Post: #26

Has anyone read about Robert Shillers' work for which he won the Noble prize this year? He found that US home prices in real terms were virtually unchanged from 1890 to the late 1990's; the period from 1997 to 2007 being a gross aberration which is now being corrected. Every time housing prices went up they would eventually go back down to 1890 levels. Most likely the trend went much further back than 1890 but in the US housing data was only reliable from that point. A similar study was done in Amsterdam which found that prices continually tended to return to levels of the 1700's and over 350 years grew at a rate of .2% per year.

When you consider all the costs of home ownership-repairs, maintenance, furniture, insurance, mortgage interest, taxes it's clear that home ownership as an investment has been vastly overhyped by the banking, real estate sales and construction industry. It can have others benefits, but it's not a great investment, it's more of a savings vehicle. The problem now is that governments are increasingly desperate for revenue and property owners make a big, fat target. Property taxes have gone up tremendously in some areas since the 90s and it's only going to get worse.

Post: #27

(12-20-2013 05:43 AM)crippler Wrote:  If you're paying, you're the customer not the shopkeeper.

Pay a mortgage, the bank owns your house.

Pay property tax, the government owns your house.

When laws like 'eminent domain' are in place, the government is allowing you to occupy the property only while it's convenient for them to do so.
http://systemicfailure.wordpress.com/201...rking-lot/

1. I agree with your post, except what you forget to consider is that while the bank legally owns the deed to my house, I enjoy the financial benefits of the house (capital appreciation/rental income/equity monetization).

2. Debt used correctly to purchase income producing assets can produce tremendous amounts of wealth

I work for a financial advisory firm which advises private equity firms like KKR. Why do you think private equity does so well as a business model?

The smart people at private equity firms utilize large amounts of low-cost debt to purchase income producing assets (corporations, real estate, etc). They generally put down between 10-20% down and borrow the rest and use the incoming cashflow to pay off the debt. They wait 5-7 years, sell, and make a huge profit.

This is what the financial elite do and what differentiates them from you and me. The typical american runs up high cost credit card debt (18-21%) to purchases depreciating luxury items (clothes, cars, watches, vacations, etc). They do the exact opposite of private equity firms--they go in to debt to purchase non-income producing, depreciating assets and end up in bankruptcy. This is why private equity produces millionaires and why America produces paycheck to paycheck living debt slaves.

My mortgage for example was locked in at 3.9%. After accounting for the tax benefits(interest and taxes are deductible) it is closer to a 3.6% effective rate. The historical inflation rate in the US has been 3% over the last 75 years. In effect, my real interest, after accounting for inflation 0.6%. This is unheard of and until recently most Americans could never borrow for such a low rate. You can still get a mortgage for 4.5%-4.8% depending on FICO, income, etc.

Furthermore I never intend to sell this house, since I want that historically low interest rate for 30yrs. My cost of living (for housing) is locked in for ever, while renters will see their rent go up every year( due to inflation). This is one of the biggest benefits of homeownership--it locks in the single largest monthly expense for most Americans. Renters get royally fucked by the Fed and inflation.

When the time comes (around 25-30% equity) I will simply cash out the equity from the home I don't legally own, but enjoy the financial benefits to and purchase a new investment property (HELOC's are under 6%).So I would argue homeownership, buts you on the path to accumulating wealth.

I know a retired couple who did this method over the last 35 yrs and they have been able to retire in Paso Robles, California (really nice area--rural wine producing place north of LA) by paying for their house in cash. These were not wealth people at all. The wife worked as a clerk at AG Edward and the husband worked for Chrysler sales (non-management position). They used debt correctly to accumulate real wealth (multiple rental properties) and are now not dependent on social security like most Americans. The husband spends 3-5 days a week on the golf course and the wife travels.

3. Agree completely with Day of Broken arrows. Of course you should never buy a house that is more than you can afford--the typical models they use is that the mortgage payment can't be more than 40% of gross income, which is absurdly high and makes the mortgage payment a struggle if any unexpected bills come due--and the always do.

4. The threat of eminent domain is of course real, but it is a statistical outlier (highly unlikely black swan event which impacts less than 0.5% of homeowners). You can't go around worrying about the highly unlikely events. How many people do you know in suburbia who have had their homes seized?--it usually happens to people who own rural property which interferes with some government construction project.

5. The key to winning in this ponzi economy we currently live is to use the Fed's manipulation of interest rates to load up on as much low cost debt as you can get and buy long-lived income producing assets. That is what everyone on Wall Street is doing. Over the last 40 yrs the Fed has pretty much guaranteed that all financial assets will appreciate though inflation alone. The difference is that financial assets have risen much more over this time than the CPI index. Inflation benefits people with debt and income producing assets. The debt is reduced in real terns while the cashflows rise to keep up with inflation.

For most Americans, the only way they can do this is through real estate (banks love real estate as collateral). I have tried to borrow money to buy a business (with 50% down) and the banks literally laughed at me after making me fill out their laborious and time consuming applications.

Post: #28

rent a home, own a RV outright. joking mostly, but it would give flexibility and coverage for sudden loss of fortune.

Post: #29

Lots of good responses all around. Glad I made this post. Buying a home is out of the question for many single people living in the most desirable cities. Even wealthy people in the Hayes Valley neighborhood I used to live in while in San Francisco rented their homes. If you want a good spot with good logistics in a good part of a real US city, you likely won't be able to afford buying. We all know the benefits of being in an area with good logistics. In fact, if you go about it right, you can still live an international playboy lifestyle by renting out your spot on airbnb while still traveling, thus able to get the best of both worlds. Some markets where buying is very affordable (much of the interior US), then buying a house or condo is probably very feasible. But I wouldn't want to live in those places anyway. Not worth the sacrifice to me. I would only buy if I were to get married and plan on starting a family.

Post: #30

(12-20-2013 03:15 PM)Flavius Aetius Wrote:  1. I agree with your post, except what you forget to consider is that while the bank legally owns the deed to my house, I enjoy the financial benefits of the house (capital appreciation/rental income/equity monetization).

No objections to your point - I operate by the metric that ownership isn't an accurate description for something you lose if you don't keep up the payments.

Not knocking your plans because you clearly know your stuff, but people get obsessed with 'owning' property for the sake of it, "because that's what you do, innit?"

(12-20-2013 03:15 PM)Flavius Aetius Wrote:  5. The key to winning in this ponzi economy we currently live is to use the Fed's manipulation of interest rates to load up on as much low cost debt as you can get and buy long-lived income producing assets. That is what everyone on Wall Street is doing. Over the last 40 yrs the Fed has pretty much guaranteed that all financial assets will appreciate though inflation alone. The difference is that financial assets have risen much more over this time than the CPI index. Inflation benefits people with debt and income producing assets. The debt is reduced in real terns while the cashflows rise to keep up with inflation.

There was an article on NSFWCorp about Oligarch Valley, where American taxpayers subsidise billionaires' property portfolios. That's a whole new level of hustle.

"I'd hate myself if I had that kind of attitude, if I were that weak." - Arnold

Post: #31

(12-19-2013 07:55 PM)Tail Gunner Wrote:  But I would say this: Do not rent or lease anything that you cannot afford to buy. That is debt slavery. If you can afford to buy it, however, then either buy or lease it depending on whatever is in your best interest.

You say don't rent anything you can't afford to buy. I rent a room but I can't afford to buy a house. What's the alternative?

I'm in London and home ownership looks pretty much impossible. Already spending over 40% of take-home salary on rent in shared accommodation. Savings are tiny but there isn't much to cut back on. Can't cut out transport or food. Social life isn't that expensive.

I'm hoping I inherit property as the family portfoilio is decent. Even if I increase my salary x 5 buying even a single property would still be quite a stretch.

Post: #32

(12-20-2013 06:13 PM)Que enspastic Wrote:  

(12-19-2013 07:55 PM)Tail Gunner Wrote:  But I would say this: Do not rent or lease anything that you cannot afford to buy. That is debt slavery. If you can afford to buy it, however, then either buy or lease it depending on whatever is in your best interest.

You say don't rent anything you can't afford to buy. I rent a room but I can't afford to buy a house. What's the alternative?

I'm in London and home ownership looks pretty much impossible. Already spending over 40% of take-home salary on rent in shared accommodation. Savings are tiny but there isn't much to cut back on. Can't cut out transport or food. Social life isn't that expensive.

I'm hoping I inherit property as the family portfoilio is decent. Even if I increase my salary x 5 buying even a single property would still be quite a stretch.

I meant it as a general rule, which is probably not applicable if you live in NYC, London, Moscow, or Tokyo. People of modest means who live in those areas endure the expense because they have priorities more important than saving or investing money.

Post: #33

(12-20-2013 06:13 PM)Que enspastic Wrote:  I'm in London and home ownership looks pretty much impossible. Already spending over 40% of take-home salary on rent in shared accommodation. Savings are tiny but there isn't much to cut back on. Can't cut out transport or food. Social life isn't that expensive.

Since you live in London you are pretty much fucked unless you are a banker or born into wealth. Home prices even during the financial crisis were overpriced and now with the upswing are egregious--you can thank the Bank of England for inflating prices.

Possible Solutions to save money:

1. Are your living accommodations the absolute cheapest you can find? I know you are in London, but christ 40% of take home pay on shared accommodations seems very high.

2. If 40% of take home pay has to be eaten up by rent-- you have to reduce other expenses(which account for the 60% of take home pay).

3. Food--you can cut down on this by not eating expensive things like meat, pre-packaged food, casual dining, etc. I love meat, but rarely eat it because it is so expensive. I eat whey protein, beans, eggs, and diary--cheap, good sources of protein, and with beans fiber. In the US eggs and milk are artificially low because the US subsidizes the price. Add a few frozen veggies I am good.

I don't know about alcohol in london, but when I lived in Edinburgh (for 6 months) I found it very expensive(as someone who likes to drink). Cutting down on alcohol would save money. Also, stop drinking sodas, juice, and any other beverages (Starbucks,etc) other than tap water--which is practically free.

4. Do you have a TV and cable? Because I know if you do-- you have to pay a licence fee in the UK for the privilege--around $225 per year + cable cost. Cancel both and switch to netflix on your computer--steaming is about $9 per month ($108 per year).

5.Do you have any stupid electronics like Iphone, ipad, watches, etc? Always get the cheapest phone (mine cost $35 vs a $750 iphone which depreciates in value). Never waste money on electronics. Get the absolute cheapest/used. My TV, which I have had for 9 years--I got it for free on Craigslist. People actually give quality stuff away because they bought something newer.

6. Clothing--outside of required work attire do you shop at retailers like Marks and Spencers,etc? I shop at the UCLA thrift store for everyday wear. No one can tell the difference yet I pay $8 for a pair of pants that originally cost $60-70 at the gap. I am sure they have thrift type stores in London.

7. Transportation--I assume since you are in London you don't have a car (because that alone would be financially ruinous with $10 a gallon gasoline, taxes, fees). Without a car, public transportation is a fixed cost. In your case is it feasible to bike to work or walk more to avoid paying for public transportation.

8.Have you stopped and done a full accounting of your social life? It is very easy to underestimate the true cost--drinks at bars/clubs, restaurants, entertainment, concerts, sports events, travel,etc. I have a no gifts policy with friends, family, girls,etc--so Christmas/birthdays do not cost me anything.

9. Since London is out for owning property, hopefully you can save enough to put a down payment on a rental property outside of London in a more affordable city/suburb. Have someone else pay your mortgage.

10. If you want to save money you need to embrace a more minimalist lifesyle---it is not just for hippies and liberals, but also for rational people who want to save money.

Sorry if this is a long post.

Post: #34

(12-20-2013 07:10 PM)Tail Gunner Wrote:  

(12-20-2013 06:13 PM)Que enspastic Wrote:  

(12-19-2013 07:55 PM)Tail Gunner Wrote:  But I would say this: Do not rent or lease anything that you cannot afford to buy. That is debt slavery. If you can afford to buy it, however, then either buy or lease it depending on whatever is in your best interest.

You say don't rent anything you can't afford to buy. I rent a room but I can't afford to buy a house. What's the alternative?

I'm in London and home ownership looks pretty much impossible. Already spending over 40% of take-home salary on rent in shared accommodation. Savings are tiny but there isn't much to cut back on. Can't cut out transport or food. Social life isn't that expensive.

I'm hoping I inherit property as the family portfoilio is decent. Even if I increase my salary x 5 buying even a single property would still be quite a stretch.

I meant it as a general rule, which is probably not applicable if you live in NYC, London, Moscow, or Tokyo. People of modest means who live in those areas endure the expense because they have priorities more important than saving or investing money.

You can still have a good job and save money/invest while living in those places and be a renter all at once. It's just that property ownership is structurally prohibitive for most people in the most global cities.

I'd prefer living in a cosmopolitan city with a good job and access to the finer things in life instead of counting beans in Zanesville while deluding myself that I'm somehow "winning."

Post: #35

If you get a mortgage from a bank to buy a house.

You don't own the house.

Instead - the bank owns you.

Post: #36

Great responses Flavius. +1 That's the exact financial strategy I'd like to adopt 100%. I'm a pretty avid investor and I've thought long and hard about going from renting---> owning for every reason you've outlined. It's the only part of my financial life that pisses me off and I'd like to get out of paying someone else's mortgage. Once you start owning assets that appreciate in value it forces you to take a long hard look about every other factor in life that's sucking you dry.

What do you recommend as the ceiling of gross income going towards a mortgage? The common rhetoric is 1/3 of gross goes to rent, do you think even that's too high for a mortgage?

Post: #37

(12-20-2013 07:27 PM)Flavius Aetius Wrote:  

(12-20-2013 06:13 PM)Que enspastic Wrote:  I'm in London and home ownership looks pretty much impossible. Already spending over 40% of take-home salary on rent in shared accommodation. Savings are tiny but there isn't much to cut back on. Can't cut out transport or food. Social life isn't that expensive.

Since you live in London you are pretty much fucked unless you are a banker or born into wealth. Home prices even during the financial crisis were overpriced and now with the upswing are egregious--you can thank the Bank of England for inflating prices.

Possible Solutions to save money:

1. Are your living accommodations the absolute cheapest you can find? I know you are in London, but christ 40% of take home pay on shared accommodations seems very high.

2. If 40% of take home pay has to be eaten up by rent-- you have to reduce other expenses(which account for the 60% of take home pay).

3. Food--you can cut down on this by not eating expensive things like meat, pre-packaged food, casual dining, etc. I love meat, but rarely eat it because it is so expensive. I eat whey protein, beans, eggs, and diary--cheap, good sources of protein, and with beans fiber. In the US eggs and milk are artificially low because the US subsidizes the price. Add a few frozen veggies I am good.

I don't know about alcohol in london, but when I lived in Edinburgh (for 6 months) I found it very expensive(as someone who likes to drink). Cutting down on alcohol would save money. Also, stop drinking sodas, juice, and any other beverages (Starbucks,etc) other than tap water--which is practically free.

4. Do you have a TV and cable? Because I know if you do-- you have to pay a licence fee in the UK for the privilege--around $225 per year + cable cost. Cancel both and switccoh to netflix on your computer--steaming is about $9 per month ($108 per year).

5.Do you have any stupid electronics like Iphone, ipad, watches, etc? Always get the cheapest phone (mine cost $35 vs a $750 iphone which depreciates in value). Never waste money on electronics. Get the absolute cheapest/used. My TV, which I have had for 9 years--I got it for free on Craigslist. People actually give quality stuff away because they bought something newer.

6. Clothing--outside of required work attire do you shop at retailers like Marks and Spencers,etc? I shop at the UCLA thrift store for everyday wear. No one can tell the difference yet I pay $8 for a pair of pants that originally cost $60-70 at the gap. I am sure they have thrift type stores in London.

7. Transportation--I assume since you are in London you don't have a car (because that alone would be financially ruinous with $10 a gallon gasoline, taxes, fees). Without a car, public transportation is a fixed cost. In your case is it feasible to bike to work or walk more to avoid paying for public transportation.

8.Have you stopped and done a full accounting of your social life? It is very easy to underestimate the true cost--drinks at bars/clubs, restaurants, entertainment, concerts, sports events, travel,etc. I have a no gifts policy with friends, family, girls,etc--so Christmas/birthdays do not cost me anything.

9. Since London is out for owning property, hopefully you can save enough to put a down payment on a rental property outside of London in a more affordable city/suburb. Have someone else pay your mortgage.

10. If you want to save money you need to embrace a more minimalist lifesyle---it is not just for hippies and liberals, but also for rational people who want to save money.

Sorry if this is a long post.

I get x 13 pay packets per year.
£1500 for 4 weeks
£600 monthly rent
£50-80 monthly bills
£250 monthly rail pass
£100 per week for food/social life/other (x 4)
£32 monthly phone incl insurance
£20 monthly gym
£150 savings approx. (circa £3000 per year incl 13th pay packet, half spent on travel)

Could save money on rent and transport by moving to a town in Hertfordshire closer to work. But then I wouldn't be living in London. I actually wouldn't be able to live as a player in a provincial town. It would be a sacrifice of my youth and I think enjoying my 20s are more valuable than saving £5000 extra per year at the expense of being miserable because I have no life. I'd say my lifestyle is pretty minimalist, most of the things I enjoy are free or very cheap.

I might just have to accept that I can't really save for the time being until I rise up the ranks in my career.

Post: #38

(12-20-2013 02:59 PM)MrXY Wrote:  Has anyone read about Robert Shillers' work for which he won the Noble prize this year? He found that US home prices in real terms were virtually unchanged from 1890 to the late 1990's; the period from 1997 to 2007 being a gross aberration which is now being corrected. Every time housing prices went up they would eventually go back down to 1890 levels. Most likely the trend went much further back than 1890 but in the US housing data was only reliable from that point. A similar study was done in Amsterdam which found that prices continually tended to return to levels of the 1700's and over 350 years grew at a rate of .2% per year.

When you consider all the costs of home ownership-repairs, maintenance, furniture, insurance, mortgage interest, taxes it's clear that home ownership as an investment has been vastly overhyped by the banking, real estate sales and construction industry. It can have others benefits, but it's not a great investment, it's more of a savings vehicle. The problem now is that governments are increasingly desperate for revenue and property owners make a big, fat target. Property taxes have gone up tremendously in some areas since the 90s and it's only going to get worse.

Read 'The Grip of Death'. That book puts forward the idea that house prices keep escalating in order to provide the increasing debt required to underpin the fractional reserve banking system. It is all laid out in the book.

It used to be the average house could be paid off in 6 years - now it is 25-30 years.

It is a fascinating book - and even if only 1% of the book is accurate it will still count as one of the most important books I have read. But I am not knowledgable enough to judge the merits of the book. I would love to see an intelligent critique of the book from a mainstream economist.

http://www.amazon.com/The-Grip-Death-Des...p+of+death

Cardguy

PS The word mortgage is a French Law term meaning "death pledge", meaning that the pledge ends (dies) when either the obligation is fulfilled or the property is taken through foreclosure.

Hence where the title of the book came from.

Post: #39

Obviously property ownership has gotten the most attention from the link I posted. But I'd be interested in thoughts about the other topics, like renting material items that tend to just take up space in one's home.

Post: #40

(12-20-2013 10:08 PM)Hencredible Casanova Wrote:  Obviously property ownership has gotten the most attention from the link I posted. But I'd be interested in thoughts about the other topics, like renting material items that tend to just take up space in one's home.

I'd say either buy it or do without it. I can't imagine renting everyday items. I own my cookware, my vacuum cleaner, my furnishings, bike, books, instruments. I have zero debt and sky high credit rating. If you can't afford it, save up for it or just learn to do without.

I'm not saying everyone should collect things either. There's something to be said for austerity and keeping things simple. It's not for me; I like having little pieces of treasure lying around and maintaining an aesthetic living space. But they're all hand-me-downs from my family's collection (grandpa would collect artifacts when he lived in Turkey so we have some cool shit), I would never in a million years go out and pay for this stuff.

There are places that rent out fine art for homeowners. To me this is absolutely ridiculous. I'd rather own a $50 Van Gogh print than rent out a $50,000 contemporary original.

The level of credit dependency has gotten completely out of hand and I see far more negatives than positives with that type of living.

Post: #41

(12-20-2013 05:58 PM)crippler Wrote:  There was an article on NSFWCorp about Oligarch Valley, where American taxpayers subsidise billionaires' property portfolios. That's a whole new level of hustle.

The article you are referring to is behind a pay wall, but there are various excerpts floating around, such as this. Interesting.

Post: #42

Flavius: Your arguments are all very good. Ordinarily, I would have given you a like, or even a recommendation, for what you wrote, but I still can't help thinking that the game is rigged. Yours might indeed be the best way to get ahead, but to me, living in many parts of the West now is like being hanged (and paying for the rope to be hanged with). If I absolutely had to choose, I'd rather a) hanging by snapping my neck, rather than b) hanging by strangulation. How about c) neither, though? There are greener pastures elsewhere. To use an analogy more in line with this website, it's like a choice between a) having sex with an obnoxious Aussie chick who was 20kg overweight, or b) having sex with a merely annoying Aussie chick who was 10kg overweight. How about c) chasing some fine tail overseas?

As others have mentioned, it used to be possible for the average family to live in an average house and do so on one average income. The middle class have kicked lots of own goals over the past few decades, but there has been a systemic screwing too. The social contract has all but broken down. The underclass get their welfare at the expense of the middle class. The upper class get their welfare (bailouts, subsidies) at the expense of the middle class. Where necessary, immigration has been a weapon with which to beat down local incomes and simultaneously drive up housing prices (often in conjunction with limited land release to real estate development companies), though I think immigration has been used ever further than that. Before I go on, personally, I am not at all opposed to immigration. Indeed, I am a beneficiary of it and globalisation generally. Yet it has undoubtedly been disastrous for certain sectors of society, particularly those in the lower class who would have fared better a few decades ago but who have now been crushed in the job market.

There has been a complete dislocation of people in major Western cities from their own traditional homes either into becoming renters or in being forced off into the hinterland (where they still pay an arm and a leg for a house) to commute to jobs with virtually zero job security. Throw general consumerism and the massive marketing machine behind that in there, as well as feminism and the attack on the family from that angle, and there has been a concerted effort at just about every level to completely break the middle class from virtually every direction possible. If you can pull off what you're trying to do, then more power to you, but I personally think that the average person in the West would be mad to try to play that game when there are so many special interests involved and so much money sloshing in from Russia, Saudi Arabia or China.

I especially think that leverage is playing with fire. Yes, private equity firms do this and profit immensely, but I suspect that they have a huge inside track, either when getting in or getting out. I would want to have very specialised knowledge or extremely good abilities to try to go head to head with them. When everything goes south, they will miraculously exit with their profits whilst everyone else gets left holding the bag. See Cyprus, amongst countless others, for an example of Joe Average getting killed whilst the big players made off like bandits when things went south.

Just one other thing in terms of owning your own place. At least in Australia, there is a massive amount of government micromanagement of people's property. In various local governments in Melbourne, the following rules apply: roofs must be of one of two colours (as though having a dark green roof as opposed to a black roof is really going to bring on the apocalypse), if you want to own more than two dogs you need to get permission to do so, you cannot have any kind of aviary and lots of other absurd little rules about what you can and can't do on your own property. These are all things that were not even around when I was a kid, let alone when my father was a kid. Many of these things have not been brought on democratically either. People most definitely do not own their own homes.

That's kind of a long, rambling post, but I think there's a lot going on behind the scenes that we are not privy to and that is decided for us, which we are then conditioned to accept as being how things are when they weren't that way even a generation ago. We're given a very narrow range of options and then told that the least crappy one is "getting ahead". It's kind of like fat acceptance. Once you step foot out of the obese West, you realise what utter bollocks that is.

Post: #43

I think home ownership is a great way to build wealth because it forces you to save. No matter what you have to come up with x dollars per month. There may be many who can maintain that kind of discipline outside of necessity, but many can't. Being forced to make a payment has been good for me.

Furthermore, with full acknowledgment of the externalities of overall decline in the US, there is also a huge collapse of overall character in some segments of the economic ladder -- people just making stupid, idiotic decisions about their lives with no thought about how it might effect their economic well-being, and then they bitch and moan about how hard life is.

Sure, life is hard. But it's even harder when you're stupid. The schools fail, the media fails and the culture fails. The truth is that there is a shitload of people who could be doing a whole lot better with some common sense, sacrifice, and just not being an idiot. I've seen people come from nothing to being somewhat comfortable by doing nothing but working a blue collar job, staying married, doing with less, sacrificing and just plain gutting it out. It's damn impressive. The old fashioned way still works. So though the road to serfdom seems wider than it ever has been, a huge portion of the added lanes is our own declining character and lack of willingness to suffer.

Post: #44

(12-20-2013 10:08 PM)Hencredible Casanova Wrote:  Obviously property ownership has gotten the most attention from the link I posted. But I'd be interested in thoughts about the other topics, like renting material items that tend to just take up space in one's home.

I thought it was a pretty cool idea, actually.

Imagine you live in a high-rise and once a month you want to cook something special for your date. You go down to the rental kitchen and get that cheese grater that you would never use, nice knives for mincing garlic, maybe a food processor for making pesto. To buy all these little accessories for your kitchen could easily cost you $1000+, instead you pay a small rental fee and don't have to worry about paying for the cost of storage and/or moving and/or depreciated value realized by selling when you decide to jet off to South America for 6 months.

I think there is a lot of potential for people to get access to higher quality goods that they don't need often. It's not communal, because they have to pay the rent and have a deposit on account or perhaps they risk a negative mark on their credit report if they damage the item.

Not only that, we live in a society of waste. In general, I live pretty frugally through managing expenses, but I also like my place to be welcoming to guests. When I do buy something I put the extra money in to buy something quality so it will have a better chance of retaining value (i.e. furniture) or lasting (shoes, my computer). People end up throwing away a lot of stuff when they move. If they had access to quality stuff that they could rent, there would be less waste.

I don't know if renting items would be good for the economy as it stands today, since it would reduce mindless spending for a generation of people that are less likely to stay in the same city, the same job for as long as their parents did. I would guess that emerging, manufacturing-based economies would suffer the most, while service-based economies would not experience as strong of an effect.

Post: #45

It seems that there is a consensus that home ownership can be a good investment, given the right market conditions.

As Hencredible mentioned, many of us are living in cosmopolitan cities where the housing prices are either too expensive to buy, or the markets didn't get hit hard enough by the recession and they just aren't really a good deal. What are the city-dwellers to do?

I've heard a rule that for an investment property to be a good deal you should be able to collect at least 1% of the total price in rent. If you live in a market where these kinds of properties are hard to find, is it advisable to buy a property in a market that you don't live in?

It seems like it would be risky and potentially a time-suck if you ended up having to travel to your rental frequently to handle repairs or tenant issues.

Post: #46

(12-20-2013 08:27 PM)thedude3737 Wrote:  What do you recommend as the ceiling of gross income going towards a mortgage? The common rhetoric is 1/3 of gross goes to rent, do you think even that's too high for a mortgage?

I personally don't rely on gross income as an accurate number, because it conveniently ignores income taxes (state and federal), payroll taxes, property taxes etc. It amazes me that the real estate industry still uses this number to calculate affordability.

28% of my gross income goes to the IRS, 7% to the state of California, payroll taxes 7.5%, 1% California State Disability insurance fund. So I pay 43.5 of my income to government which means there is a big difference in gross vs net income. This number does not even include sales taxes (8.25%), gas taxes, etc.

I would rather use net income when calculating what you can afford. The only thing to remember is that property taxes and PMI are a big deal. My broker kept referring to my "low monthly payment" because he ignored property taxes and PMI (required if you don't put 20% down). These two fun items added $668 per month to my mortgage payment per month. Plus add homeowner's insurance (which is generally mandatory) $800 a year for me.

Luckily California has Prop 13 which capped property taxes so I pay 1.25%. Some states can unilaterally raise your property taxes yearly based upon increases in "assessed value",which needs to be taken into consideration. Stay away from high tax areas if possible.

There is no fast rule for what percentage of net income, except to make sure you leave a large margin for unexpected expenses. Based on my earnings, my mortgage (plus prop taxes and PMI) eats up about 44% of net income. With my renter in the guesthouse that number drops to about 31%. Honestly with the high cost of LA, I don't think I could have bought the house without renting out the attached guesthouse (legally converted garage). I theoretically could have, but would have fallen into the trap where any unexpected bill would cause a liquidity crunch (like my dog dying of cancer this year--bill $1900).

(12-20-2013 10:08 PM)Hencredible Casanova Wrote:  But I'd be interested in thoughts about the other topics, like renting material items that tend to just take up space in one's home.

This is nothing short of insane. Literally every furniture piece I have except my mattress bed, has either been inherited (e.g discard by friends or family), bought at the thrift store for 10 cents on the dollar, or acquired free on Craigslist (fridge, tv, washer, and couch). Nobody believes me, but check craigslsit free stuff section. Obviously I don't have brand new shiny stuff, but they still do the job. All household furniture, electronics, and appliances, etc depreciate in value unless they are special antique items. Why waste precious money on depreciating assets? Buy appreciating assets. Renting expensive and fancy material items is another pointless recurring monthly expense I can do without.

Cort is the largest rent stuff company (owned by Warren Buffett). Looked at the pricing for my area and for my entire home(12 month contract) and it would cost between 224.99-427.99 per month. This only includes the following:
Living Room: Sofa, chair, cocktail table, end table, and table lamp.
Dining Room: Dining table and four (4) chairs.
Bedroom: Headboard, mattress set, dresser, mirror, night stand, and table lamp.

Waste of money. Check craigslist after Christmas and the first week of Jan. All the little consumers throw out or discard their used stuff to make way for their new shiny plasma flat screen tvs, and crap they bought for Christmas. It is hilarious.

Post: #47

I buy books as cheaply as possible off amazon. Often I only have to pay a penny - plus 5 dollars for postage.

And when I have finished the book - I throw it in the bin. I just hate having clutter in the house. And I read so many books that I quickly run out of space for them all. And for most books - I will never re-read them (except for philosophy books). So - I prefer to just get rid of them.

I hate clutter and I think it is a big problem in America. Since your houses are much bigger than here in the UK. Also - it seems that renting storage space is quite popular in America.

To me - if you are not going to use it again in the following year - I just assume I am never going to ever use it again.

One thing which I think will take off is online neighbourhood sharing. Imagine a site which only features the people who live within a mile of you. You can then post on there everytime you need to borrow something (such as a tool for DIY - or something else you are suddenly short of).

You would then get 'points' for every good deed you do. And then you can spend those 'points' next time you need a favour. Ideas like this would help reduce the need to own alot of stuff. It could be used for things like books as well.

But with that said - I think consumer products are becoming so cheap now - that is often cheaper to buy them and throw them away (as is the case with my second hand books from Amazon).

I remember reading the following in an economics book. The author of the book wanted his bed sheets to be dry-cleaned. But upon looking into it - his partner pointed out actually be cheaper to throw away the bed sheets and buy a brand new set of bed sheets.

The reason is that consumer goods are currently been imported from China at a loss (since China wants to depress their currency - in the name of expanding markets, providing jobs for the Chinese and achieving political stability in their country). Which means any service involving labour (such as dry-cleaning) in the West will often be more expensive than just purchasing a replacement item.

The same is true for many TVs and laptops. It is often cheaper to buy a new one than it is to get one fixed.

Post: #48

(12-20-2013 11:33 PM)Feisbook Control Wrote:  Flavius: Your arguments are all very good. Ordinarily, I would have given you a like, or even a recommendation, for what you wrote, but I still can't help thinking that the game is rigged. Yours might indeed be the best way to get ahead, but to me, living in many parts of the West now is like being hanged (and paying for the rope to be hanged with). If I absolutely had to choose, I'd rather a) hanging by snapping my neck, rather than b) hanging by strangulation. How about c) neither, though? There are greener pastures elsewhere. To use an analogy more in line with this website, it's like a choice between a) having sex with an obnoxious Aussie chick who was 20kg overweight, or b) having sex with a merely annoying Aussie chick who was 10kg overweight. How about c) chasing some fine tail overseas?

As others have mentioned, it used to be possible for the average family to live in an average house and do so on one average income. The middle class have kicked lots of own goals over the past few decades, but there has been a systemic screwing too. The social contract has all but broken down. The underclass get their welfare at the expense of the middle class. The upper class get their welfare (bailouts, subsidies) at the expense of the middle class. Where necessary, immigration has been a weapon with which to beat down local incomes and simultaneously drive up housing prices (often in conjunction with limited land release to real estate development companies), though I think immigration has been used ever further than that. Before I go on, personally, I am not at all opposed to immigration. Indeed, I am a beneficiary of it and globalisation generally. Yet it has undoubtedly been disastrous for certain sectors of society, particularly those in the lower class who would have fared better a few decades ago but who have now been crushed in the job market.

There has been a complete dislocation of people in major Western cities from their own traditional homes either into becoming renters or in being forced off into the hinterland (where they still pay an arm and a leg for a house) to commute to jobs with virtually zero job security. Throw general consumerism and the massive marketing machine behind that in there, as well as feminism and the attack on the family from that angle, and there has been a concerted effort at just about every level to completely break the middle class from virtually every direction possible. If you can pull off what you're trying to do, then more power to you, but I personally think that the average person in the West would be mad to try to play that game when there are so many special interests involved and so much money sloshing in from Russia, Saudi Arabia or China.

I especially think that leverage is playing with fire. Yes, private equity firms do this and profit immensely, but I suspect that they have a huge inside track, either when getting in or getting out. I would want to have very specialised knowledge or extremely good abilities to try to go head to head with them. When everything goes south, they will miraculously exit with their profits whilst everyone else gets left holding the bag. See Cyprus, amongst countless others, for an example of Joe Average getting killed whilst the big players made off like bandits when things went south.

Just one other thing in terms of owning your own place. At least in Australia, there is a massive amount of government micromanagement of people's property. In various local governments in Melbourne, the following rules apply: roofs must be of one of two colours (as though having a dark green roof as opposed to a black roof is really going to bring on the apocalypse), if you want to own more than two dogs you need to get permission to do so, you cannot have any kind of aviary and lots of other absurd little rules about what you can and can't do on your own property. These are all things that were not even around when I was a kid, let alone when my father was a kid. Many of these things have not been brought on democratically either. People most definitely do not own their own homes.

That's kind of a long, rambling post, but I think there's a lot going on behind the scenes that we are not privy to and that is decided for us, which we are then conditioned to accept as being how things are when they weren't that way even a generation ago. We're given a very narrow range of options and then told that the least crappy one is "getting ahead". It's kind of like fat acceptance. Once you step foot out of the obese West, you realise what utter bollocks that is.

Great post. Exactly how I see it. I don't buy the argument that it's now impossible for the current generation to get on the housing ladder, but it takes a hell of a lot more than it did the baby boomers, and for 90% of people is probably not worth it.

I'm hustling like hell to get a deposit together for my first property. However, it will be a shithole, and I won't be living there. Instead it will be a multi-occupancy house, ostensibly with me as a live in landlord.

One of the red-pill viewpoints that clicked with me immediately is the anti-consumerism. Not hippy anti-consumerism, where they are just can't afford it. But seeing it for how it really is. Sheeple, plebs, blue pillers, call them what you will, they exist to be milked.

As regards the everyday item rental market, if it suits your lifestyle then go for it. However, it's currently well overpriced.

Post: #49

(12-21-2013 04:55 AM)Flavius Aetius Wrote:  This is nothing short of insane. Literally every furniture piece I have except my mattress bed, has either been inherited (e.g discard by friends or family), bought at the thrift store for 10 cents on the dollar, or acquired free on Craigslist (fridge, tv, washer, and couch). Nobody believes me, but check craigslsit free stuff section. Obviously I don't have brand new shiny stuff, but they still do the job. All household furniture, electronics, and appliances, etc depreciate in value unless they are special antique items. Why waste precious money on depreciating assets? Buy appreciating assets. Renting expensive and fancy material items is another pointless recurring monthly expense I can do without.

Waste of money. Check craigslist after Christmas and the first week of Jan. All the little consumers throw out or discard their used stuff to make way for their new shiny plasma flat screen tvs, and crap they bought for Christmas. It is hilarious.

Top marks. Second hand quality will outlast anything you can find in the furniture warehouses on the high street. What you (and myself) are doing is using the consumer hamster ('must have current home furnishings and appliances/keeping up with the Joneses') to live cheap. There was a great thread a while back, 'Rich Habits' which covered this sort of thing in more detail.

Seriously, has anyone on here ever bought a whole matching set of homewares on expensive store credit?

No homo, but you don't have to be a chartered interior designer to make your pad look great with second hand stuff. It's got soul, and chicks dig it. Buy a decent solid table, for example, at the bottom of the market and you simply cannot loose. It's value will stay the same or appreciate. Put a dent in it; never mind, that's not a defect, it's patina! Ikea et all is not 'modern', it's soulless IMO.

Forgive the diversion, but working out the 'bottom of the market/sweet spot to buy' and the associated cost of running/ownership for various items is a keen interest of mine. It varies greatly amongst the wide variety of tools and machines I buy, from brand new to forty years old.

Post: #50

(12-21-2013 04:55 AM)Flavius Aetius Wrote:  

(12-20-2013 08:27 PM)thedude3737 Wrote:  What do you recommend as the ceiling of gross income going towards a mortgage? The common rhetoric is 1/3 of gross goes to rent, do you think even that's too high for a mortgage?

I personally don't rely on gross income as an accurate number, because it conveniently ignores income taxes (state and federal), payroll taxes, property taxes etc. It amazes me that the real estate industry still uses this number to calculate affordability.

28% of my gross income goes to the IRS, 7% to the state of California, payroll taxes 7.5%, 1% California State Disability insurance fund. So I pay 43.5 of my income to government which means there is a big difference in gross vs net income. This number does not even include sales taxes (8.25%), gas taxes, etc.

I would rather use net income when calculating what you can afford. The only thing to remember is that property taxes and PMI are a big deal. My broker kept referring to my "low monthly payment" because he ignored property taxes and PMI (required if you don't put 20% down). These two fun items added $668 per month to my mortgage payment per month. Plus add homeowner's insurance (which is generally mandatory) $800 a year for me.

Luckily California has Prop 13 which capped property taxes so I pay 1.25%. Some states can unilaterally raise your property taxes yearly based upon increases in "assessed value",which needs to be taken into consideration. Stay away from high tax areas if possible.

There is no fast rule for what percentage of net income, except to make sure you leave a large margin for unexpected expenses. Based on my earnings, my mortgage (plus prop taxes and PMI) eats up about 44% of net income. With my renter in the guesthouse that number drops to about 31%. Honestly with the high cost of LA, I don't think I could have bought the house without renting out the attached guesthouse (legally converted garage). I theoretically could have, but would have fallen into the trap where any unexpected bill would cause a liquidity crunch (like my dog dying of cancer this year--bill $1900).

(12-20-2013 10:08 PM)Hencredible Casanova Wrote:  But I'd be interested in thoughts about the other topics, like renting material items that tend to just take up space in one's home.

This is nothing short of insane. Literally every furniture piece I have except my mattress bed, has either been inherited (e.g discard by friends or family), bought at the thrift store for 10 cents on the dollar, or acquired free on Craigslist (fridge, tv, washer, and couch). Nobody believes me, but check craigslsit free stuff section. Obviously I don't have brand new shiny stuff, but they still do the job. All household furniture, electronics, and appliances, etc depreciate in value unless they are special antique items. Why waste precious money on depreciating assets? Buy appreciating assets. Renting expensive and fancy material items is another pointless recurring monthly expense I can do without.

Cort is the largest rent stuff company (owned by Warren Buffett). Looked at the pricing for my area and for my entire home(12 month contract) and it would cost between 224.99-427.99 per month. This only includes the following:
Living Room: Sofa, chair, cocktail table, end table, and table lamp.
Dining Room: Dining table and four (4) chairs.
Bedroom: Headboard, mattress set, dresser, mirror, night stand, and table lamp.

Waste of money. Check craigslist after Christmas and the first week of Jan. All the little consumers throw out or discard their used stuff to make way for their new shiny plasma flat screen tvs, and crap they bought for Christmas. It is hilarious.

33-35% for shelter is a good and sustainable cap. To put it in perspective I would need a average income or about 33k to "afford" the place I live in now. Since I rent I am shielded from bullshit taxes, fees, and unexpected maintenance costs. It's a myth out ahead these days, on the RE sites I follow they crunch the numbers all the time of two homes in good locations like North Vancouver one rented and one bought and sold. After all the fees, tax, lawyers, and other bullshit costs over the life of the house most people barley leave with a few grand extra after it's all said and and done. Let my landlord have those possible equity gains, I at least get my freedom.

But 33-35K is barley average income for a young person POST tax, if that. Many are probably closer to the number you pay in the mid to high 40%'age range which is to high IMO. That extra 10-15% used to go towards savings which many young people fail to do these days. And the top end of living is simply made doable via debt. The CC vacation to Bali wouldn't be a reality for the without access to debt.

Not sure how it works in Cali but in Canada the Govt fleeces you off each cheque so on pay day your generally always left your net income number. After about 37-43K though the numbers they start to chop off get wild and it keeps on getting worse.

Things that would be smart to rent are physical items that can't be digitized and that are in need only at certain times: Cars in cities, the little Mercedes cargo trucks for small business, cookware, tools, *space*... in that you rethink the condo party room and offer localized spaces close to people that can be used to host dinners, socials, whatever you could do in a 'house' but would have the space or resources to do. Condo buildings do this but what about people living in regular apartments?