Post: #76

(12-22-2013 05:22 PM)thedude3737 Wrote:  Most people are also fucking morons and have little to zero control over their finances. In this forum alone you've got viewpoints and perspectives that are far more intelligent and well-informed than the populace.

Yes, most people are that bad. Unless you only intend to buy or sell via this forum, they will be the basis of the property market.

(12-22-2013 05:22 PM)thedude3737 Wrote:  Not all properties come with "issues" or are "aging". You can mortgage a condo that has to meet very strict HOA requirements before you sign anything. I'm currently looking into this as an option to get out of renting, which is nothing more than paying someone ELSE'S mortgage.

Bottom line to me is this: Do your homework and get educated. Do you want to build equity for yourself or someone else?

ALL properties have problems. That's like saying not all cars need a service each year - they might not need it right now, but eventually they will.

HOA requirements = a group of people who control what you can and cannot do with "your" property.

(12-22-2013 05:18 PM)reaper23 Wrote:  do you understand what happens when you pay off debt? you build equity. you grow your asset side of the balance sheet while reducing your debts. it is a savings. assuming the real estate market stays the same, you get your money back that you put in.

and, in the US, the interest you pay on a home is tax deductible.

Going back to the "most people are fucking idiots" point, you're ignoring all the retards out there with 'interest only' mortgages - they think they own a house but are only servicing a debt, any equity can only come from a general rise in property prices.


I am not anti-home ownership - although I rent I will buy when the time is right, but I think it's important to recognise that the residential property market is kept afloat by they irrational thinking of the masses.

"The market can stay irrational longer than you can stay solvent"

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

Post: #77

Also, you build equity very slowly in the first 3-5 years of your mortgage. Most have moved within 7 years. Let's take an actual example:

A 300k Mortgage @ 5% for 30 years = $1943.80 Monthly payment, of which $360.46 is principal.

The principal on payment #84 (year 7) is $511.15. $1943.80 monthly payment remains constant.

Take the average of the two $435.81 x 84 and you will have built up $36.6k over seven years. That is, if you sell, you will owe $36.6k less on the property. Mind you, you have paid a total of 163.2k in payments over that 7 years, not including condo fee, taxes, maintenance etc... Also, you will have closing costs on each end.

So, for all of you who say "Paying rent is like throwing money down the toilet" what do you call the approximately 128k you have paid to the bank in interest? Yes it is tax deductible, in this analysis, probably about 2/3 of it.

In my area, a 300 k condo would probably rent for 1600/mo give or take. Add condo fee and taxes to the above and you are looking @ $2300/mo to buy the same property.

What's the point? The point is, including additional costs, you are probably paying in the neighborhood of 200k or more to build 36.6k in equity over 7 years. You probably have another 30k in tax advantages depending on your tax bracket over that time period so you should factor that in as well.


Edit*** Above analysis includes 4000/year in property taxes

Post: #78

I think the article confuses concepts of demand with other constraints. Renting vs. ownership.

People will always prefer to own, because it gives flexibility. For this, you ostensibly pay a premium. That premium is a function of demand subject to budget constraints.

Of course, preferences can and probably will shape whether people are long or short certain assets. But in general, people want shit, and more of it. As we get poorer, renting might be a way to help maintain certain levels of utility even as government contains to gut the economy for real value and productivity gains. It will mask the extent which we all are getting poorer.

As for home-ownership... i completely underestimated the transaction costs of buying a flat. That said, I am learning a lot of stuff about property maintenance that will probably save me dough down the line.

Post: #79

(12-23-2013 12:17 PM)ElJefe Wrote:  People will always prefer to own, because it gives flexibility. For this, you ostensibly pay a premium. That premium is a function of demand subject to budget constraints.

On the contrary, I believe renting gives you much more flexibility. Not to put words in your mouth, but did you mean 'security'?

As far as I see, people believe that by buying they are being smart, and purchasing security for them and their family. Nesting instincts.

Plenty believe that they are 'playing the system' and quite fancy themselves as savvy spivs all the time the prices keep on rising. In truth, they are being played by those with the real money.

That said, I shall be buying to let as side income.

Post: #80

Depends on what you mean by flexibility. Owning gives you more flexibility to do what you want with your living environment. For instance I can't tear down the wall in between the dining room and kitchen in my rental. Renting gives you more flexibility to move.

Post: #81

(12-23-2013 10:51 AM)LowerCaseG Wrote:  Also, you build equity very slowly in the first 3-5 years of your mortgage. Most have moved within 7 years. Let's take an actual example:

A 300k Mortgage @ 5% for 30 years = $1943.80 Monthly payment, of which $360.46 is principal.

Great breakdown. It's crazy how much banks pull and it isn't even their money they are loaning out. hah

Funny you mentioned the 7 year mark, the average length of time a person owns a house is for 7 years from recollection. That means they sell around 7 years to purchase another only to continue paying mostly interest.

Most people are only interested in how much monthly will this cost me. That is why you see marketing that won't mention the total cost but what the monthly payments will be.

Post: #82

There is not a "right" way to analyze. Some people are all about cash flow. Some people are all about asset appreciation (equity). Some mix the two. I have seen a lot of people buy property, and the details of their purchases. I have one acquaintance who probably refinanced 6 times in 8 years, something like that. His payment is probably a good $400/mo less now than when he bought, but he probably owes the same amount of money on the house 8 years later. He's in less of a position to use his....say 36.6k equity from the above example, lever it 4 to 1 (20% down payment), and go from a 400k house to a 575k house, and then a 800k house seven years later.

The far better strategy is to maintain the same monthly payment or increase it if you can afford it and pay down years. Refinance to a 15 or 20 year mortgage. You are paying exponentially less interest.

Having children though seems to push everyone towards getting by each month as cheaply as possible ------> cash flow.

Post: #83

(12-19-2013 09:05 PM)Flavius Aetius Wrote:  

(12-19-2013 08:25 PM)Feisbook Control Wrote:  That article also erroneously refers to a house as an asset. An asset is something that makes you money (on an ongoing basis). A liability is something that costs you money (on an ongoing basis).

Unless you rent a house out, it is purely a liability (it costs money in interest, taxes, repairs, etc.) until you sell it.

You say that a owning a house (paying a mortgage) is a liability. For a human being who has to live somewhere you have 2 choices: either rent or buy. By renting you get nothing out of it (equity) and it bleeds you dry forever--which makes renting a liability too. So unless you want to be homeless or are already rich enough to buy a house in cash, your only other alternative is to buy.

If you buy, you at least gain equity in your home every month by paying your mortgage. For the past 4-5 yrs it has been cheaper to buy than rent. Interest and property taxes are tax-deductible (rent is not), along with the $250,000 capital gain exclusion on selling your house (if you live there more than 2 years) makes owning better than renting in most cases.

Also, you can monetize your equity from your home at advantageous rates (under 6.0%)--cant do that by renting. I know many people who have taken out HELOC's on their house and used it as a down payment for an investment property. This is how you accumulate wealth.

Buying a home is a good idea if you are in a city you know you want to be in long-term. Buying may have been cheaper than renting recently, but I think that was only in certain markets. I doubt you could say that for NYC or SF, even at the bottom of the housing cycle.

Renting may make sense if you are taking the monthly savings you get from renting and investing it into something with a good return. You can then build your own equity and possibly at a rate faster than the appreciate rate of real estate(which of course varies tremendously from market to market). With so much of your net worth tied up in real estate you are at the mercy of your local real estate market to make a return. Whereas you have options as to where you want to invest savings from renting and you don't have such a huge egg in one basket. I still think owning is a good idea, but renting can be fine too if you are saving and investing the difference and not blowing it on consumer junk.

Post: #84

(12-29-2013 03:55 PM)speakeasy Wrote:  Renting may make sense if you are taking the monthly savings you get from renting and investing it into something with a good return. You can then build your own equity and possibly at a rate faster than the appreciate rate of real estate(which of course varies tremendously from market to market).

I still think owning is a good idea, but renting can be fine too if you are saving and investing the difference and not blowing it on consumer junk.

I agree that as long as you are saving money you are doing something right. Not always a popular opinion on some forums. I sometimes get called a "frugal baller troll" for discouraging purchases of consumer junk.

Remember when you invest in real estate you have the power of leverage on your side, which gives you a big boost in returns compared to simply saving money and investing it.

Example. 50K available in capital

Scenario 1--buy 500k house with 10% down--50K
Scenario 2--invest all 50K in stocks, bonds

For simplicity sake lets say that both scenarios earn 5% in yr 1--a modest return but it will show the power of leverage.

Outcome for Scenario 1--5% increase on 500K house equals 25K increase in equity--a 50% return on invested capital of 50K

Outcome for Scenario 2--5% return on stocks/bonds on 50K equals $2,500--no leverage

Of course leverage is a double-edge sword (if home prices decline my equity collapses very quickly), but with the Fed printing money (debasing the purchasing power of the US dollar) and openly stating they want higher home prices, I am willing to bet on higher nominal house prices. The old Wall Street adage "Don't fight the Fed" rings true.

Post: #85

(12-31-2013 02:22 AM)Flavius Aetius Wrote:  Remember when you invest in real estate you have the power of leverage on your side, which gives you a big boost in returns compared to simply saving money and investing it.

Example. 50K available in capital

Scenario 1--buy 500k house with 10% down--50K
Scenario 2--invest all 50K in stocks, bonds

For simplicity sake lets say that both scenarios earn 5% in yr 1--a modest return but it will show the power of leverage.

Outcome for Scenario 1--5% increase on 500K house equals 25K increase in equity--a 50% return on invested capital of 50K

Outcome for Scenario 2--5% return on stocks/bonds on 50K equals $2,500--no leverage

You can also use leverage when investing in stocks - for example by taking a margin loan, or buying call options instead of common stock.

Post: #86

(01-01-2014 09:07 PM)Steve9 Wrote:  You can also use leverage when investing in stocks - for example by taking a margin loan, or buying call options instead of common stock.

True, but thanks to the Fed's Regulation T you are limited to 2/1 leverage on your margin account (even though rates are pretty good under 5% on over 50K). Real estate offers higher leverage up to 10/1. FHA you only have to put down 3%--33/1 leverage even better.

Options are a real crap shoot, you either win big or lose everything. I would rather sell options for income rather than buy them for speculation.

One other advantage of real estate leverage vs margin on a stock account--real estate is not marked to market (no margin clerk harassing you), while with stocks you are subject to short term fluctuations in the market. Getting a call from your broker issuing a margin call sucks ass.

Post: #87

Millennials don't own homes. I know like maybe 3 people my age who own houses and 2 of them inherited the houses they own.

Post: #88

(01-02-2014 12:30 PM)Andy_B Wrote:  Millennials don't own homes. I know like maybe 3 people my age who own houses and 2 of them inherited the houses they own.

Yeah Flavius, sorry don't see it happening.


LONDON

Average first-time buyer house price: £278,417

Average first-time buyer deposit: £55,683

Years for a couple to save average deposit: 10.8

Years for a couple with a child to save average deposit: 20.5

Years for a single person to save a deposit: 29.5

http://www.mirror.co.uk/money/personal-f...ed-1962846

Post: #89

This is not only a function of decline, but also one of mobility. I have two passports, have lived in four countries between January 2012 and now, and will very likely keep moving about for the foreseeable future, even if it slows down a little bit.

I am not looking to be involved with the legal and financial intricacies of home and car ownership in each place. It is much more congenial to have the use of a nice home or car while I need it, and to be able to give it up with no hassles when I do not.

Post: #90

(01-02-2014 01:30 PM)Que enspastic Wrote:  Average first-time buyer deposit: £55,683

Years for a single person to save a deposit: 29.5

The above figure is for London which has always been known for its crazy real estate prices. Elsewhere in the UK is far more reasonable.

In any case, without even adding compound interest into the calculation, this assumes that the average single person can only save £1,887 per year? That is incredibly lowball to say the least.

The real problem is that we have forgotten how to save. Most millennials are up to their eyeballs in debt - NOT out of necessity, but stupidity.