patrick.net

AMT is uniquely evil, which is quite an accomplishment in the world of generally evil income taxes.

I envision a world with no borders and no income tax.

Movement of people will be controlled solely by variations of local consumption taxation. Voting will be according to the "shareholders of the city" concept.

There will be no victimless crimes.

Am I in a dream?

Randy,

I know there're some pro-rata calculations if the principal of your loans total more than the 1.1mm limit. If that's what you were referring to, then no, that thing is still around.

EBGuy,

Legitimate concern, great question!

I'll own up to being a little more than obsessed with this (then again I almost fall into that age group). Conventional wisdom has long touted the "benefits" of carrying a hefty mortgage.

I'm here to tell you it didn't work for me! Phase-outs for MID happen long before you even come close to feeling "rich" and at a tremendous cost. If anything I would be telling people to structure their finances so that their home is paid off no later than 55! The truth is "most" people can't really begin ramping up their retirement savings until their kids are out of college. Sad but true.

Had I tuned out the noise, trusted my instincts and put myself on a path more toward having a home paid off by the time I was 50 (or younger) I can say I would've been better off! As is I'll be lucky to have that accomplished by the time I'm 55-56 and that WILL cost me about 180-200K in ret. savings minimum! Trust your gut, pay the f@cker off.

Peter P.,

OK, aren't you basically just looking for Monaco?

And to those who say they aren't making land anymore, the Monagasques are (a la Dubai), in Fontvielle.

Start packing.

OK, aren’t you basically just looking for Monaco?

True, it has no "borders" with France.

But what's the fun of a tax haven for obscenely rich people...unless you're loathsomely rich yourself?

But what’s the fun of a tax haven for obscenely rich people…unless you’re loathsomely rich yourself?

It is no fun...

But I believe if income tax is scrapped, most people (rich or not) will end up having much higher living standards.

EBGuy :

If someone gives me a 100 yr FRM with a rate less than 4%, I will take it in a second. But FRM rates will never be lower than US treasuries. Given that, it never going to be easy to have a positive cash flow while carrying debt for most salaried people. Taking on a -ve cash flow for the hope of making it back from appreciation of investments is more risk (and more complicated math) than most people realize.

My investment track record is quite decent, but still, I will be very uncomfortable if I don't have +ve cash flow. The dream is of course to have low mortgage rate locked in for 30 years, having the ability to pay off the loan but not doing it only because the cash flow from investments is more than the mortgage rate. But again, it's just a dream.

I probably would have liked Monte Carlo more in Lartigue's day, but it does answer to Peter P's conditions even now.

Why would it not be fun, Peter?

Why would it not be fun, Peter?

Don't know. I prefer Las Vegas to Monaco.

Hi Guys,

Have been unable to post for a while and have been doing other stuff as I am getting a bit down about the house prices in Los Altos and Mountain View - has anyone in the same area noticed any encouraging price reductions and/or increased listings? I have also noticed that rentals are a bit thin on the ground - what is everyone else experiencing?

Thanks,

Claire

has anyone in the same area noticed any encouraging price reductions and/or increased listings?

No.

StuckinBA,

Well, I'm sure you're just kidding us a little w/100 yr mortgage but maybe that's something we should take a look at.

DinOR :

Well, I just wanted to say that if someone loans me the money for an indefinite period of time, and I can generate a risk-free return more than the loan rate ... I would go for it. (Who wouldn't ?)

I think I read about 100 year mortgages in the blogsphere. Not abut US of course. Forgot which country they were talking about. Hence I used it in jest. But I would say the same thing using 40 year or 30 year mortgages.

Claire -

My friend is looking for a house to rent. She's finding decent rentals available in Palo Alto and Cupertino, not a lot of competition for those at this point (according to her).

StuckinBA,

I thought as much, but it's interesting b/c it's in alignment w/The Center For Responsible Lending's position of "sustainable home ownership". Yeah, sure a neg. am. will "get" you in (but for how long?) Now the subprime implosion has reached CH (already? it's not even Valentine's Day) mortgage banksters are positioning themselves as "defenders of the American Dream (TM) and I don't think anyone seems to be buying it. :)

I mean, what variation of exotic loans is left? :(

mortgage banksters are positioning themselves as “defenders of the American Dream ™

"mortgage banksters" :-)

Yes, I remember reading about it. The guy was quoted as saying "Buyers didn't have an exit strategy" ! Yeah, you should thank us for helping them get on this supersonic train that's going to crash before they get a chance to scream. It's not our fault that they didn't plan to jump back out in time.

I hear-by proclaim that "mortgage banksters" be rechristened "mortgage gangsters"

What do you SF folks think about this latest entry:

http://www.sfhomeblog.com/2007/02/haven-forgotten-about-you.html

Yeah he's a Realtor, but his posts aren't very shilly.

eburbed :

He maybe a slightly more frank than other realtors, but just like them he ignores to talk about tomorrow.

lunapark :

“Scary Sign for Home Buyers”
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/07/BUGV8NVQNO1.DTL

That article has so many choice quotes !

More than 21 percent of buyers last year took out mortgages with no down payment, soaring from just 4.5 percent in 2000
...
It was the first annual drop in median down payments since 1995.
...
The report found that 43 percent of people who purchased a house last year relied on a second mortgage.
...
About 40 percent of first-time buyers opted for loans without down payments. But even as many first-time buyers showed a willingness to take on higher debt, the overall percentage of first-time buyers fell, reaching its second-lowest level on record.

But the mortgage bankster says
They're trying to leverage their money the best way that they can

They supply of able and willing GF is shrinking fast. Now if only the mortgage rates inch back to 7, the supply will VANISH. Arghhh. That 10 year note ... down to 4.74 today.

Interesting thoughts on the interest rate arbitrage. I have been debating this internally for a bit. My scenario is short term debt on a depreciaiting asset (car not a house). In my case I can pay for the car in cash or try and out perform the market rate of the car loan.

See if my math holds up:

Purchase Price: $50,000
Interest Rate: 6%
Total Cost after 60 months: $65,000

Liquid assets: $50,000
Investment returns at 5.25% CD (annual): $2,625
Taxes on Investment returns (30% bracket): $787
Net from Investing funds: $1,838
Net funds after 60 months investing: $9,190

Asset Cost minus Investment gain: $55,810

So in my case the qeustion becomes: is it better to spend the extra $5800 over five years to stay liquid and hope the FED raises rates to the point that my CD's will outperform the loan I have taken out on the car. How high does that rate need to go in order for me to break even with the 30% in taxes I am forced to pay on the gains? What would you do here?

It seems this scenario would do better with a mortgage since the interest write off should counter any investment gain. Thus leaving me with a theoretical o% financing opportunity. That is assuming I could pay cash of course. Interesting stuff! Thoughts?

Low interest is only good if you're able to either park it into something that'll grow faster than the accrual of the interest or if you'll use the money to get more utility now than it'll cost you in utility when you pay it back. It can totally break down in a stagflation environment.

It can totally break down in a stagflation environment.

How so? Whtat if you can generate enough return to outrun your fixed interest debt?

The Patrick brown shirt bear army can now stand down,

The housing sector slump remained a source of uncertainty for the economic outlook, but there were signs of stabilization, he said.

Any spillover effect from the housing slump — either from a downturn in the sector or a decline in the so-called “wealth effect” — has not materialized and was unlikely to do so, Plosser said.

Now that's a relief.

The Patrick brown shirt bear army

Huh?

Patrick being a fascist that has "brown shirts" in his employ, ie the "bear army" those who steadfastly ignore all new paradigms and refuse to participate in the great cash giveaway.

"How so? Whtat if you can generate enough return to outrun your fixed interest debt? "

Me earlier - "only good if you’re able to either park it into something that’ll grow faster than the accrual of the interest." I'm not a particularly good guesser.

I’m not a particularly good guesser.

Guess what I had for lunch.

So in my case the qeustion becomes: is it better to spend the extra $5800 over five years to stay liquid and hope the FED raises rates to the point that my CD’s will outperform the loan I have taken out on the car.

Your math is correct. But there is an additional risk - 1 year from now, the interest rate on CD might be a whole point lower than that is today. Of course if the rates drop, you can just pay off the balance. It's a gamble on interest rates.

The crucial difference is (and a benefit in your case) NEEDING the loan vs CHOOSING the loan. Betting on the direction (and spread) of interest rates is one of the riskiest forms of investing. Since you are able to pay off the loan, by postponing the decision by a fixed duration you can take a measured risk.

Personally, I don't do this. But that's my investment style.

Sushi???

Patrick being a fascist that has “brown shirts” in his employ, ie the “bear army” those who steadfastly ignore all new paradigms and refuse to participate in the great cash giveaway.

You are right, only a fascist will openly decline the American Dream. :-P

Debt is your friend. Debt = Wealth.

Not debt advice

Stretch002,

Firstly you're a W-2 (not a 1099) guy right? I could be wrong here. We'd need to know that before we can move forward.

Some time back a very smart poster brought to our attention that in truth MID doesn't really come of any great benefit until after you've broken your 10K standard deduction (married filing joint) AND a MAX 401K contribution! So if the SD is $10,300 this year and say $15,000 for the old retirement plan you'd need to break $25,300 on your schedule A.

OR!!! You could have a $2,108.33 per mo. MID w/no 401K contribution? :)

Sushi???

I wish!

Ok, you are not a good guesser. :)

Peter P,

What did you have for lunch?

What did you have for lunch?

Pasta.

Now I feel like sushi for dinner. :(

Now you remind me to crank out some pasta for dinner. That piece of dough has been sitting for long enough!

Now you remind me to crank out some pasta for dinner. That piece of dough has been sitting for long enough!

Oh FRESH pasta!!!

I am also conceptualizing some white-wine cream sauce for ink pasta.

StuckinBA,

Good analysis! And you're right, I've bet on rates on gotten burned (who hasn't, right?)

More importantly though the difference between "needing" the loan and "choosing" is an important distinction. A nice problem to have. If Stretch is a 1099 guy (or...... could potentially become one) that changes things considerably.

If you have a classic like X's T-Bird (not a daily driver) than obviously cash is the way to go! But for something that's sharing the road with half-wits that think "it'd be a kick to be on Cops" I'd let the bank and the ins. company take the risk. That's just me.

But remember the golden rule of shortcuts - anything that makes it easier on the way IN will make it proportionately more painful on the way OUT.

No exit strategy then.