we really don't know the best place to keep our money, but putting it into real estate right now is really asking for it.

the money in the bank may not have the purchasing power in the future. I dont own a house but after all this discussion, i am getting to think that putting 10-20% down on a house may not be a bad idea. Why keep all the wealth n one spot in the bank why not diversify?

"I got scared when I saw the housing bubble start."

Many were too stupid and wrapped up within the hype and
new dynamics.

I walked into two difference Real Estate offices. The first day
before seeing any homes they slammed me ( and im sure many
others with ) 'there are multiple bidders out there". Even heard on TV/Radio or read in papers. After backing out of a multiple bid war which my was the highest, it was easy to see realtors were using fake / phantom bids to creat a buying frenzy. My offer was over 10% over asking and next best bid was only $500 over asking. Yet the Realtors will never tell you that. They kept the illusion of many offers competing. An yet there is no way to confirm what those offers are. This market is a total sham built on many layers of fraud and deception. The subprime, fake appraisals, and fake documantation is one of many deceptive tactics employed by realtors in order to increase their commissions.

Allah,

I wasn't insinuating that Bay Area real estate is a good place for capital preservation. No way.

I was just pointing out, if all he has is money the color of green, he's not getting ahead. He's not even keeping up.

Maybe B.A real estate is a good place for rich Asians to purchase in their enclaves in cities near the west coast, but theirs is a different set of rules than for the rest of us. So other than them folks, no way was I insinuating that the writer should've been "invested" in B.A real estate.

My earlier critique should have been directed toward the math (with less emphasis on "genius" status). In a way *azguy is reinforcing the notion that awareness of the bubble and taking appropriate action were and are required. The orig. writer was just showing how s/he played it.

Since bubbles, careers and peak earning years seldom fall over before us with their legs up in the air I'll take take historic appreciation if that's "o.k" with everyone here. (No "smugness" intended)

DinOR,

Till we get past some reckoning of distortions, you might consider measuring appreciation in different units than USD.

Why is my comment in moderation? There aren't even any links in it.

CB, (OT Warning)

I played hockey a lot through senior year in high school but haven't played since. There's a men's league starting up in Sept. and while I played defense I was hoping to get on as a goalie just for a goof.

Space Ace,

Glad you said it (sparing me). Lofty prices aside I need to see a major overhaul before I'm going to throw ANY money around. If someone was able to generate enough of a return to have 4 homes (sell and pay-off the other 2) and have a renter hand over "piles" of cash.. GREAT! Whatever.

I just think that at any price the current REIC (TM) rigged system indicates to me that your place in the food chain/ponzi is a helluva lot more important than any financial strategy you might employ (or think you employed).

DinOR (OT Warning)

The best player in our beer league hockey team is a managing director at one of those big iBank, no doubt his bonus is in the millions. A surreal moment last year when a team-mate who coaches youth hockey brought one his kids to play with us, he was in 101st and was due back to Tikrit. I can't imagine two people with more different fortunes sitting in the same room, it really is true that most of America makes no or little sacrifices for the war.

Ok, so I cut-n-pasted a few of my thread topics that I consider to be relatively "subject-matter dense" or "cerebral" into Steveoh's writing sample analyzer. The highest score I received on the "Flesch-Kincaid Grade Level" was 10.83.

So my best work is barely above Sophomore-year English? Wow, I really need to start working some bigger words into my posts from now on.

Ok, I don't feel so bad now. I cut-n-pasted this book review on stochastic algorithms & Black-Scholes into the anaylzer and it registered a mere 8.83 grade level.

Hey, guys. I hear you about the “smug genius renter” tone, but isn't his exactly the author's point? I mean, we've been forced to listen to obnoxious perma-bull gloating all over the MSM for the last six years, so now IT'S OUR TURN to gloat a little, m'kay...?

Haven't we earned a little victory lap for being right all along when others were beer-bonging the Kool-Aid? Really now, what he's basically saying is...

"SUCK ON THIS, MARINA PRIME!"

How can you not appreciate that?

Here’s a thought: How about outsourcing EXECUTIVE JOBS for a change? How’s that for forcing them to “put up or shut up”?

You need to see this video: http://www.theonion.com/content/video/immigration_the_human_cost

HARM

8.83 grade level is fairly high. If I recall the Flesch-Kincaid method isn't very accurate beyond that level (12th grade reading level could be not much different from 8th grade level, depending upon content). The reason has something to do with specialized language and jargon, which might score low on the test but be very difficult to understand (like stochastic algorithms). I doubt that tester knows the difference between the quadratic equation and a differential equation, only one of which an 8th grader can understand.

Here is another blog of an FB.

@eburbed - yeah, saw that but lost the link --thanks. Hilarious and totally apropos.

The best player in our beer league hockey team is a managing director at one of those big iBank, no doubt his bonus is in the millions. A surreal moment last year when a team-mate who coaches youth hockey brought one his kids to play with us, he was in 101st and was due back to Tikrit. I can’t imagine two people with more different fortunes sitting in the same room, it really is true that most of America makes no or little sacrifices for the war.

Seriously.

The MD sacrificed the prime years of his life working 80-120 hours a week to ensure global security via liquidity and capital allocation. Now, he carries the heavy Atlas-sized burden of ensuring that his firm helps companies thrive so that they can continue to employ Americans and generate tax revenues to support the war and keep us safe.

I salute you, MD.

DinOr,

On that Schedule A.

If one has a paid for house, the lack of interest payments makes it unlikely to itemize above the $10,000 standard deduction. Even with a $100,000/yr income, state and local taxes would not hit the threshold.

With $80,000 net of income tax, it is possible that one could live on $40,000/yr (lots of folks manage this), and bank the other $40,000/yr for 10 years and have the $400,000 plus.

In the spirit of openness shown by others here in this thread:

* I sold and bought again in 2002. Didn't sell and sit until 2005.
* I did not see a bubble in 2002. I saw high prices, but they were still within the range of a likely soft, gentle, happy landing.
* I bought my 2002 home for almost $100K *below* asking, with no multiple bids.
* I sold in 2005 with only one bidder, $50K *below* asking.
* I had an SUV then, and up until 2006. It was one of the worst ones you could have (but not a hummer).
* I got rid of my SUV because it cost over $100 to fill.
* The above is a lie. I really got rid of it after my dog died. But still I'll get a crossover to replace it in a year or so.

Most of all. I *don't* think having giant amounts of cash sitting around is a good thing. I have all our equity sitting as well protected as possible in munis, mmkts, bonds and notes, including a bit internationally. I'd still far prefer a reasonably priced house for half or so of those $.

If one has a paid for house, the lack of interest payments makes it unlikely to itemize above the $10,000 standard deduction. Even with a $100,000/yr income, state and local taxes would not hit the threshold.

Not if you're single. Then it's only $5150.

I'm not sure if that's a good thing or bad thing though.

Well, I have been renting and saving all along, but I will admit that I could have played it better.

After six years of maxing out 401ks and trying to live conservatively and prudently, I now realize that I would have been better off if I had bought in '00 or '01 (especially if I had the foresight to sell in '05 or '06). My savings (mostly in tax deferred accounts, which I will eventually pay tax on) are around $160K. Not bad, but not great.

Meanwhile, my sister in law's house (as just one example) has appreciated from around $200K to around $500K in the same timespan. She could sell and exclude $250K in CG tax. I have been telling her since '03 that she should sell. I was wrong in '03, '04 and the first half of '05. Sure, the tide has turned a little but, but at this point she is still playing with "house money" and she is still well ahead of the game.

If I had bought a house like her house for $200K, my total housing costs would be in the range of $2K/month (vs. the $1K I pay in rent). The tax benefit would have saved me around $$500, so the marginal cost of ownership would be about $500 more than renting. Plus I would have had the use and enjoyment of a house which is nicer than my apartment, I would have had the opportunity to refi into a 15 year mortgge at ridiculous rates, and I would still be able to save a good chunk of my income. Plus I would have locked in a decent Prop 13 tax basis.

Sorry guys, still far too early to declare victory. There are a lot of horror stories about imprudent cash-out refis, but the bigger story is that there are still a ton of homeowners sitting on a ton of equity.

@Randy H,

Thanks - I agree. The usefulness of Flesch-Kincaid model is very limited when it comes to specialized jargon and/or math-dense topics.

My savings (mostly in tax deferred accounts, which I will eventually pay tax on) are around $160K. Not bad, but not great.

This puts you well ahead of the vast majority of Americans, including Boomers (now with a negative national savings rate) and places you in a fine position to hard-ball when "our time" comes in the RE market, probably 4-6 years from now.

Meanwhile, my sister in law’s house (as just one example) has appreciated from around $200K to around $500K in the same timespan. She could sell and exclude $250K in CG tax.

Your sister, however smug she may feel right now, has not made a single thin dime in "equity" until she actually sells tha house and realizes that gain. At which point, she would also need to find another place to live. This estimated (nominal or real) value is already falling, and will inevitably fall a lot further in years to come, as prices mean revert. Whether most of the drop will come in the form of inflation/real-value loss or nominal price cuts still remains to be seen.

eburbed are you really that bad at math?

Huh?

All I was trying to say was that if you made $100k, your state income taxes alone would push you past the standard deduction - if you're single. Because when you're single, the standard deduction is only $5k.

HARM, are you reading Black-Scholes?

Also...

Assume you have a fixed mortgate at 6% on a $300000 loan.

Who has a $300k loan?

Assuming a 20% downpay, that's a $375k home.

It mustn't be somewhere special.

Uh I thought the standardized deduction for: Married filing joint, was $10,300 for '06 filing?

"But before we all rub our hands in glee, remember the law of unintended consequences: A japan style deflation of home values, combined with an almost unavoidable increase in interest rates"

Won't this be a boon for people with paid off houses and cash in the bank? Lower home prices and higher interests will give the savers a long awaited benefit.

"Your sister, however smug she may feel right now, has not made a single thin dime in “equity” until she actually sells tha house and realizes that gain."

And in most of the country, her property taxes would have gone up.

HARM,

It is true that my sister in law's equity could disintegrate. And it is also true, I may get another opportunity to buy low in the RE market and I certainly don't buy the myth that I am "priced out forever." However, the reality is that I did miss out on the last boom.

There are some people (like Randy) who were lucky/smart enough to sell at or near the top. So I am a little envious. But you're right, those who still own their RE are still at risk.

Those who sold at the top and are now sitting on fat stacks which they can leverage up at the bottom will be the future moguls, in my opinion.

Hi azguy,

Have you been to Sedona? Any recommended restaurant? We are going there in a few weeks.

Thanks.

azguy,

Please go back and read some of the previous posts on that particular topic. It's been well established that before DIME ONE of MID should be factored in it needs to be in excess of the maximum 401k contribution AND standardized deduction of around $24,000.