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Ten Reasons It's A Terrible Time To Buy An Expensive House


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2015 Jul 11, 12:58pm   926,447 views  448 comments

by Patrick   ➕follow (57)   💰tip   ignore  



  1. Because house prices in expensive areas still dangerously high compared to incomes and rents. Banks say a safe mortgage is a maximum of 3 times the buyer's annual income with a 20% downpayment. Landlords say a safe price is set by the rental market; annual rent should be at least 9% of the purchase price, or else the price is just too high. Yet in affluent areas, both those safety rules are still being violated. Buyers are still borrowing 6 times their income with tiny downpayments, and gross rents are still only 3% of purchase price. Renting is a cash business that proves what people can really pay based on their salary, not how much they can borrow. Salaries and rents prove that affluent neighborhoods are still in a huge housing bubble, and that bubble seems to be getting more dangerous by the day.


    2. On the other hand, in some poor neighborhoods, prices are now so low that gross rents may exceed 10% of price. Housing is a bargain for buyers there. Prices there could still fall yet more if unemployment rises or interest rates go up, but those neighborhoods have no bubble anymore.

  2. Because it's usually still much cheaper to rent than to own the same size and quality house, in the same school district. In rich neighborhoods, annual rents are typically only 3% of purchase price while mortgage rates are 4% with fees, so it costs more to borrow the money as it does to borrow the house. Renters win and owners lose! Worse, total owner costs including taxes, maintenance, and insurance come to about 8% of purchase price, which is more than twice the cost of renting and wipes out any income tax benefit.

    The only true sign of a bottom is a price low enough so that you could rent out the house and make a profit. Then you'll know it's pretty safe to buy for yourself because then rent could cover the mortgage and ownership expenses if necessary, eliminating most of your risk. The basic buying safety rule is to divide annual rent by the purchase price for the house:

    annual rent / purchase price = 3% means do not buy, prices are too high

    annual rent / purchase price = 6% means borderline

    annual rent / purchase price = 9% means ok to buy, prices are reasonable

    So for example, it's borderline to pay $200,000 for a house that would cost you $1,000 per month to rent. That's $12,000 per year in rent. If you buy it with a 6% mortgage, that's $12,000 per year in interest instead, so it works out about the same. Owners can pay interest with pre-tax money, but that benefit gets wiped out by the eternal debts of repairs and property tax, equalizing things. It is foolish to pay $400,000 for that same house, because renting it would cost only half as much per year, and renters are completely safe from falling housing prices. Subtract HOA from rent before doing the calculation for condos.

    Although there is no way to be sure that rents won't fall, comparing the local employment rate (demand) to the current local supply of available homes for rent or sale (supply) should help you figure out whether a big fall in rents could happen. Checking these factors minimizizes your risk.


  3. Because it's a terrible time to buy when interest rates are low, like now. House prices rose as interest rates fell, and house prices will fall if interest rates rise without a strong increase in jobs, because a fixed monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down. When housing falls, you lose your equity, but not your debt.

    The way to win the game is to have cash on hand to buy outright at a low price when others cannot borrow very much because of high interest rates. Then you get a low price, and you get capital appreciation caused by future interest rate declines. To buy an expensive house at a time of low interest rates and high prices like now is a mistake.

    It is far better to pay a low price with a high interest rate than a high price with a low interest rate, even if the mortgage payment is the same either way.



    • A low price lets you pay it all off instead of being a debt-slave for the rest of your life.


    • As interest rates fall, real estate prices generally rise.


    • Your property taxes will be lower with a low purchase price.


    • Paying a high price now may trap you "under water", meaning you'll have a mortgage debt larger than the value of the house. Then you will not be able to refinance because then you'll have no equity, and will not be able to sell without a loss. Even if you get a long-term fixed rate mortgage, when rates inevitably go up the value of your property will go down. Paying a low price minimizes your damage.


    • You can refinance when you buy at a higher interest rate and rates fall, but current buyers will never be able to refinance for a lower interest rate in the future. Rates are already as low as they can go.






  4. Because buyers already borrowed too much money and cannot pay it back. They spent it on houses that are now worth less than the loans. This means most banks are still actually bankrupt. But since the banks have friends in Washington, they get special treatment that you do not. The Federal Reserve prints up bales of new money to buy worthless mortgages from irresponsible banks, slowing down the buyer-friendly deflation in housing prices and socializing bank losses.

    The Fed exists to protect big banks from the free market, at your expense. Banks get to keep any profits they make, but bank losses just get passed on to you as extra cost added on to the price of a house, when the Fed prints up money and buys their bad mortgages. If the Fed did not prevent the free market from working, you would be able to buy a house much more cheaply.

    As if that were not enough corruption, Congress authorized vast amounts of TARP bailout cash taken from taxpayers to be loaned directly to the worst-run banks, those that already gambled on mortgages and lost. The Fed and Congress are letting the banks "extend and pretend" that their mortgage loans will get

    paid back.

    And of course the banks can simply sell millions of bad loans to Fannie and Freddie at full price, putting taxpayers on the hook for the banks' gambling losses. Heads they win, tails you lose.

    It is necessary that YOU be forced deeply into debt, and therefore forced into slavery, for the banks to make a profit. If you pay a low price for a house and manage to avoid debt, the banks lose control over you. Unacceptable to them. It's all a filthy battle for control over your labor.

    This is why you will never hear the president or anyone else in power say that we need lower house prices. They always talk about "affordability" but what they always mean is debt-slavery.


  5. Because buyers used too much leverage. Leverage means using debt to amplify gain. Most people forget that debt amplifies losses as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or a mortgage rate adjustment, he lost 100% in the real world.

    The simple fact is that the renter - if willing and able to save his money - can buy a house outright in half the time that a conventional buyer can pay off a mortgage. Interest generally accounts for more than half of the cost of a house. The saver/renter not only pays no interest, he also gets interest on his savings, even if just a little. Leveraged housing appreciation, usually presented as the "secret" to wealth, cannot be counted on, and can just as easily work against the buyer. In fact, that leverage is the danger that got current buyers into trouble.

    The higher-end housing market is now set up for a huge crash in prices, since there is no more fake paper equity from the sale of a previously overvalued property and because the market for securitized jumbo loans is dead. Without that fake equity, most people don't have the money needed for a down payment on an expensive house. It takes a very long time indeed to save up for a 20% downpayment when you're still making mortgage payments on an underwater house.

    It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is kept unfairly high because of the Realtor® lobby's corruption of US legislators. On a $300,000 house, 6% is $18,000 lost even if housing prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.


  6. Because the housing bubble was not driven by supply and demand. There is huge supply because of overbuilding, and there is less demand now that the baby boomers are retiring and selling. Prices in the housing market, even now, are entirely a function of how much the banks are willing and able to lend. Most people will borrow as much as they possibly can, amounts that are completely disconnected from their salaries or from the rental value of the property. Banks have been willing to accomodate crazy borrowers because banker control of the US government means that banks do not yet have to acknowledge their losses, or can push losses onto taxpayers through government housing agencies like the FHA.


  7. Because there is still a massive backlog of latent foreclosures. Millions of owners stopped paying their mortgages, and the banks are still not forclosing on all of them, letting the owner live in the house for free. If a bank forecloses and takes possession of a house, that means the bank is responsible for property taxes and maintenance. Banks don't like those costs. If a bank then sells the foreclosure at current prices, the bank has to admit a loss on the loan. Banks like that cost even less. So there is a tsunami of foreclosures on the way that the banks are ignoring, for now. To prevent a justified foreclosure is also to prevent a deserving family from buying that house at a low price. Right now, those foreclosures will wash over the landscape, decimating prices, and benefitting millions of families which will be able to buy a house without a suicidal level of debt, and maybe without any debt at all!


  8. Because first-time buyers have all been ruthlessly exploited and the supply of new victims is very low.

    From The Herald:

    "We were all corrupted by the housing boom, to some extent. People talked endlessly about how their houses were earning more than they did, never asking where all this free money was coming from. Well the truth is that it was being stolen from the next generation. Houses price increases don't produce wealth, they merely transfer it from the young to the old - from the coming generation of families who have to burden themselves with colossal debts if they want to own, to the baby boomers who are about to retire and live on the cash they make when they downsize."

    House price inflation has been very unfair to new families, especially those with children. It is foolish for them to buy at current high prices, yet government leaders never talk about how lower house prices are good for American families, instead preferring to sacrifice the young and poor to benefit the old and rich, and to make sure bankers have plenty of debt to earn interest on. Your debt is their wealth. Every "affordability" program drives prices higher by pushing buyers deeper into debt. Increased debt is not affordability, it's just pushing the reckoning into the future. To really help Americans, Fannie Mae and Freddie Mac and the FHA should be completely eliminated. Even more important is eliminating the mortgage-interest deduction, which costs the government $400 billion per year in tax revenue. The mortgage interest deduction directly harms all buyers by keeping prices higher than they would otherwise be, costing buyers more in extra purchase cost than they save on taxes. The $8,000 buyer tax credit cost each buyer in Massachusetts an extra $39,000 in purchase price. Subsidies just make the subsidized item more expensive. Buyers should be rioting in the streets, demanding an end to all mortgage subsidies. Canada and Australia have no mortgage-interest deduction for owner-occupied housing. It can be done.

    The government pretends to be interested in affordable housing, but now that housing is becoming truly affordable via falling prices, they want to stop it? Their actions speak louder than their words.



  9. Because boomers are retiring. There are 70 million Americans born between 1945-1960. One-third have zero retirement savings. The oldest are 66. The only money they have is equity in a house, so they must sell. This will add yet another flood of houses to the market, driving prices down even more.


  10. Because there is a huge glut of empty new houses. Builders are being forced to drop prices even faster than owners, because builders must sell to keep their business going. They need the money now. Builders have huge excess inventory that they cannot sell at current prices, and more houses are completed each day, making the housing slump worse.




Next Page: Eight groups who lie about the housing market »



The Housing Trap

You're being set up to spend your life paying off a debt you don't need to take on, for a house that costs far more than it should. The conspirators are all around you, smiling to lure you in, carefully choosing their words and watching your reactions as they push your buttons, anxiously waiting for the moment when you sign the papers that will trap you and guarantee their payoff. Don't be just another victim of the housing market. Use this book to defend your freedom and defeat their schemes. You can win the game, but first you have to learn how to play it.

115 pages, $12.50Kindle version available

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350   Tenpoundbass   2021 Mar 25, 4:44pm  

I paid off my Mortgage just in time, that my company moved my apps to MS Dev Opps so my position has been downgraded to consulting on 1099, when they need my input on the conversion.
And now at this point with my mortgage paid off, I'm taking time off to make life living hell for RINOS and Fuck Faces everywhere.
I figure I got about two years cushion, I can dedicate to making sure everyone in America is paying attention if their local election precinct has a party representative, that they can trust, or have one period. I'm making sure everyone knows Voting is NOT being part of the Citizen Legislature, that the Constitution guarantees.
The Committees pick out the outfits to chose from, and voters just merely point at the one with the flashiest colors.
If you want skin in the game, get down to your RNC or DNC local skullduggery session and vote them out f you don't like what you're seeing, or join if you're precinct isn't represented.
351   GreaterNYCDude   2021 Mar 26, 8:21am  

I refinanced earlier this year. Didn't want to but at the time I was between jobs and needed to lower the monthly nut. Now I have a new 30 yr fixed at 2.75%. Plan on paying it off in under 10 years. Yes I realize I could simply invest the money rather than paying off extra principal, but the peace of mind of having the house free and clear has inherent value (at least to me) and frankly market is due for a correction at some point*

* not investment advice
352   GreaterNYCDude   2021 Mar 26, 8:22am  

It amazes me that rates have been this low for this long. Strange times.
353   RC2006   2021 Mar 26, 8:27am  

GreaterNYCDude says
It amazes me that rates have been this low for this long. Strange times.


Crazy I yearn for the days of 10+%
354   Tenpoundbass   2021 Mar 26, 8:31am  

GreaterNYCDude says
Plan on paying it off in under 10 years. Yes I realize I could simply invest the money rather than paying off extra principal


There isn't anything you could invest in, that would give you greater yields than paying off your mortgage.

That notion is an old relic from when banks paid you to save, and your mortgage payment was far cheaper than rent.
The common thinking was, the house was appreciating and if put so much of your cash in payments, then you flipped the house.
They considered all of that hard cash you put in the house a waste.

If your house is not an investment and you plan on staying in it until you aren't. Then pay it off.
That mortgage payment you're not paying every month after you've paid off the house. To me anyway, is like the bank giving me back $1700 every month now.
Because I don't have to pay it. Plus my house is worth double what I paid for it. And I'm not all in on interest, as if had kept to the payment schedule.
Instead of paying over $550 over the course of my $160 mortgage, I only paid in about $280K, I would have paid a lot less had I started doubling my payments straight away instead of waiting five years in. It then took me about 5 years to pay it off.
355   RWSGFY   2021 Mar 26, 8:37am  

Tenpoundbass says
There isn't anything you could invest in, that would give you greater yields than paying off your mortgage.


With mortgage interest locked at 2.5-3%? Really?
356   Patrick   2021 Mar 26, 8:51am  

There is another dimension to interest rates: the probability you are actually going to get paid.

When you pay off debt, that probability is 100%. This is even better than US Treasuries, which could conceivably default.

Junk bonds pay very high interest rates because the probability you are actually going to get that interest and get your money back is rather low.
357   Eric Holder   2021 Mar 26, 8:54am  

Patrick says
When you pay off debt, that probability is 100%.


There is a such thing as playing it too safe. Paying off early a 2.5% mortgage is one of these.
358   stereotomy   2021 Mar 26, 10:34am  

The problem with essentially 0% interest rates is that the old canard about gold not earning interest is now moot. Now that Basel 3 is in effect, who knows how this will play out wrt the "barbarous relic."
359   kmail   2021 Mar 26, 10:50am  

Patrick says
@kmail

I'm 75% stock and 25% cash. If the stock market crashes, OK, I can wait quite a long time for it to recover.

And if it goes up, that's fine too.

Stocks are some protection against inflation, especially those that take a percentage of a transaction, like credit card processors.

Cash is some protection against any stock market crash. You can think of cash as going up in value as stocks fall.

I'm still not going to buy a house unless it's a better deal than renting the same thing in the same area.


@patrick Yes, that seems like a good approach to have some liquid. I've heard buffet had recently adjusted his portfolio to be 60% in stocks and 40% in cash for when the market crashes and there's a buying opportunity. I'm so 10++ years behind in last following stocks. I've forgotten everything. I've heard the great buying opportunities in corrections and crashes... right now i have to focus on building capital to even invest. haha.. i have my money currently parked in wealthfront bot trading for now.
360   rocketjoe79   2021 Mar 26, 10:54am  

I'm trying to convince my wife to sell, pocket the 1-time proceeds, rent for a while, and buy back in after the coming price crash. But she thinks renting is "perpetual moving" and "we're at the mercy of the landlord!" Fear keeps her from many a good deal.

Alternatively, why shouldn't I take out a large HELOC at 4% and invest the proceeds? Yeah, I know there is risk but couldn't I make 7-8% in an annuity? Seems like a no-brainer.
361   Eric Holder   2021 Mar 26, 11:00am  

rocketjoe79 says
Alternatively, why shouldn't I take out a large HELOC at 4% and invest the proceeds?


HELOCs are at ~3% now. At least this is where my adjusted to (started several years ago at ~5%).
362   Patrick   2021 Mar 26, 12:06pm  

rocketjoe79 says
But she thinks renting is "perpetual moving" and "we're at the mercy of the landlord!"


You can ask for a 5-year lease with the option for you to break it after the first year. If you offer enough money, the landlord will agree.

Also, if you offer to pay the first six months in advance, the landlord may well give you a discount on rent. Of course then you have no leverage to withhold rent during that six months if something needs repair.
363   Patrick   2021 Mar 26, 12:11pm  

rocketjoe79 says
Alternatively, why shouldn't I take out a large HELOC at 4% and invest the proceeds? Yeah, I know there is risk but couldn't I make 7-8% in an annuity? Seems like a no-brainer.



There is nothing that guarantees 7-8% right now. You might get it, or you might not.

The "risk free" rate for a 30-year US treasury is 2.4%. That's the only rate you can be almost certain of getting.

The best fixed annuity rates right now:

Best 5 Year Fixed Annuity Rates
Nassau Re MYAnnuity 5 Year Annuity: 3.10% for 5 years.
Americo Platinum Assure 5 Year Fixed Annuity: 2.70% for 5 years.


https://www.annuityexpertadvice.com/fixed-annuity-rates/
364   HeadSet   2021 Mar 26, 2:51pm  

rocketjoe79 says
Alternatively, why shouldn't I take out a large HELOC at 4% and invest the proceeds?

Do understand that such loans have upfront costs. Depending on your lending institution, you can have an application fee, an appraisal cost, and loan closing costs.
365   kmail   2021 Mar 26, 3:32pm  

FuckCCP89 says
kmail says
the coming market and r/e crash?


Got a timeframe for these two juicy events?


From what I've been reading/hearing, the fed doesn't plan to increase rates yet, so this keeps the possibility of inflation low... I don't know the details for the market (anyone's guess is as good as any ha)... with how real estate moves, we have time to react to that... they (active/expert investors) say they anticipate low interest rates and high priced housing market IN GENERAL should last through the year. 2022 will be a different story.

the peeps in precious metals are just waiting for the floor to drop.. they don't have any timing on that that I know of. they are saying getting gold in the market is impossible and silver isn't too different either.
366   Tenpoundbass   2021 Mar 26, 5:09pm  

FuckCCP89 says
With mortgage interest locked at 2.5-3%? Really?


I paid my house off in 10 of the 30 year mortgage.
So now for the next 20 years I'll get every cent back in mortgage payments I don't have to pay.
That is going to pay me back $408K.Perhaps more because the required HO Insurance is going to increase as much as 300% near the end of the schedule.

I paid Less than $280K in the last 10 years.
That means I get 128K more back than I paid.
And that's not counting adding in the difference rent would cost if I didn't own my home.
What 280K investment is going to give you 408K over the next 20 years?
367   MMR   2021 Mar 26, 5:25pm  

How to destroy index funds with 2-4 family homes by buying, rent, rehab, refinance (cash out refi from community bank without seasoning requirements) and repeat.

Section 469 of the internal revenue code. Produce “returns” based more on tax laws.

Losses (unearned) and non-cash expenses deducted against w-2 income.

Must be able to claim RE professional status. Works best for people who are married filing jointly

BRRRR method of investing and “recycling” down payment

https://www.biggerpockets.com/guides/brrrr-method


Good example of a 4plex against an index fund. The amounts are simply for illustration.

https://www.physicianonfire.com/generational-wealth/


How one can shelter w-2 income with losses (non cash expenses and/or depreciation ).

https://physicianestate.com/real-estate-professional/


How to become a real estate professional (need a good accountant and tax attorney)

https://markjkohler.com/how-to-become-a-real-estate-professional-for-tax-purposes/

People who pay zero in income taxes for past 5 years using this strategy after 11 years of investing. As far as I know they do not recommend California in general as it’s hard to get good cash on cash return. California is mostly an appreciation bet

https://m.youtube.com/watch?v=u9vnur7s5XM


Again:

1. This is a highly litigated section of the internal revenue code with an 80% likelihood of being audited at some point.

2. Documentation is key in an audit and you need a good accountant and tax attorney

3. If it were so straightforward and easy everyone would be doing it

4. It may not make sense to buy a single family home in this context if you don’t already own one,

5. It may not make sense to do this in California

6. To do the forced appreciation as part of the BRRRR approach: need a good hard money lender, good general contractor, good realtor/property manager, appraiser and banker(not someone from
Wells Fargo) from community bank for refinance after reappraisal for cash out to rinse and repeat.

7. It’s not for everyone: the only point is that done correctly over time will produce higher returns than madoff YoY without committing fraud. Those committing fraud would be held accountable a lot faster than madoff

The tax code can be used produce more stable returns than market forces and help those committed to learning the ins and outs to fund retirement a lot faster than a 401k and investing in a SFH.

I haven’t seen anyone investing in Bitcoin achieving FIRE in large numbers (financial independence, retire early)

By ‘retire’ I mean, maybe slowing down a bit and working on your terms .
368   Eric Holder   2021 Mar 26, 5:34pm  

Tenpoundbass says
What 280K investment is going to give you 408K over the next 20 years?


Is this a joke? A basic S&P 500 index fund will give you way more than that.

S&P long term average is ~9% IIRC. Even at 7% $280K will grow into >$1M over 20 years.
369   Glock-n-Load   2021 Mar 26, 5:36pm  

Tenpoundbass says
get down to your RNC or DNC local skullduggery session and vote them out f you don't like what you're seeing, or join if you're precinct isn't represented.

How do I find this information? I live in the 22102 zip code.
370   MMR   2021 Mar 26, 5:50pm  

Can an airbnb, vrbo investment be an effective hedge against income taxes(assuming RE professional status )

It’s good but not as good as cash flowing rentals. If people don’t want to be renters, then they can move to a
State where it is easier to buy.

https://semiretiredmd.com/dreading-taxes-consider-cost-segregation-and-bonus-depreciation/

https://semiretiredmd.com/are-short-term-rentals-a-good-investment/
371   MMR   2021 Mar 26, 5:50pm  

Can an airbnb, vrbo investment be an effective hedge against income taxes(assuming RE professional status )

It’s good but not as good as cash flowing rentals. If people don’t want to be renters, then they can move to a
State where it is easier to buy.

https://semiretiredmd.com/dreading-taxes-consider-cost-segregation-and-bonus-depreciation/

https://semiretiredmd.com/are-short-term-rentals-a-good-investment/
372   Tenpoundbass   2021 Mar 26, 6:03pm  

Glock-n-Load says
Tenpoundbass says
get down to your RNC or DNC local skullduggery session and vote them out f you don't like what you're seeing, or join if you're precinct isn't represented.

How do I find this information? I live in the 22102 zip code.


Fairfax GOP Web page
https://fairfaxgop.org

To become a member of the Fairfax GOP to have voting rights in the party.
https://fairfaxgop.org/become-a-member/

Here's the form (In my County in Florida there is no fee)
https://fairfaxgop.org/wp-content/uploads/2018/04/FCRC-2018-Membership-Application-4.pdf

Here's the leadership list.
https://fairfaxgop.org/fcrc-leadership/

It seems Fairfax unlike Broward Florida(we have over 400 open precincts) are coveted spots, join and get others to join. If the leadership in that list aren't doing the right thing.
Vote them out, that's what your membership affords you.


Here's the hierarchy structure for Texas, it will give you the idea how it works most states.



376   Blue   2021 Mar 26, 6:12pm  

Eric Holder says
Tenpoundbass says
What 280K investment is going to give you 408K over the next 20 years?


Is this a joke? A basic S&P 500 index fund will give you way more than that.

Shack is to hangout not an investment.
377   porkchopXpress   2021 Mar 26, 7:53pm  

Eric Holder says
Tenpoundbass says
What 280K investment is going to give you 408K over the next 20 years?


Is this a joke? A basic S&P 500 index fund will give you way more than that.

S&P long term average is ~9% IIRC. Even at 7% $280K will grow into >$1M over 20 years.
But stocks don't give you projects to do like real estate does. Who wants to make money the easy way?
378   SunnyvaleCA   2021 Mar 26, 8:45pm  

Eric Holder says
Patrick says
When you pay off debt, that probability is 100%.
There is a such thing as playing it too safe. Paying off early a 2.5% mortgage is one of these.

Some people say you should have a certain ratio of stocks to bonds in your investment portfolio; diversification and balance and all that. I could do that and then use the dividend that the bond pays to pay the interest on the home mortgage. Instead, I used the money that would go to bonds to pay off the house. Makes sense to me since I have a high enough net worth that I'm not overly lopsided on the house side.
379   Tenpoundbass   2021 Mar 26, 9:18pm  

My house paid me 128K, to buy it for myself and pay it off 10 years into a 30 year mortgage.
Now I'm free to gamble on the Stock market, before Joe Biden and his Commie cohorts blow it all to hell.
As I don't have overhead for housing.
380   Tenpoundbass   2021 Mar 26, 9:33pm  

People who don't see the financial security in paying your family home off and owning it outright. Are the same people who take out a second mortgage on their house, to finance a franchise they saw at a tradeshow. Or would buy a house with ARM interest, knowing full well they can't afford the house, but are gambling on flipping it. I would toss the reverse mortgage folks in that lot as well. Or just single people who like their money making them money, and don't feel the need to have it tied up in Real Estate. But they'll spend $4K a month to rent a Condo on the Ocean though. Does future rent not account for nothing when factoring in the logic for not paying off a mortgage early?
381   Patrick   2021 Mar 26, 10:26pm  

MMR says
As far as I know they do not recommend California in general as it’s hard to get good cash on cash return. California is mostly an appreciation bet


I'm totally with you there. California real estate is a bad buy, because you can usually rent a similar thing for less than the cost of owning.
382   Tenpoundbass   2021 Mar 27, 10:03am  

Eric Holder says
S&P long term average is ~9% IIRC. Even at 7% $280K will grow into >$1M over 20 years.


You are wrong at your assessment with the S&P, in August of 2000 if I had bought 10 shares $2161, then today I would only have a profit of $168K.
That's a huge gamble it could have gone the other way. When you have a wife and kids, a family that depends on you making smart choices. You don't gamble and piss your money away, while you owe a monthly nut on your family abode. It's the reason for 60% of the divorces out there, the husband does something incredibly stupid with the family finances.
Moreover people who feel compelled to pay off their house early, tend to have goals with the money they save after they paid it off. More like investing it in a cash flow business.

In the last 25 years, I've watched so many people who like to put a large chunk of their paychecks into their company's 401K, watch it calve in half, every time the Bilderbergs feel a financial squeeze, and feel like the commoners are getting too damn rich and high and mighty.

Then people say, yeah but it rebounds and comes back! Yeah if by the grace of God someone like Donald Trump gets elected. And more over people are impressed that their 401K's got back to $500K that they had in 1999 before the tech market crash. When in reality they should have over 2 million in their 401K.

1999 401K cratered, then again in 2007, then again in 2009 they keep losing half their nest egg, every few years, but somehow think they are winning.
383   Patrick   2021 Mar 27, 10:37am  

Tenpoundbass says
assessment with the S&P, in August of 2000 if I had bought 10 shares


Let's check. I can see from Yahoo Finance that S&P was $1518 on June 1st of 2000.

Now it is $3975. What annual percent increase would get that?

Say it has been 21 years (it hasn't quite, but still).

1518 x (1.047 ^ 21) = 3982

So the S&P has had an average annual gain of 4.7% since then. Not that impressive, but that was the very worst time to buy in that decade (1995 - 2005).

If instead we had bought Jun 1st of 2002 for $916, then:

916 x (1.08 ^ 19) = 3953

The S&P has had an average annual gain of 8% since then. Much better.

The lesson seems to be to buy at the right time, lol, though no one can tell you just what the right time is.
385   RWSGFY   2022 Nov 20, 9:50am  

GreaterNYCDude says

Seems the MSM finally agrees with you!

https://www.cnn.com/2022/11/12/homes/buying-a-home-high-rates/index.html


A broken clock is right twice a day.
386   BayArea   2022 Nov 20, 10:15am  

Boy I wish I bought an expensive house at the time this thread started in 2015
387   kmail   2022 Nov 20, 10:52am  

BayArea says

Boy I wish I bought an expensive house at the time this thread started in 2015

do you think houses will be cheaper 10 years from now? you don't have to wish. buy today and you can save yourself from repeating that same comment 10 years from now🙃
388   Blue   2022 Nov 20, 11:50am  

Patrick says




  1. Because house prices in expensive areas still dangerously high compared to incomes and rents. Banks say a safe mortgage is a maximum of 3 times the buyer's annual income with a 20% downpayment. Landlords say a safe price is set by the rental market; annual rent should be at least 9% of the purchase price, or else the price is just too high. Yet in affluent areas, both those safety rules are still being violated. Buyers are still borrowing 6 times their income with tiny downpayments, and gross rents are still only 3% of purchase price. Renting is a cash business that proves what people can really pay based on their salary, not how much they can borrow. Salaries and rents prove that affluent neighborhoods are still in a huge housing bubble, and that bubble seems to be getting more dangerous by the day.


    2. On the other hand, in some poor neighborhoods, prices are now so low that gross rents may exceed 10% of price. Housing is a bargain for buyers ...

Especially with crazy Biden out of control inflation. I know well enough how this one works back from my 3rd world experience to a level that the grocery stores never maintain prices tags as they kept changing every few (not months!) hours. Inflation is not fun unless you are brain-dead leftist kept voting to Dems again(really!). Good times are around to buy a shack if you happen or planing to live outside of super inflated urban centers.
389   Patrick   2022 Nov 20, 12:10pm  

BayArea says

Boy I wish I bought an expensive house at the time this thread started in 2015


Really, why? I've done better in the stock market than I would have done with a house.

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