please check out the anti-mandate news »

« prev   random   next »


37 Bogus Arguments About Housing

By Patrick follow Patrick   2015 Jul 11, 1:24pm 159,544 views   111 comments   watch   nsfw   quote   share    

  1. Houses always increase in value in the long run.
    FALSE. Price is what you pay and value is what you get. The value of a house is constant. It just sits there. You get shelter, but you have to pay property tax and maintenance and the loss of alternative uses of capital. A house is a dead asset. The price of a house rises with salary inflation, but house prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.

    For example, prices in the Netherlands are about the same as they were 350 years ago, in terms of how many years of work it takes to buy a house. Warren Buffett and Charles Schwab have both pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. Consider a 100 year old house. Its value in sheltering you is exactly the same as it was 100 years ago. It did not increase in value at all. It did not spontaneously get bigger, or renovate itself. Quite the opposite - the house drained cash from its owners for 100 years of maintenance, taxes, and insurance - costs that never go away. The price of the house went up about as much as salaries went up, which is about the same as the number of dollars printed by the Federal Reserve went up.

    My grandmother always used to complain about the cost of milk. "Why, when I was a girl, a gallon of milk cost a dime! Just look at how much people are overcharging for milk now." I asked her how much people got paid back then. "Oh, about $15 a week", came the reply. Hmmm, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that inflation and salaries rose a proportional amount as the Fed debased our currency.

    I don't see any salary inflation in our future for years to come, and that's the only kind of inflation that boosts house prices. Inflation in everything else (food, energy, medical) just takes away from the money people have to spend on housing.

  2. As a renter, you have no opportunity to build equity.
    FALSE. Equity is just money. Renters are actually in a better position to build equity through investing in anything but housing. Renters can get rich much faster than owners, just by saving the money that owners are wasting on mortgages, taxes, and maintenance. Renters are getting paid to wait, both by the monthly savings and by watching the value of their savings increase relative to housing.

    • Owers are losing every month by paying much more in interest than they would pay in rent. The income deduction does not come close to making owing competitive with renting.
    • Owers are losing principal in a leveraged way as prices decline. A 14% decline completely wipes out all the equity of "owners" who actually own only 20% of their house. Remember that the agents will take 6% if they possibly can.
    • Owers must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity. Only houses are such a guaranteed drain on cash.
    • Owers must insure a house, but not most other investments.
    • Owers must pay to repair a house, but not a stock or a bond.

  3. Renting is just throwing money away.
    FALSE, renting is now much cheaper per month than owning the same thing. If you don't rent, you either:

    • Have a mortgage, in which case you are throwing away money on interest, tax, insurance, and maintenance.
    • Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income could be 50% to 200% beyond rent costs forever, and for many is enough to retire right now.

    Either way, owners lose much more money every month than renters. Currently, yearly rents in the San Francisco Bay Area are about 3% of the cost of buying an equivalent house. This means a house is returning about 3% rent minus taxes and maintenance, bringing the landlord's return down to 0%.

    Landlords are loaning a house to their tenants at a 3% interest rate, called rent. This is a fantastic deal for renters. When it is possible to borrow a million dollar house for 3% yearly rent at the same time a loan of a million dollars in cash costs 6.5% interest, plus 1.3% property tax, plus 1% maintenance, something is clearly broken. Renters are enjoying an extreme discount at the owner's expense.

    If someone tells you that you are throwing money away, you can reply "The landlord is giving me a huge gift. He's subsidizing me to live in his rental. I'll take free money any day."

    If someone tells you that you are "Not building equity", you can reply you are not LOSING equity, which happened to millions of people, and is still going on right now.

    To add insult to "owners", their property is declining in value. Renters are completely protected from the massive losses owners are experiencing. Here's a great quote from NPR:

    Underwater owner: "We would do it [pay the mortgage] if the equity was there, but in a case where we're already so behind... Imagine that for five years, say, we're gonna pay four grand a month and then we're just gonna be back up at what we bought the house for. We feel like we're throwing away money."

  4. There are great tax advantages to owning.
    PARTIALLY TRUE. It's true for high-income couples with expensive houses and big mortgages, but not for modest-income couples in modest houses, especially if there is no mortgage.

    Every married couple filing jointly automatically gets to subtract an $11,400 deduction ($5,700 for singles) from their adjusted gross income to arrive at their taxable income. Alternately, you may add up modest deductions in seven categories: Medical, Taxes, Interest, Charity, Casualty and Theft, Job Expenses, and Other Misc. If the total of your expenses in these categories exceeds the standard deduction, you can itemize them on Schedule A of your tax return to reduce your taxable income.

    Let's assume that your only deductible expenses fall into the Taxes and Interest categories. Taxes mainly include the income tax you pay to the state (or its sales tax) and the property taxes on your home or other non-investment real estate. In a high-tax state like New Jersey, you might easily pay $7,200 in property taxes and $200 in income taxes, for a total of $7,400. So the first $4,000 of interest expenses just brings your deductions up to the standard $11,400, without reducing your taxable income.

    For a high-income couple, let's assume they can itemize their state income tax of $3,400, contributions of $1,000, and medical expenses of $1,000. These deductions use up $5,400 of the $11,400 standard deduction. So the first $6,000 of property taxes and interest save them nothing. After that, their savings depend on their tax bracket, which could be as high as 35 percent.

    For couples with modest incomes and mortgages, the first $11,400 of taxes and interest save them nothing.

    Evaluate your situation before making a buy-rent decision based on potential income-tax savings. Be sure to consider the deduction limit imposed by the AMT, too. Interest is paid in real dollars that buyers suffered to earn. That money is really entirely gone, even if the buyer didn't pay income tax on those dollars before spending them on mortgage interest. You don't get rich spending a dollar to save 30 cents!

    Buyers do not get interest back at tax time. If a buyer gets an income tax refund, that's just because he overpaid his taxes, giving the government an interest-free loan. The rest of us are grateful.

    If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

    Even if you pay outright, you're still renting the house to yourself, losing alternative uses of that money, and taking the risk of falling house prices.

    Compare the cost of owning to renting.

  5. All real estate is local, so you cannot say anything about the national market.
    FALSE. Lending is global. All loans are harder to get. This will push prices down everywhere.

  6. OK, owning is a loss in monthly cash flow, but appreciation will make up for it.
    FALSE. Appreciation is negative. Prices are going down, which just adds insult to the monthly injury of crushing mortgage payments.

  7. As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
    FALSE. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing.

    No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

  8. House prices don't fall to zero like stock prices, so it's safer to invest in real estate.

    FALSE. It's true that house prices do not fall to zero (except in Detroit), but your equity in a house can easily fall to zero, and then way past zero into the red. Even a fall of only 4% completely wipes out everyone who has only 10% equity in their house because agents will take 6% if they can trap the seller with a contract. This means that house price crashes are actually worse than stock crashes. Most people have most of their money in their house, and that money is highly leveraged.

  9. The bubble prices were driven by supply and demand.
    FALSE. Prices were driven by low interest rates and risky loans. Supply is up, and the average family income fell 2.3% from 2001 to 2004, so prices are violating the most basic assumptions about supply and demand.

    The site has data for Santa Clara County for the years 2000-2003 which shows that the number of housing units went up at the same time that the population decreased:

    year units people

    • 2000 580868 / 1686474 = 0.344 housing units per person
    • 2001 587013 / 1692299 = 0.346
    • 2002 592494 / 1677426 = 0.353
    • 2003 596526 / 1678421 = 0.355

    So housing supply in Santa Clara County increased 3% per person during those years. There is an oversupply compared to a few years before, when prices were lower.

    At a national level, there is a similar story in the years 2000 to 2005:

    • 2000 115.9M / 281M = 0.412 housing units per person
    • 2005 124.6M / 295M = 0.422

    At a national level, there is 2.4% more housing per person now than in 2000. So national prices should have fallen as well.

    A for-sale sign in a yard instantly increases the supply of houses on the market. There is no need to wait for builders.

    The truth is that prices can rise or fall without any change in supply or demand. The bubble was a mania of cheap and easy credit. Now the mania is over.

  10. They aren't making any more land.
    TRUE, but sales volume has fallen 40% in the last year alone. It seems they aren't making any more buyers, either.

    Japan has a severe land shortage, but that hasn't stopped prices from falling for 15 years straight. Prices in Japan are now at the same level they were 23 years ago. If we really had a housing shortage, there would not be so many vacant houses.

  11. Your calculator says the house I'm interested in is worth far less than the asking price. That's not very helpful in coming up with an offer. FALSE. It's very helpful to be able to document that you could be paying much less to live in the same location and same quality house, just by renting. It's a great negotating point.

  12. It is hard to find a rental that is the equivalent of this home. PARTIALLY TRUE. Sometimes there just is no equivalent rental available in the same area. Placing an ad saying you're looking for a rental in that area in a certain rent range is often enough to bring new rentals out of the woodwork though.

  13. Attractive areas will not follow strict economic laws of their worth. If I keep bidding what a home is strictly worth, I will always lose to someone who simply wants to live there, even if their money could be better invested elsewhere. FALSE. You can't lose by winning. Renting the same quality house in the same area for much less money every month than an owner pays is winning. Maybe others get the intangible feeling of ownership, but you get the cash that they are losing.

  14. If you don't own, you'll live in a dump in a bad neighborhood.
    FALSE. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

    Some people want the mobility that renting affords. Renters can usually get out of a lease and move anywhere they want within one month, with no real estate commission. On the other side, if you can get a long-term lease, you will probably find it worthwhile to repair the place to your taste. The average time of owning a house is only seven years anyway.

    It is cheaper to rent a house in a good school district than to buy a house in the same place. In fact, children benefit in several significant ways from living in a rental. Aside from having a choice of school district, kids in a rental benefit from better parks in nicer neighborhoods, more living space, and less stress in their parents' voice -- all because it is still so much cheaper to rent than to own in bubble areas.

    A fun trick to rent a good house cheap: go to an open house, take the agent aside, and ask if the owner is interested in renting the place out. Often, desperate sellers will be happy to get a little rental cash coming in and give you a great deal. Sometimes they will rent to you for free ($0) as long as you keep the place up and pay the utilities.

    The biggest upside is hardly ever mentioned: renters can choose a short commute by living very close to work or to the train line. An extra two hours every day of free time not wasted commuting is the best bonus you can ever get.

  15. Owners can change their houses to suit their tastes.
    FALSE. Even single family detached housing is often restricted by CC&Rs and House Owner's Associations (HOAs). Imagine having to get the approval of some picky neighbor on the "Architectural Review Board" every time you want to change the color of your trim. Yet that's how most houses are sold these days.

    In California, the HOA can and will foreclose on your house without a judicial hearing. They can fine you $100/day for leaving your garage door open, and then take your house away if you refuse to pay. There's a good HOA blog here.

  16. The house down the street sold for 25% over asking, and that proves the market is still hot.

    agents have been known to create the false impression of a hot market by deliberately "underpricing" a house, especially in California. I personally have seen this happen repeatedly. Say a seller's agent knows that house will probably go for $400,000. He places ads asking $300,000 instead, a price lower than the buyer would accept. (Bait-and-switch is illegal when selling toasters, but apparently not when selling houses.) The goal is to first of all prevent buyers from knowing what a realistic price is, and secondly to get buyers to blindly bid against each other. There are four players in this game and three of them are against the buyer -- the seller, the seller's agent and the buyer's agent. Yes, the buyer's own agent works against the buyer, because there is no commission if there is no sale. There's a saying in Las Vegas: "There's a patsy in every game, and if you don't know who the patsy is, you're it."

    If you want to prove your agent is not on your side, ask to see houses "for sale by owner" or houses listed by discount brokers. If the agent cannot make a commission, you will not be told about the house.

    There is a way around the conflict of interest inherent in being a buyer's agent:

    let the seller's agent be your agent too, just for that one house he's trying to sell. Then the seller's agent has a big motive to lower the price, because he will get double the commission if you buy it rather than some buyer with his own agent.

    Note that you are free to bid far lower than the asking price. You might be pleasantly surprised to find out how desperate the sellers are. Another good reason to start low: you can easily raise your offer, but it's awkward to lower it. A suggestion from a reader: have all your friends bid extremely low for the house before you, then your own low bid will seem more reasonable.

    Another suggestion for dealing with underpricing:

    Get over it, and just beat them at their own game: Beat out all other bidders by bidding unrealistically high, and just be sure to have your offer contingent upon financing & house inspection. Since the bank won't finance you above the appraised value, you're then in a very strong position to re-negotiate the price far lower during escrow. The other bidders will be long gone.

  17. I was lucky that my agent told me to increase my bid by $50,000. Otherwise I would have lost, because my agent knew about a secret bid $40,000 above mine.
    FALSE. Your agent gets paid nothing if you don't buy the house, and he gets more if you waste more money by bidding too high. It is unwise to take at face value "secret" information that costs you money.

  18. The MLS proves things are great.

    The MLS (Multiple Listing Service, a private network of databases controlled by real estate agents) is a used-house sales tool designed to restrict access to critical market information to prevent the free market from working efficiently.

    All sorts of funny things happen in the MLS. For example, if a house just doesn't sell, that agents can remove its record in the MLS so that you cannot see that it failed to sell. Then the house comes back on the market at a lower price, and unsuspecting buyers think it's on the market for the first time. Their agent can "prove" it's a new listing by showing the MLS record to the buyer: "See, here's the listing date, just came on the market. Better hurry and buy it, this one is hot."

    There is no government agency checking that the MLS shows true transaction prices.

    Furthermore, the MLS will not list any house for sale by owner, and will resist listing property for sale through a discount broker, or bank-owned property, or extreme discounts from builders, or many other cases where you could save huge amounts of money. Those cheaper prices are often not in the system, because if you save money, they lose money. Even if some cheaper properties are listed, your agent is not likely to tell you about them if they require more work on his part, or get him a smaller commission.

  19. I'll just amortize the commissions and other transaction costs over 30 years and they'll be OK.
    FALSE. The average length of ownership is seven years, not thirty. That means the 7% or so that you'll pay in commission and closing fees comes out to about 1% per year, and that's actually a lot of money. You may think you're different and will actually stay put for 30 years, but statistically you're not, and you won't.
  20. Rich Chinese (or Europeans, or Arabs) are driving up housing prices.
    FALSE. The percentage of US houses bought by rich foreigners is tiny. Furthermore, American housing is clearly a bad investment at this point. Foreigners can just wait and watch American housing continue to fall, and then buy for much less in a few years. Rich foreign investors are not dumb enough to buy into a badly overpriced market, but your agent is hoping that you are. reader John H. points out that when the Chinese property bubble implodes, there will probably be sales of property in California and British Columbia to cover their losses at home.

  21. Local incomes justify the high prices.
    FALSE. Most bankers use a multiple of 3 as the maximum "safe" price-to-income ratio. We are well beyond the danger zone, into the twilight zone. The price to income ratio is still around 10 in the SF Bay Area.

  22. Prices were always way beyond equivalent rent in San Francisco (or whatever expensive town)
    FALSE. Price to rent ratios were normal in San Francisco and other the other expensive towns in 2000. That ratio more than doubled by 2005. See page 34 of John Talbott's excellent book called "Sell Now!"

  23. Higher-income people can afford to spend a larger portion of their income on a mortgage, so your 6% rule of thumb does not apply to them.
    FALSE. Even if you can spend more than 6% of the purchase price each year on a mortgage and other costs to own a house, that does not mean you should. In fact, gross rents are almost always less than 6% in richer neighborhoods, making it an even worse deal for the buyer in these places. The renter living in the same quality house next door loses far less money per month.

  24. You have to live somewhere.
    TRUE, but that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the crash. A renter could save hundreds of thousands of dollars, not only by paying less every month, but by avoiding the devastating loss of his downpayment.

  25. Newspaper articles prove prices are not falling in my neighborhood.
    FALSE. The numbers in the papers are not complete and have murky origins. Those prices are "estimated" from the county transfer tax and making that tax public record is optional. A buyer who does not want you to see how little he paid has only to ask to put the transfer tax on the back of the deed and it will not show up on computer searches of the deed, which show only the front. Others voluntarily pay more tax than they have to, in order to inflate the apparent price to fool the next buyer. At a tax rate of about $1 per thousand of sale price, as in San Mateo county, you have to pay only $100 extra tax to make your purchase price look $100,000 higher.

    Even though you can in theory go to your county building and get sale price information, in reality the county will give it to you in a painfully slow and inconvenient way. For example, in Redwood City's county building there are PC's where you can look at data for any particular house, but you cannot print, you cannot save to a floppy disk, you cannot email data out. All you can do is write things down manually, one at a time. And that's how real estate interests like it. Your elected representatives are serving them, not you.

    Supposedly impartial sources like Dataquick are paid for entirely by people with a large financial interest in "proving" that prices are not falling. This makes it unwise to take their numbers at face value.

    For the obviously biased sources like real estate agents, you should assume that their sales price numbers do not include the effective price reductions from "incentives" like upgrades, vacations, cars, assumed mortgages and backroom cash rebates to buyers.

  26. My appraisal proves what my house is worth.
    FALSE. "An appraisal in its typical residential real estate form is little more than a comparative analysis conducted by someone with no skin in the game offering confirmation that other lemmings are paying too much for their houses as well." -from an article on

    Amazingly, government house price r=1">measures do not include houses with jumbo mortgages. This excludes well over half of all houses in California. So the government can report a slight price rise, but fail to mention that prices actually fell for the other 60% of houses in California.

  27. Foreclosures destroy neighborhoods, so we should stop foreclosures.
    FALSE. Empty houses destroy neighborhoods. Houses remain empty only because the prices are too high. "Anti-foreclosure" programs just keep prices too high, and keep houses empty. In areas where there are jobs, if prices were allowed to fall enough so that salaries can easily cover the cost of owning, people would move in and take care of the houses. In areas without jobs, the first priority should be jobs.

  28. It's not a house, it's a home.
    FALSE. It's a house. Wherever one lives is home, be it apartment, condo, or house. Calling a house a "home" is a manipulation of your emotions for profit. Don't let them push your buttons.

    A house is a wooden box that sits out in the rain and slowly rots. No one would buy in this market if they really thought about how much pain it's going to cause them in the long run. That's why they sell you a home, not a house.

  29. If you don't own, you're a failure.
    FALSE. Maximizing your savings and escaping the slavery of debt is success. Most people have a hard time understanding this, but they do understand cash. You could show them your bank statements to prove you're way ahead of the game as a renter, but then they would probably just ask you for a loan!

    The use of the status card is another well-known button that agents push to trick people into making foolish purchases. Don't let them do it.

  30. Property in the San Francisco Bay Area is a luxury good, and so will be less affected by economic downturns.
    FALSE. Most San Francisco Bay Area mortgages are ARMs, and ARM loans are not taken out by the rich. People on the border of bankruptcy take out ARMs because they can't afford fixed rate loans. The rich don't have loans at all.

    Many of these ARM loans have exceptionally deadly repayment terms, and so are known as "neutron mortgages". Like the neutron bomb, they destroy people, but leave buildings standing. They are also known as "suicide loans".

  31. House ownership is at a record high, proving things are affordable.
    FALSE. The percentage of their house that most Americans actually own is at a record low, not a high. We do have a record number of people who have title to a house because they have dangerous levels of mortgage debt, but that is no cause to celebrate.

  32. Rents could shoot up, making it a better deal to buy.
    FALSE. Rents are limited by the money people actually earn, not by how much they can borrow. Try walking into a bank and asking for a loan to pay your rent. For rents to shoot up, salaries would have to shoot up first. Salaries are not likely to rise at all given the current unemployment rate.

  33. You failed to factor in emotion. More houses are sold on emotion than will ever be sold based on perceived value. They buy all they can afford plus.
    FALSE. Buyer emotion doesn't matter at all to the lenders, not on the way up or on the way down. Most people will borrow as much as the possibly can. The limiting factor is lending, not emotion.

  34. It's unpatriotic to talk about mispriced houses. It might drive down prices.
    FALSE. Lower prices are better for America, especially for new families. Aren't lower food and energy prices better for America? Housing prices are the same: lower is better. Most Americans directly benefit by a decrease in house prices. Only the banks benefit from increased mortgage debt.

    If you own a house, lower prices have very little effect. If you want to sell and buy another house, higher prices mean you'll just have to pay more for the next house, while lower prices mean you will get a discount when you buy. If you want to buy a bigger house, you come out ahead with lower prices.

  35. My wife will divorce me if I don't buy a house.
    FALSE. She will divorce you if you do buy a house and go bankrupt trying to pay the mortgage. She won't divorce you if you rent a much nicer place than you can buy, and then take her to Paris for a month each spring, which you can do just by avoiding that suicidal mortgage.

    If she's religious, you could also point out Proverbs 22:7: "The rich rule over the poor, and the borrower is servant to the lender."

  36. My new baby needs a house.
    FALSE. If you're pregnant and desperately want to buy a house for your new child, that's a perfectly normal feeling called "nesting". It is also the leading avoidable cause of financial fatalities! You most definitely do not need a house for a baby. A baby is utterly unaware of whether it lives in a rental or not. Babies also don't need much space.

    Your baby will do better if you're not stressed out about a mortgage. You have five years before school quality becomes an issue, and at that point you can more easily move into the best school district as a renter than as an owner. Avoid debt and save your money so your child has a better start in life.

  37. I just want to own my own house.
    TRUE, most people do. There's nothing wrong with that. Buyers will get their chance when housing costs half as much and they have saved a fortune by renting. House ownership is great - unless you ruin your life paying for it. If you can save even just 10% on the price of a house, you can retire several years earlier than you would otherwise. If you can save 50%, then you can easily take a ten year vacation and still come out ahead. Great quote from "People want to buy a house, they want to have someone tell them it is the smartest decision they are making in their lives, and they don't want to hear about any downside risk."

    Housing is the biggest expense in nearly everyone's life, far more expensive than food, gas, energy, even more expensive than education or medicine. To reduce the time you spend working to pay for housing is to increase the time you have for everything else.

    Cheap housing is good for us all! High housing costs take away from families' ability to save for retirement, fund their children's education, travel and lead a quality life.

    How can we make lower house prices our official government policy? How can we completely eliminate the mortgage interest deduction which drives up housing costs and discriminates against renters? How can we wipe out Fannie Mae, Freddie Mac, the FHA, and other agencies whose job it is to enslave Americans to mortgage debt?

    As reader Sean Olender put it: "Many people have forgotten that the number one restriction on their future freedom to do what they want, when they want, and to go where they want isn't the Iraqis, or Iranians, or North Koreans -- it's their mortgage lender."

What should you do?

First of all, both sides should avoid using agents, especially Realtors(R), who are corrupting our laws in Washington with lobbyists. Agents suck money out of the deal and monopolize the critical information of exactly how many bids there are and at what prices. Your own agent or the seller's agent may be bribed by another buyer to prevent your better offer from being presented to the seller, for example. Just find a property or buyer on your own, have the property inspected, and get a real estate lawyer to draw up or review the offer. If you make an offer, mail the offer to the seller yourself so that your agent or the seller's agent can't block it. If you are accepting or rejecting an offer, mail that information to the bidder yourself so that your agent or the bidder's agent can't -94112">block it. Agents have been known to block offers that don't give their own agency both sides of the commission.

Never sign any contract with any agent!

Agents try to trap you with a contract so that you cannot know for sure what is going on or make independent decisions. If you don't want to sell a house yourself or negotate a purchase, hire a lawyer or someone else by the hour to do the work for you. You're likely to save many thousands of dollars by avoiding commission fees.

Do not let any agent know your maximum price, or how much you are pre-approved for. Pre-approval is used by the agent to see how much more they can extract

from you.

To find out the lowest price an owner might accept, you could "happen" to wander by when the owner is outside and say: "I'd can't come near that price so I'm not interested, but just curious, what's your lowest price?"

If you own an expensive house, sell now so you can actually keep some of that funny money that appeared out of thin air. Otherwise, it will be painful to watch it vaporize back into thin air. Investors in mortgage-backed bonds subsidized the increase in the price of your house. Now they want their money back, and your challenge is to prevent them from getting it. The only way is to sell before your neighbors do. Time is not on your side.

If you can't sell without a loss, it's probably best to just walk away and free yourself from mortgage slavery. It depends on whether your loan was "recourse" or "non-recourse". In the latter case, the deal is simply that you can stop paying the loan and give back the house at any time. It's perfectly legal and moral according to the terms of the mortgage. Now that the government has temporarily stopped taxing forgiven debt, you can do it without owing anything! But talk to a lawyer and accountant first. If you refinanced, you may have given up your non-recourse status.

A long-term rental with a multiple-year lease is a good way to get stability with the economic benefits of renting. Many landlords are desperate, and you'll probably find them quite willing to negotiate a long term lease. Make sure they can't raise the rent much during the lease term, and make sure there is only a small penalty for ending the lease early. Even if you sign a normal 1-year lease, most landlords are happy to keep good tenants as long as possible.

If you want to buy, look around and see that house prices are falling. Why hurry to buy into a falling market? Time is on your side. Save your cash and buy for much less in the future. All your savings on the price of a house are tax-free earnings! For Californians: buy after the earthquake, not before.

Good advice from reader Stephen G. Bishop:

Signing a 30-year commitment is absurd. Can you guarantee your income will be uninterrupted for 30 years? It worked in the previous generation, when Dad worked at the same factory for 40 years and retired. Those days are gone. 80% of all mortgages are never kept to maturity. Triple the price of the property when you add interest for 30 years in. It's only worth it if the property doubles in value every ten years. Those days are gone.

Do not buy anything that wasn't built properly, no matter how cheap it gets. Many foreclosures are houses that weren't built properly, and these houses tend to be foreclosed over and over again. Lots of houses are ugly, but an ugly but well built house is often the best deal.

The way to win the game is to have cash on hand when others cannot get a loan. You do not want to be bidding your hard-earned savings against people who are bankrupting themselves with debt. It will be time to buy when lenders once again demand a 20% downpayment from everyone and get serious about checking ability to repay. You'll know prices are reasonable when it's cheaper to own than to rent the same thing. We're not there yet, not even close. Find a nice cheap rental, invest your savings every month, and enjoy the show till then.

Please tell friends about, because people need to know the arguments against buying a house.

And a little comic relief (illustration courtesy of Rick LaForce, RickL@ci.union">RickL@ci.union

Annual income twenty pounds, annual expenditure nineteen six, result happiness.
Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.
--Charles Dickens, David Copperfield, 1849

To waste money is to waste that part of your life you spent earning that money, and wasting life is the worst thing you can do. --Dan8267

Saying it is "good" for housing prices to rise is saying that it is good for housing to take an increasing share of salaries each year, forever. There's a limit, and it is somewhat shy of 100%. --Bryce Nesbitt

If you need a mortgage, you can't afford it. --Stephen G. Bishop

From anonymous: The Mexican Dream is to escape from debt peonage. The American Dream is to get into debt peonage.

Lowering interest rates will help the housing and stock market for about as long as peeing your pants will help when you have to go. It will give a warm feeling for a minute.

Everybody hates house-agents because they have everybody at a disadvantage. All other callings have a certain amount of give and take; the house agent simply takes. -- H. G. Wells

Nick Naylor, in Thank You For Smoking: "99% of everything done in the world, good or bad, is done to pay a mortgage. Perhaps the world would be a better place if everyone rented."

From The Politics of Life by Craig Crawford: "Beware the boss who encourages you to buy a house or new car. Mortgages and car payments enslave you to the paycheck that your boss controls."

From Benjamin Graham, in The Intelligent Investor: "The outright ownership of real estate has long been considered as a sound long-term investment, carrying with it a goodly amount of protection against inflation. Unfortunately, real estate values are also subject to large fluctuations; serious errors can be made in location, price paid, etc.; there are pitfalls in salesmens' wiles."

Why do the buy side idiots ALWAYS fall for the FALSE CHOICE FALLACY????
Choice 1: Buy today, right now, this second.
Choice 2: Rent until you die.
Um, I will take door #3: let prices fall another couple hundred $K on a home like this, and buy it in a year or two. What did I win?
--Roberto Aribas

What the public believes, or can be induced to believe, no matter how wrong, is reality to politicians.

Subsidies simply increase prices by increasing demand. Subsidies benefit the first few recipients, but the sellers quickly catch on to the new source of revenue and increase prices to negate that benefit for all subsequent recipients. Ultimately, all subsidies flow directly to businesses as excess profit at public expense. This is true especially for housing and health care subsidies, and the businesses that benefit from these subsidies spend lavishly on lobbying and campaign contributions to make sure the subsidies continue, in the name of the "public good" even though subsidies are obviously a public harm. The true solution to shortages is to increase supply of houses, doctors, or whatever. But increased supply harms profits, so business interests squash all public talk of increasing supply.

Just as an unobserved tree falling in the forest makes no noise, a big beautiful home out in the lonely woods does little to increase status. The key to appreciating status is to have an audience -- and there is no bigger audience than that of our major cities and the playgrounds of their wealthiest residents. -- John Talbott

They hang the man and flog the woman Who steals the goose from off the Common;
But let the greater criminal loose Who steals the Common from under the goose

Interest never sleeps nor sickens nor dies it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you. -- J. Reuben Clark

It is better to get a poor interest rate than own a depreciating asset. -- Michael Surkan

I'll repeat that the best approach [to buying a car] is to use the Internet, have the car delivered and avoid going to dealerships altogether. --

Everyone in Western Europe, Japan, Canada, Australia, Singapore and New Zealand has a single-payer system. If they get sick, they can devote all their energies to getting well. If Americans get sick, they have to battle two things at once, the illness and the fear of financial ruin. ... And don't believe for a second that rot about America having the world's best medical care or the shortest waiting lists: I've been to hospitals in Australia, New Zealand, Europe, Singapore, and Thailand, and every one was better than the "good" hospital I used to go to back home. The waits were shorter, the facilities more comfortable, and the doctors just as good. --Lance Freeman at

The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism -- ownership of government by an individual, by a group, or by any other controlling private power. ~ Franklin D. Roosevelt

From Our Lot by Alyssa Katz: "The secret, he was learning, was to trigger buyers' emotions, specifically women's emotions."

50 Ways To Leave Your Mortgage

You just slip out the back, Jack
Make a new plan, Stan
You dont need to be coy, Roy
Just get yourself free
Hop on the bus, Gus
You dont need to discuss much
Just drop off the key, Lee
And get yourself free

But, ah, think what you do when you run in debt; you give to another power over your liberty. If you cannot pay at the time, you will be ashamed to see your creditor; you will be in fear when you speak to him, you will make poor pitiful sneaking excuses, and by degrees come to lose your veracity, and sink into base downright lying; for, as Poor Richard says, the second vice is lying, the first is running in debt. -- Benjamin Franklin in Poor Richard's Almanac

I don't think I'll get married again. I'll just find a woman I don't like and give her a house. -- Lewis Grizzard

16 other offers? How can I know for sure that there is really even one other offer? So you're telling me that I should base the biggest financial decision of my life on the honesty and integrity of realtors?

Cashtration (n.): The act of buying a house, which renders the subject financially impotent for an indefinite period of time.

The End

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, $12.50

Kindle version available

« First    « Previous    Comments 72 - 111 of 111    Last »

72   junkmail   ignore (0)   2016 Aug 19, 1:26pm     ↓ dislike (0)   quote   flag      

Strategist says

Since last year I have been predicting $850K median in OC by 2018. So far we have reached $660K, a new record.

Some quick sums
850K asking price.
Principal and Interest = $2,965
Property Tax = $556
Homeowners Insurance = $212
TOTAL = $3,734 pcm

A/ At the conservative lenders 4:1 ratio they expect the household income to be $14,936 pcm
B/ Risky lending 3:1 ratio they expect the household income to be $11,202 pcm

A/ That's $179,232 pa
B/ That's $134,424 pa

OK let's see what the median household income (pa) is in OC?


Hmm do you anticipate a wage/salary increase of between 76% - 135%?


73   Strategist   ignore (2)   2016 Aug 19, 1:41pm     ↓ dislike (0)   quote   flag      

junkmail says

A/ At the conservative lenders 4:1 ratio they expect the household income to be $14,936 pcm

B/ Risky lending 3:1 ratio they expect the household income to be $11,202 pcm

A/ That's $179,232 pa

B/ That's $134,424 pa

OK let's see what the median household income (pa) is in OC?


Hmm do you anticipate a wage/salary increase of between 76% - 135%?


The median price does not have to correspond with median household incomes. The ones making median incomes will settle for condos.
By the way, when the $15.00 per hour minimum comes along, the median household income will increase.

74   junkmail   ignore (0)   2016 Aug 19, 3:10pm     ↓ dislike (0)   quote   flag      

Strategist says

By the way, when the $15.00 per hour minimum comes along, the median household income will increase.

Thanks for that Friday chuckle.

I never said there was a direct correlation between median income vs median house prices. It's the basis for a ratio which then defines affordability. If you look at the numbers they are so far off I don't need to calculate the ratio.

I'm pointing out that the median income in OC falls woefully short to afford the homes available. (minimum wage increase notwithstanding)

Perhaps what will make you happy is to have a Per Capita income of 34K and a household income of 105K. Then you have 3 income earners per household on average.

Here's the danger...
"The Chapman forecast noted that a potential Orange County homebuyer with a median family income will need to spend 37.2 percent of his or her earnings on mortgage payments in 2016. That’s up from around 35 percent in 2015 and 26.4 percent in 2012."

So back in 2012 lenders were close to the 4:1 mortgage rule.
Now the lending is north of 3:1, the margins are getting tighter.

Do you see the problem now?

75   Strategist   ignore (2)   2016 Aug 19, 4:20pm     ↓ dislike (0)   quote   flag      

junkmail says

So back in 2012 lenders were close to the 4:1 mortgage rule.

Now the lending is north of 3:1, the margins are getting tighter.

Do you see the problem now?

There isn't a problem.
The affordability index for OC is at 23%. It's usually in the low teens, and went as far down as 11% during the peak.

76   junkmail   ignore (0)   2016 Aug 19, 6:27pm     ↓ dislike (0)   quote   flag      

Strategist says

The affordability index for OC is at 23%.

Ahhh ok chief.
If 23% affordability doesn't bother you... fantastic.
11% as you quoted is as bad as it gets (depending on rate of rise) is only 12% away...
The national is 57%
Best county in CA is 62%

I agree, you and OC are on a rocket ship. You and Alice are going to the moon.

But hey, why stop at 850K? Let's go for 1M median price...

Just FYI. I checked even the CAR numbers which I know you're quoting and things just turned-a-round at the beginning of this month and are headed down.

Good luck with that $850K median. (Perhaps if you burn down all the low income housing you'll get there)

I'm sure Dale Stinton with throw out a quote that high at some point. But it won't mean anything to investors on the ground.

77   Strategist   ignore (2)   2016 Aug 19, 6:40pm     ↓ dislike (0)   quote   flag      

junkmail says

Strategist says

The affordability index for OC is at 23%.

Ahhh ok chief.

If 23% affordability doesn't bother you... fantastic.

Hell no. The norm for OC is in the low teens. Lots of room for a sustained jump in home prices.
$850 here we come.

78   anonymous   ignore (null)   2016 Aug 20, 11:41am     ↓ dislike (0)   quote   flag      

Strategist says

Lots of room for a sustained jump in home prices.

$850 here we come.


79   missing   ignore (1)   2016 Oct 13, 12:00pm     ↓ dislike (0)   quote   flag      

Strategist says

when the $15.00 per hour minimum comes along, the median household income will increase.

Actually no, it will not. You are confusing median with mean.

80   _   ignore (0)   2016 Oct 13, 1:21pm     ↓ dislike (0)   quote   flag      

FP says

Actually no, it will not. You are confusing median with mean.

81   Strategist   ignore (2)   2016 Oct 13, 2:45pm     ↓ dislike (0)   quote   flag      

FP says

Strategist says

when the $15.00 per hour minimum comes along, the median household income will increase.

Actually no, it will not. You are confusing median with mean.

I understand what you mean. However, when the minimum goes up, all wages will go up over time to keep their distance from the minimum. The mean and the median, both will go up in that scenario.

82   Dan8267   ignore (3)   2016 Oct 13, 5:25pm     ↓ dislike (0)   quote   flag      

Logan Mohtashami says

Is that in real dollars or nominal dollars? I doubt it reflects real purchasing power.

Here's the graph that speaks volumes.

83   _   ignore (0)   2016 Oct 13, 5:28pm     ↓ dislike (0)   quote   flag      

Dan8267 says

Here's the graph that speaks volumes.

Retail sales all time highs
Home sales cycle highs with highest mortgage buyers in the cycle
Car sales still running at 17 million
Those with the highest debts have the highest incomes and financial assets

We own this world ..

84   _   ignore (0)   2016 Oct 13, 5:30pm     ↓ dislike (0)   quote   flag      

The main reason why the American bears of 2009-2016 will be like all the American bears from 1790-2016

Not all Americans are high school drop outs, that group needs help, low educated and low skill Americans need wage inflation

But the middle is the most economic gangster middle class the world has ever seen and we are about to smoke the world this century because we have better demographics than anyone

85   Dan8267   ignore (3)   2016 Oct 13, 5:30pm     ↓ dislike (0)   quote   flag      

Logan Mohtashami says

We own this world ..

Well, 0.1% of us do.

87   _   ignore (0)   2016 Oct 13, 5:41pm     ↓ dislike (0)   quote   flag      

Dan8267 says

Well, 0.1% of us do.

Nah... they have a lot $ hoarding

But without our middle class our economy would look like Japan and Europe

The 1% and the 0.01% can't spend their $$$ enough to create any real high velocity

Our people .... that is what makes us so great...

Even with all this madness with politics, still most Americans work every day and make a living for themselves

So bullish on America vs the world, it's simply not fair...

With out demographics and the U.S. dollar

I feel bad for other countries this century

88   AdamCarollaFan   ignore (0)   2017 Jan 13, 10:15am     ↓ dislike (0)   quote   flag      

rando says

As long as all else is equal

AKA - ceteris paribus

89   johnweeder   ignore (0)   2017 Mar 7, 6:47am     ↓ dislike (0)   quote   flag      

Respectfully, while there are arguments for renting and against owning, most of what you advocate across the blog vis a vi home ownership is easily refuted with a single observation. The person/entity you rent from is making money or they wouldn't be renting. Your rent builds their wealth. You have merely traded some risk (of repairs for example) at the cost of some money.

As someone who has used Quicken since 1989 and tracks how much they spend on toilet paper, I can tell you that - all things included - I've essentially lived rent-free for 30 years by owning a house (2 actually).

OTOH, my rental properties have been, far and away, my best investment (up about 500% since 2001) AND they've paid 3-5% income.

90   missing   ignore (1)   2017 Mar 7, 7:29am     ↓ dislike (0)   quote   flag      

johnweeder says

The person/entity you rent from is making money or they wouldn't be renting.

Oh, they would:

Or you think US-ians are much smarter than Canadians?

91   someone else   ignore (0)   2017 Mar 7, 9:28am     ↓ dislike (0)   quote   flag      

johnweeder says

The person/entity you rent from is making money or they wouldn't be renting.

@johnweeder You'd be right in most of the country, and for newly purchased rentals.

But not in the SF Bay Area. Many rentals here lose money on a month to month basis, and are either pure speculation on prices, or somewhere that someone is parking illegal money, frequently mainland Chinese. In addition, we have rent control in many cities in California.

In addition, Prop 13 in California, being as undemocratic as possible, effectively exempts landlords from property tax increases. So if they purchased a long time ago, their cost of ownership is far lower than a new owner's would be. Take the typical million dollar house in the Bay Area (not exaggerating!). The property tax for a new owner would be about $15,000 per year, but a long-term landlord would pay just about nothing. This clearly lets the landlord make money even at a lower rent than the cost of owning for the new user.

In fact, I use your rule to decide whether a person should buy a house! If a landlord could make a profit on it, it's probably safe to buy for yourself. If not, stay away.

Prop 13 is an abomination. Land is the sole proper object of taxation. To exempt it is to get everything exactly wrong.

92   johnweeder   ignore (0)   2017 Mar 7, 10:07am     ↓ dislike (0)   quote   flag      

My brother-in-law lives in LA. Each time he moves he keeps the previous house and rents it. I think he has 4. I've spent many hours with him discussing CA politics. While his properties are not SF-expensive, they are at least 2x Omaha,NE-expensive. He pays about 1/4 of the taxes I pay but his house has 2.5x the valuation (although I have the "nicer" property). I remember when prop 13 was enacted and I was in favor of it. I remember the horror stories of little old ladies priced from their house of 60 years because they couldn't afford the tax. Multiple sides to every coin. SF has property/housing problems beyond property taxes. You have a market where people can't even afford a decent house if you're a senior software developer like me. Pity the average joe working at fisherman's wharf.

I do concede that areas like SF or LA or NY or Chicago probably have different dynamics relative to rent vs own.

93   someone else   ignore (0)   2017 Mar 7, 10:12am     ↓ dislike (0)   quote   flag      

johnweeder says

the horror stories of little old ladies priced from their house of 60 years because they couldn't afford the tax.

The right answer there was to let them accumulate the tax and pay it from their estate when they die so they'd never have to move.

The "little old lady" argument was a scam designed to distract attention from the fact that Prop 13 exists mostly in order to exempt all businesses and landlords in CA from property tax increases. That was the core motive, funded by Howard Jarvis' business backers. And businesses don't die, so they can keep their low property tax forever, lol.

Somehow the public didn't notice.

94   johnweeder   ignore (0)   2017 Mar 7, 10:14am     ↓ dislike (0)   quote   flag      

To address "undemocratic as possible" and "Land is the sole proper object of taxation", I would like offer my farmland as an example. I pay about $10K / yr property tax for each quarter section (160 acres or 1/2 X 1/2 mile, this is the typical "unit" of farmland. in my area, about 10K / acre or 1.5M per quarter). What you miss is that my "business" requires land, i.e. capital, and it is hardly fair to tax me to the exclusion of others. Farm economy is down for the 5th year running and still I am taxed liked I am making a king's ransom.

Most property tax goes to the local schools. The people in the small town with 50K houses & $300 tax bills ("hidden" in their rent) vote for bonds to build a new football field with artificial turf (community size is ~2000 people / school has maybe 250 kids). I live in Omaha so I don't even get to vote. Talk about undemocratic. I, with the other farm owners, merely get to pay the vast majority of the bill. I would vote for prop 13 in Nebraska in an instant.

My input... taxes must be fairly shared. Income, property, sales, VAT, whatever. Everyone should have skin in the game. Taxes should not be "hidden". I think a renter should be required to have line item on their monthly bill saying "$331 of your rent went to property tax" (same thing on a gas pump).

95   someone else   ignore (0)   2017 Mar 7, 10:24am     ↓ dislike (0)   quote   flag      

johnweeder says

it is hardly fair to tax me to the exclusion of others

Of course it's not fair to tax you to the exclusion of others. Under a Georgist system, urban land would provide the large majority of tax revenue. Farmland would be taxed far lower. It could be set at a fraction of the sale price value, or taxes could even be set by bidding.

The main goal is to tax the land according to the value it receives from public services. Many developers make their profit by siphoning off value from the rest of us.

johnweeder says

Taxes should not be "hidden".

Absolutely true! If we simply taxed land, all tax records would be public along with the ownership records. Another advantage of Georgism:

I like the idea of renters being informed of how much of their rent is going to land value tax (actually the correct term, not property tax because buildings are not taxed under Georgism).

96   johnweeder   ignore (0)   2017 Mar 7, 10:37am     ↓ dislike (0)   quote   flag      

>> urban land would provide the large majority of tax revenue

Urban? You've flown over NEbraska, right? There is very little "urban" here ;) But, if you're volunteering to let those folks in SF and NY pay for our roads and schools, I'm all for it.

Seriously though... farmland is set at 75% of valuation for real estate tax purpose. Other property 90-100%. Still, in small communities the total farmland valuation dwarfs everything else by an order of magnitude.

Tractors (value 300K ea) are personal property. No sales tax but they do get personal property tax. And, you depreciate them...

But I also raise cattle. A fat steer is worth $2000 and, between me and my partners, there are thousands. Those get neither property tax nor sales tax. Only income tax. Lest you think I am really wealthy and making money... in the last 2 years, almost no pen has made money and some have lost as much as $500 / hd. I joke that my day job as a software dev merely pays for my cattle feeding habit.

I noticed your tag line "Debt is slavery"... if that's true, every farmer is a slave ;)

97   someone else   ignore (0)   2017 Mar 7, 11:40am     ↓ dislike (0)   quote   flag      

Whoever is profiting from land values should be paying the land-value tax. Looks like farmers may be making more from land values than from farming lately, lol:

My great grandfather owned a seemingly profitable farm near Ottawa, IL. What changed so much between then and now to make farming not profitable?

98   johnweeder   ignore (0)   2017 Mar 7, 2:02pm     ↓ dislike (0)   quote   flag      

To profit on the land valuation, one must sell. If one sells the land, then one cannot farm it. If you do sell, you must pay uncle sam. Farmers won't sell the ground. I'm going to say that, conservatively, my 75 yr old father has 20M in farmland (he has an eighth grade education). If you met him, you would swear he was barely scraping by in retirement. He still works most days... 12 or 16 hours a day during planting/harvest. Most farmers I know are like that.

I never intend to sell the land. No matter its value. It belongs to the next generation.

99   johnweeder   ignore (0)   2017 Mar 7, 2:11pm     ↓ dislike (0)   quote   flag      

Farming is cyclical. 7 years ago was a historical high. Now a sustained low.

You great grandfather farmed in an era when farmers were more diversified. This isolated them a bit from the cycles. He probably had cows and pigs and chickens and crops. Now, chickens are completely commercialized (think Tyson). Pigs are owned by a few large operators. Cattle are proceeding in that direction. At one time we had cows, pigs, dairy, chickens, the odd sheep. Now only farmland. The cattle are "custom fed" by others in large yards.

Your great grandfather had relatively low fixed and variable costs. A farmer now faces large chemical, fertilizer and seed bills. It will take a multimillion dollar operating loan just to plant and grow the crops; and my family's farm is medium sized at best.

Finally, I would say one must compare "returns". As my brother pointed out, the absolute return last year was large by most standards but as a percentage of the capital investment it was tiny. One could have made better money selling the land and buying a CD at the bank.

100   someone else   ignore (0)   2017 Mar 7, 2:23pm     ↓ dislike (0)   quote   flag      

OK, owning forever is a choice, and I can see the attraction, but I still think land is the correct object of taxation for a lot of reasons:

* It encourages the land to be put to profitable use instead of held unimproved. (Tax should not go up with land improvement.)
* No one created the land, so taxing land does not take away from anyone's personal labor.
* Without a land value tax, some people get an unearned windfall from everyone else merely by holding land.
* Land cannot be hidden, and land tax records are public.

101   someone else   ignore (0)   2017 Mar 7, 3:01pm     ↓ dislike (0)   quote   flag      

johnweeder says

Your great grandfather had relatively low fixed and variable costs. A farmer now faces large chemical, fertilizer and seed bills. It will take a multimillion dollar operating loan just to plant and grow the crops; and my family's farm is medium sized at best.

It seems kind of crazy to pay interest every year when if you were making a decent profit you could fund your operating budget from savings instead, and save all that interest and the risk to the collateral.

How do the Amish do it?

102   johnweeder   ignore (0)   2017 Mar 7, 6:23pm     ↓ dislike (0)   quote   flag      

I agree in essence with all of your points relative owning land. What I disagree with is the amount of the tax relative to other sources of tax revenue.

With respect to operating loans, most farmers do not have enough savings and require an operating loan. Those that do have sufficient savings generally feel they can put the money to better use elsewhere... buying more land or paying off notes. My father, for example, has an operating loan though strictly he does not need it. Consider an operating loan is only for part of the year and is used in increments during the growing season. Today's operating loan is more like a "line of credit". That is what mine is. The amount loan fluctuates up and down during the year. I could sell my stock and use that but I prefer to ALSO have the stock in addition to the LOC.

I can't speak for old order Amish. We have Hutterites around here. They tend to buy as a group (the group owns everything), they live so frugally they make you look like a wasteful slob, and they have land/assets long since paid off (lots of equity). The hutterites also have modern equipment and nice sheds (as nice or generally nicer than anyone else). Only their personal life appears governed by the strictures of the ordnung.

103   johnweeder   ignore (0)   2017 Mar 7, 6:38pm     ↓ dislike (0)   quote   flag      

Patrick, consider the costs of today's farm. A single acre of ground (in VERY round numbers). Let's say $300 for "rent" or opportunity cost on the land & taxes. $75 for machine costs. $125 for seed. $50 for chemicals (mostly herbicides). $125 for fertilizer. $75 for irrigation. Interest $25. Crop insurance $50. Total $825. Yield is 250 bu of corn @ 3.50 per bushel give income of $875. Net of $50 / acre. This does not include labor.

104   Strategist   ignore (2)   2017 Mar 7, 6:45pm     ↓ dislike (0)   quote   flag      

johnweeder says

Patrick, consider the costs of today's farm. A single acre of ground (in VERY round numbers). Let's say $300 for "rent" or opportunity cost on the land & taxes. $75 for machine costs. $125 for seed. $50 for chemicals (mostly herbicides). $125 for fertilizer. $75 for irrigation. Interest $25. Crop insurance $50. Total $825. Yield is 250 bu of corn @ 3.50 per bushel give income of $875. Net of $50 / acre. This does not include labor.

That's a pathetic return. If it continues, sell the land.
Farming is a business just like any other business. You have to make business decisions to stay afloat.

105   johnweeder   ignore (0)   2017 Mar 7, 6:52pm     ↓ dislike (0)   quote   flag      


No farmer I know (and that is hundreds) would sell their ground willingly just to pocket a profit. Not one.

7 years ago, corn was $7 / bu and one was making $700 / ac. So, the farmer always thinks this is the year that $7 corn reappears.

You are, in essence, correct though. Farming is a business even though most farmers do not treat it as such.

106   Strategist   ignore (2)   2017 Mar 7, 7:03pm     ↓ dislike (0)   quote   flag      

johnweeder says

No farmer I know (and that is hundreds) would sell their ground willingly just to pocket a profit. Not one.

7 years ago, corn was $7 / bu and one was making $700 / ac. So, the farmer always thinks this is the year that $7 corn reappears.

You are, in essence, correct though. Farming is a business even though most farmers do not treat it as such.

You also have to closely monitor the value of the land, because that is where you get your opportunity cost from as one of the variables in determining profitability.
Many farmers in Central California saw their land values increase so much, that it was more economical for them to sell it.
If you love farming, fine, nothing wrong with that. Take your money and farm somewhere else. Now you have money, and a farm.

107   az_lender   ignore (0)   2018 Mar 30, 4:04pm     ↓ dislike (0)   quote   flag      

I agree with johnweeder and anyone else who said that landlords in most of the US are making some money, or they wouldn't be in that game. I do realize that in California and maybe a few other places, people will take a negative cash flow while gambling on continued appreciation.

I personally hate owning property. I lend not only to prospective home-owners with bad credit, but also to prospective small landlords who make the banks nervous. I have made around 140 mortgage loans, only one of which ended in a foreclosure -- and that was because the borrower died intestate, her kids didn't want to pay the mortgage, but there was no legal owner with whom to negotiate. The estate was the owner, but the estate was in some limbo administered by the state of Arizona. Anyway, foreclosure solved the problem. The reason why it is almost never necessary is that it's easy to negotiate with a borrower who KNOWS he/she can't pay for his/her house.

I'd love to say that I never lend in California, but it's not true. I've done a number of loans on rental condos in the Palm Springs area; so far, so good.
108   mell   ignore (6)   2018 Mar 30, 4:21pm     ↓ dislike (0)   quote   flag      

I agree that access to a revolving line of credit or general access to low interest loans can make it worthwhile maintaining one or more at all times. I have been using that strategy for many years now since I got frustrated w/ the Fed's QE bs punishing savers. I would have never had that leverage to invest in my select stocks without the zero percent APR cards (many at times), a personal line of credit with my bank at 10% and an all purpose BarclayCard credit card at 8.xx% (fluctuating). Most businesses have always operated like this - though back in the days everybody incl. businesses were more prudent with their money - but since ZIRP everyone could - and many did - use that MO. It will take interest rates rising to normal - not artificially suppressed - levels again to stop the excessively loan/debt driven economy. And the assurance that next time there will be no bailout whatsoever for additional cautiousness to return. I bet many people are still speculating on being bailed out if they house (or business) "investment" doesn't pan out due to a new recession and over-leverage. In the meantime, keep those offers coming ;) Ot's amazing how you can roll-over up easily 50k of revolving debt at 3% or less by using the crap cards they throw at you with a decent salary and credit score.
109   FortWayne   ignore (4)   2018 Mar 30, 4:22pm     ↓ dislike (0)   quote   flag      

Timeless principle
APOCALYPSEFUCKisShostikovitch says
The reason why the Founding Fathers shouted 'IT'S! CASH! OR! FUCK! YOU!, AMERICA!' all the time is because they knew if you didn't pay cash, you were getting fucked.
110   Patrick   ignore (1)   2018 Mar 31, 12:18pm     ↓ dislike (0)   quote   flag      

Comment from a personal email, with permission:

Patrick: The secret is that no one in power really wants to see housing get more affordable at all.


> That's something that the economics textbooks get right - on average,
> people are selfish and vain and can always be counted on to do morally
> the wrong thing. I even heard that local NIMBY's pressured MacDonald's
> to stop selling dollar meals because they felt that it was attracting
> homeless people.
> I can tell you for a fact that the wheels are starting to come off.
> My wife meets new people through her church and, just as
> quickly, they disappear again. Usually they are on their way to live
> somewhere cheaper. Our townhouse sat idle for months
> before we moved in. The story is that the landlord raised the rent and
> the couple just left. We got it for less than what
> they were paying. We are now in our second year and the rent was not
> increased. A townhouse nearby has become
> vacant. It was originally for sale and nobody bought it. Now they are
> struggling to find renters. This is in Willow Glen,
> a nice neighborhood south of San Jose only 15 minutes from Apple. eBay
> is literally within walking distance.
> When the interest rates go up, the housing market will crash. It is written.
111   anonymous   ignore (null)   2018 Mar 31, 12:48pm     ↓ dislike (0)   quote   flag

Today's non-bank lending phenomenon is the equivalent of subprime in 2008.

« First    « Previous    Comments 72 - 111 of 111    Last »

about   best comments   contact   one year ago   suggestions