Post: #51

When you take out a mortgage you are "renting" the money via interest vs. renting the property.

Rich Dad Poor Dad: "An asset puts money in your pocket. A liability takes money out of your pocket." A primary residence is not considered an asset using this analysis.

Yes, mortgage interest is deductible, but it's only advantageous on the amount above the standard deduction, which is $6100 for 2013.

I think renting vs. buying is more of a lifestyle choice if you can afford it. If you can't afford it, there's really no choice.

Post: #52

(12-21-2013 08:29 AM)roberto Wrote:  

(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.

In addition to thrift stores and CraigsList, do not forget about estate auctions. For example, over the years I bought a number of Persian rugs for about a quarter of the price of new ones -- or even less. I do not think that I have ever bought anything at an estate auction for which I could not get the same amount of money back.

BTW: I once paid $130 for a huge beautiful Persian rug at a thrift store that would have cost about $800 at auction or $3,000 to $4,000 new.

I much prefer buying high-quality second-hand furniture than new junk -- and I do mean junk. Ikea is real junk. I went to an Ikea once and could not believe the lack of quality. The success of Ikea really says something about the mentality of western culture.

Post: #53

(12-19-2013 11:32 PM)Tail Gunner Wrote:  Up until 1971, when the U.S. went off the gold standard, a man could work and pay off a small mortgage in fifteen years while the wife stayed home with the children. Or they could simply save and pay for a home in cash, because a house cost only one or two years salary.

Why are working men now strapped with 30-year mortgages and why do average homes cost many times the average salary? It is a massive wealth transfer from the middle class to the non-working benefit-collecting poor (via social welfare programs), through the mechanism of a debased currency that inflates prices. Only the drastic expansion of credit (slavery) has allowed the middle class to retain a somewhat relative standard of living.

More straight-forward explanation:

Forced busing/school integration, Women's Liberation and population multiplication via immigration, plus limitations on building. Talk to yuppie parents, and their first concern is sending their kid to a 'good' school, i.e. a predominantly white or Asian school (preferably white for white parents). If you live in a major metropolis, the public schools will *not* be predominantly white/Asian. There may be selective schools that are, but it may prove difficult to get your child in one. If you can't afford the $20-30k per kid per year for private school, you opt to live in some suburb miles and miles away from the city.

I grew up in an upper middle class area. There was a public elementary school blocks away, to which most locals sent their kids. There was a public junior high too, also a few blocks away - and as far as I could tell from walking by it, only poor Hispanic kids went there, whereas the elementary school reflected the local community - affluent Asians, Middle Easterners, Jews and white gentiles.

The local parents I knew would send their kids to private school come the 6th grade. Even in the area where I grew up, the local junior high and high school were not 'good' schools - they drew from non-upper/middle class areas so they were no longer 'good' schools.

Even now, I live in a rather tony part of town, and my local public high school is dangerous and occasionally experiences shootings.

Women's liberation meant an increase in the labor supply, driving wages down or keeping them from rising. Dual incomes from the wife working meant there's more money sloshing around to bid up housing prices. Instead of paying for private school, middle class parents pay for a 'good' school by buying a house in the suburbs, at a price that's only justified because everyone else is doing the same thing.

Homeschooling is a promising escape from this trap however. School vouchers are a promising option too if state governments ever initiated them. With either solution, parents wouldn't need to care about the condition of the local public schools, they wouldn't need to limit their housing search to an area with 'good' public schools. If you had a strong voucher program, there's a good chance housing in the suburbs would just tank in appeal and price. A big roomy house is nice, but not at the expense of driving hours a day through traffic.

If you had a smart, diligent submissive wife, you could simply live near work and have her homeschool the kids - you might not even need to own a car. But nobody does that.

On top of all that, you have a national population that's increasing mostly or entirely thanks to immigration. Land is finite, especially so when city codes and environmental regulations grow in complexity every year. It's even worse in Northern California, from what I hear. You never see housing here that's both new and semi-affordable. London is probably the worst worldwide in this respect - it's housing market became a place for the world's rich hustlers to park their cash, and now everyone who actually lives there suffers. New York City has a similar dynamic - http://www.nytimes.com/2011/07/07/nyregi...d=all&_r=0

Post: #54

(12-21-2013 09:44 PM)basilransom Wrote:  Women's liberation meant an increase in the labor supply, driving wages down or keeping them from rising. Dual incomes from the wife working meant there's more money sloshing around to bid up housing prices. Instead of paying for private school, middle class parents pay for a 'good' school by buying a house in the suburbs, at a price that's only justified because everyone else is doing the same thing.

I try to explain this to people all the time and they just don't get this idea that women entering the workforce has essentially doubled the price of everything. They think they actually have more money, despite obviously not. Or they dismiss it as sexist. Then their solution is paid maternity leave, as if that money is just going to fall out of the sky. In Australia, both the centre right and centre left parties have jumped on the idea of paid maternity leave as some sort of panacea. Morons.

Quote:Homeschooling is a promising escape from this trap however. School vouchers are a promising option too if state governments ever initiated them. With either solution, parents wouldn't need to care about the condition of the local public schools, they wouldn't need to limit their housing search to an area with 'good' public schools. If you had a strong voucher program, there's a good chance housing in the suburbs would just tank in appeal and price. A big roomy house is nice, but not at the expense of driving hours a day through traffic.

If you had a smart, diligent submissive wife, you could simply live near work and have her homeschool the kids - you might not even need to own a car. But nobody does that.

It makes me think that possibly the biggest opponents of the voucher system in the U.S. wouldn't even be teachers' unions but the real estate industry. I wonder if vouchers will ever really come in.

Quote:On top of all that, you have a national population that's increasing mostly or entirely thanks to immigration. Land is finite, especially so when city codes and environmental regulations grow in complexity every year. It's even worse in Northern California, from what I hear. You never see housing here that's both new and semi-affordable. London is probably the worst worldwide in this respect - it's housing market became a place for the world's rich hustlers to park their cash, and now everyone who actually lives there suffers. New York City has a similar dynamic - http://www.nytimes.com/2011/07/07/nyregi...d=all&_r=0

Melbourne and Sydney are not much different, to be honest, and as irrational as the housing bubbles are, those two cities are very desirable, especially amongst Chinese citizens trying to leave the PRC. The land supply is artificially restricted by the government and there are all sorts of tax incentives to owning investment properties. My sister and her husband have about four properties between them, a couple in Queensland (where they moved for work) and two in Sydney, where they used to live. My sister actually said to me that housing prices don't go down. She actually said that.

What is crazy is that there is seemingly no end in sight, so in some places a house will cost 8-12 times the median income. For the past decade, everyone has been saying that the bubble will pop, yet it keeps inflating. Taipei is similar, though for different reasons. Governments keep doing all that they can to stop the bubbles bursting, but when they do, the blood is going to be knee deep in the streets. At the beginning of 2009, my cousin and her husband were looking at buying in an area that was 12 times the median income. I asked her if she thought there was a bubble. She said there was no bubble. I said that that's what Americans said circa 2006-2007. Her response was (exact quote) "We're not stupid Americans."

I just raised an eyebrow, but I thought, "Holy shit! These people are all fucked." My cousin doesn't work. She also offloads her kids onto their grandparents several times per week. She thinks there should be paid maternity leave, yet also posts stuff like "hands off my uterus" on Facebook whenever the government hints at anything even vaguely "sexist". Her husband works his backside off, but as quickly as he makes it, she spends it. Currently, they're on vacation in Vietnam. They go overseas at least twice per year, drive huge vehicles and generally consume tons of stuff. They're not "stupid Americans" though. It's crucial to understand that part. They're just fucking idiotic Australians who saw the rest of the world fall in a heap and assume that it won't happen to them because they're bloody brilliant and the rest of the world isn't. The hamster is strong.

Post: #55

(12-21-2013 10:49 PM)Feisbook Control Wrote:  I asked her if she thought there was a bubble. She said there was no bubble. I said that that's what Americans said circa 2006-2007. Her response was (exact quote) "We're not stupid Americans."

I just raised an eyebrow, but I thought, "Holy shit! These people are all fucked." My cousin doesn't work. She also offloads her kids onto their grandparents several times per week. Her husband works his backside off, but as quickly as he makes it, she spends it. Currently, they're on vacation in Vietnam. They go overseas at least twice per year, drive huge vehicles and generally consume tons of stuff. They're not "stupid Americans" though. It's crucial to understand that part. They're just fucking idiotic Australians who saw the rest of the world meltdown and assume that it won't happen to them because they're bloody brilliant and the rest of the world isn't. Grief.

[pop] = The sound of my jaw hitting the ground.

I knew about that housing bubble in Australia, but I did not know that it was that bad.

What made my jaw hit the ground was that I assumed that people in other countries had learned a lesson from the housing bubbles in the U.S. and western Europe and had taken proactive steps since the last financial crisis to de-leverage their positions.

This just goes to show that there will be another financial crisis simply because people refuse to educate themselves -- or to even learn from the mistakes of others. With the worldwide markets now interconnected, all it takes is for one major economy to implode and it will take the rest of the world with it.

Post: #56

People are really bad at learning from abstract examples. Whatever happened in the U.S. or elsewhere (if I remember correctly, there have been something like 30+ housing bubbles in the OECD since 1980) was purely abstract to people. The Australian economy was going great guns. Everyone else is/was making huge paper gains on the price of their house. That was the reality in front of their eyes. So people just get/got carried away with that.

China is another huge bubble waiting to pop. I'm sure you've heard about the ghost cities there. Australia is heavily dependent upon China as an export market. So Australia is effectively hitched to two property bubbles, either of which could bring it down. It's absolutely insane.

You have to see how things are in Australia to believe them. My wallet almost goes into cardiac arrest every time I visit there. A salad is $14 at the cafe across the street from my parents' house (or was two years ago, maybe it's more now). Fortunately, I have free accommodation otherwise I just don't think I'd go to Australia.

You should see Taipei. Real estate is a massive tax shelter, often for somewhat dodgy money. I saw a chart a while ago listing how long it would take renting a place for it to be equivalent to buying it in various Asian cities. Bangkok was something like sixteen years. Taipei was eighty. That in a country with a TFR of 1.0 children per adult woman, i.e. a declining population. Keep your eye out for news reports of that bloodbath in a few years. Don't believe me? Check this out. The price tag? $9.8 million. That's USD, not TWD. The median salary in Taiwan is about 1,300USD/month.

Post: #57

Also, normalcy bias. People tend to assume that things will continue to go smoothly because they are going smoothly at the moment.

I don't think the Chinese real estate market is a bubble, specifically Shanghai and Beijing. Right now, the government is artificially suppressing prices to keep them reasonable. Agree/disagree?

Post: #58

"It makes me think that possibly the biggest opponents of the voucher system in the U.S. wouldn't even be teachers' unions but the real estate industry. I wonder if vouchers will ever really come in."

Interesting point that I hadn't considered, but may not be the case. Urban living in city centers is the big new trend - at least here in LA, I'm guessing that's where the real estate industry is concentrating their efforts right now. Even though they built up the suburbs, most of them have probably washed their hands of that by now. And vouchers would be a BIG boon to living in the city where the local public schools may not be 'good.' So developers, at least the ones with urban projects, would be in favor of vouchers. The biggest losers would be current suburban homeowners probably, and they havent opposed vouchers as such. The main opponent to vouchers are the teachers unions.

Post: #59

this is a great conversation but i have to just go back to one thing

real estate is an asset. there is no disputing it. it is just a fact. its like saying a loan is debt. there is no grey area, there is no conversation, it just IS by definition an asset.

there is nothing wrong with using leverage to purchase an asset....unless the asset loses value.

and thats just it. all assets have risk. yes they can go up and down. your equity can be wiped out or it can double. transactions costs are expensive.

i'm not saying you can or can not make money on a home.

what i am saying is that it is an asset. undeniably, unequivocally, and really, there is no discussion to be had on it.

the only question is whether or not it is a good or bad asset to own.

Post: #60

(12-22-2013 12:56 AM)reaper23 Wrote:  this is a great conversation but i have to just go back to one thing

real estate is an asset. there is no disputing it. it is just a fact. its like saying a loan is debt. there is no grey area, there is no conversation, it just IS by definition an asset.

there is nothing wrong with using leverage to purchase an asset....unless the asset loses value.

and thats just it. all assets have risk. yes they can go up and down. your equity can be wiped out or it can double. transactions costs are expensive.

i'm not saying you can or can not make money on a home.

what i am saying is that it is an asset. undeniably, unequivocally, and really, there is no discussion to be had on it.

the only question is whether or not it is a good or bad asset to own.

Real estate is an asset. And it is a good asset if you paid cash for it -- or it is located in an area of appreciation.

But most people have mortgages on that asset. Mortgages are debt -- "undeniably, unequivocally, and really, there is no discussion to be had on it."

That is the other side of the equation.

Post: #61

Some people are using a fairly broad definition of the term asset to mean anything that has value. A used car, clothes, furniture, etc. would all fit this definition of the term.

I use this definition:

Quote:1. Assets are bought to increase the value of a firm or benefit the firm's operations. You can think of an asset as something that can generate cash flow, regardless of whether it's a company's manufacturing equipment or an individual's rental apartment.

Indeed, I use an even narrower definition that it has to generate positive cash flow (i.e. that the cash it generates has to be more than its costs). By this definition, a home that someone lives in is not an asset.

basil: Your explanation of where the vested interests lie regarding vouchers makes more sense than mine. I think you're probably right and I'm probably wrong.

Post: #62

(12-22-2013 05:00 AM)Feisbook Control Wrote:  Some people are using a fairly broad definition of the term asset to mean anything that has value. A used car, clothes, furniture, etc. would all fit this definition of the term.

I use this definition:

Quote:1. Assets are bought to increase the value of a firm or benefit the firm's operations. You can think of an asset as something that can generate cash flow, regardless of whether it's a company's manufacturing equipment or an individual's rental apartment.

Indeed, I use an even narrower definition that it has to generate positive cash flow (i.e. that the cash it generates has to be more than its costs). By this definition, a home that someone lives in is not an asset.

basil: Your explanation of where the vested interests lie regarding vouchers makes more sense than mine. I think you're probably right and I'm probably wrong.

cash flow has nothing to do with something being an asset or not

does gold have cash flow?

does raw land have cash flow?

does undeposited currency have cash flow?

no, no, no and they are all assets

and you guys keep forgetting that you do in fact get something from a home when you purchase - utility. that is valuable. you aren't spending that money elsewhere on rent. you are now spending it on your leverage if you borrowed for it - or you are not paying anything at all.

the value of an asset and the benefit it gives you is an independent conversation from how you purchase it (with cash or with leverage)

look - i rent my home now. but i own commercial real estate. this is my career. i understand this shit better than most. i'm not saying you guys are right or wrong in terms of whether or not it is a good idea, i'm just trying to lay down some basic principles of what certain financial terms are.

when you value commercial real estate, you do so by completely disregarding HOW you purchase it. in fact you consider it as if you purchased it all cash. then you later think about the structure of the purchase package.

same should be done for residential RE

Post: #63

I disagree. If you own one house and live in it it is not an asset.

Post: #64

(12-22-2013 12:09 PM)reaper23 Wrote:  and you guys keep forgetting that you do in fact get something from a home when you purchase - utility. that is valuable. you aren't spending that money elsewhere on rent. you are now spending it on your leverage if you borrowed for it - or you are not paying anything at all.

You could easily make an alternative point here - I think it's fair to assume most people starting off nowadays won't reach a point where they own their home outright.

By renting, you aren't spending money on repaying debt, or fixing material issues on an aging property - you get the utility of no debt load, and someone else is responsible for fixing any problems for a flat rate.

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

Post: #65

(12-22-2013 02:49 PM)gfly Wrote:  I disagree. If you own one house and live in it it is not an asset.

sorry but there is nothing disagree with. its like saying, i disagree with you saying that 90 degree angle is a right angle.

or saying you dont think that gravity actually is why things fall to the earth.

these are not matters of opinion.

you buy a home and it goes on the asset side of the ledger. you either covert cash to this asset and the balance sheet stays the same. or you borrow and have debt on the other side of the balance sheet and it gets bigger via leverage.

its just IS

its math. it is undebatable.

Post: #66

(12-22-2013 04:37 PM)crippler Wrote:  

(12-22-2013 12:09 PM)reaper23 Wrote:  and you guys keep forgetting that you do in fact get something from a home when you purchase - utility. that is valuable. you aren't spending that money elsewhere on rent. you are now spending it on your leverage if you borrowed for it - or you are not paying anything at all.

You could easily make an alternative point here - I think it's fair to assume most people starting off nowadays won't reach a point where they own their home outright.

By renting, you aren't spending money on repaying debt, or fixing material issues on an aging property - you get the utility of no debt load, and someone else is responsible for fixing any problems for a flat rate.

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.



again, i'm not saying one should always own - I DONT OWN I RENT - but these objections I am reading are just falsehoods and not real objections.

Post: #67

(12-22-2013 04:37 PM)crippler Wrote:  You could easily make an alternative point here - I think it's fair to assume most people starting off nowadays won't reach a point where they own their home outright.

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.

Quote:By renting, you aren't spending money on repaying debt, or fixing material issues on an aging property - you get the utility of no debt load, and someone else is responsible for fixing any problems for a flat rate.

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?

Post: #68

(12-22-2013 04:37 PM)crippler Wrote:  

(12-22-2013 12:09 PM)reaper23 Wrote:  and you guys keep forgetting that you do in fact get something from a home when you purchase - utility. that is valuable. you aren't spending that money elsewhere on rent. you are now spending it on your leverage if you borrowed for it - or you are not paying anything at all.

You could easily make an alternative point here - I think it's fair to assume most people starting off nowadays won't reach a point where they own their home outright.

I'm not saying that people SHOULD pay all cash for something or that they should be able to -

What I am saying is that the value of a real estate asset is always done as if it were a cash basis. That is the only way to truly value any asset - based on future cash flows.

residential RE has two kinds of cash flows - it has ones you can actually get for rent for it - or it has an imputed one of what you are saving by not spending your money on rent.



how something is VALUED vs how something is ACQUIRED are two different things

Post: #69

reaper: You're missing two points.

The first is that by your definition, anything that you can later sell is an asset. This does include a used iPhone or pair of shoes, for instance. Sure, you might not get much for them, but technically, they are assets. If someone wants to buy the weeds in my garden then they are also assets, technically. Comic books are assets. Vintage guitars are assets. After adjusting for inflation, people typically lose money on those "assets" though once you consider the opportunity costs. Cash in the bank at the moment in many countries is also technically an asset, yet so what if inflation is eating it away? That's why I am saying that the typical definition of the term is far too broad to the point that it is essentially useless.

The second point you are missing is this. Sure, you get utility out of buying a house. You also get utility out of renting a house. Sure you might build equity in buying a house, but the return might still be negative once you have paid for all of the expenses associated with it. These include, but are not limited to, transaction fees, maintenance, insurance, and taxes. As I mentioned above, I had a landlady who was undoubtedly losing money renting to me because of the maintenance costs of the apartment. At the time, I was taking the money I saved by renting, rather than owning, that apartment, and investing it in other things. I was building equity in other things. My landlady would have relied upon building equity (of her own accord) and then selling at a profit because the property was cash flow negative. Yet didn't we see that situation writ large in the U.S. a few years ago? The parents of one of my closest friends here ended up underwater with their house, yet technically, their house was an asset. Indeed, the people I bought my house from managed to incur ~25% loss in the five years they owned the house. That was in a rising market (which just goes to show that a rising tide does not lift all ships). How did they build equity? Is building equity in a sinking ship actually building equity?

Post: #70

FC:

I'm sorry friend, I am not missing any points. What you are doing is trying to take something that has an accepted global definition and twist it to meet your argument.

An asset is what it is. Whether it goes up in value or not is irrelevant to the definition.

Utility is what it is. Whether or not you could spend your money on something else is irrelevant to the definition.

Equity is created in a home that is bought with leverage through loan amortization. One should not expect appreciation to do it for you. It is the very act of amortizing the loan and actually putting more cash into the equity that builds it for you. A forced savings as was mentioned earlier.

I can not discuss this with you any longer for it is an insane man that debates with one who says 2+2=5.

Post: #71

(12-22-2013 08:19 PM)reaper23 Wrote:  FC:

I'm sorry friend, I am not missing any points. What you are doing is trying to take something that has an accepted global definition and twist it to meet your argument.

An asset is what it is. Whether it goes up in value or not is irrelevant to the definition.

As I wrote above, a comic book collection is also an asset by this definition. A wardrobe full of clothes is an asset by this definition. So?

Quote:Utility is what it is. Whether or not you could spend your money on something else is irrelevant to the definition.

Equity is created in a home that is bought with leverage through loan amortization. One should not expect appreciation to do it for you. It is the very act of amortizing the loan and actually putting more cash into the equity that builds it for you. A forced savings as was mentioned earlier.

How's that working out for all of those people underwater on their loans? What's their equity? I am not saying that buying a house is always bad. I am just saying that it is not always good. Maybe you're also saying that and we're talking past one another.

Post: #72

(12-22-2013 09:40 PM)Feisbook Control Wrote:  How's that working out for all of those people underwater on their loans? What's their equity? I am not saying that buying a house is always bad. I am just saying that it is not always good. Maybe you're also saying that and we're talking past one another.

It's no different to purchasing stocks and those stocks taking a dive. The stocks are not worthless, just worth less than your purchase price. It also doesn't mean those stocks won't be worth more in the future.

Equity doesn't mean anything until the house is sold anyway. That is when profits are realized.

Even if they are underwater, they may still be paying less in mortgage payments than they would in local rents.

I remember reading an article that stated ownership makes sense and can be cheaper if you plan on living in a location 7+ years.

Post: #73

WWT: I am not saying it is necessarily a good or bad deal to buy a house. It might be either.

Your stocks analogy would be true if margin were involved in the purchase of those stocks. Otherwise, it's not quite the same thing because there is usually/often debt involved with buying a house. You also don't pay ongoing fees such as property tax, insurance or maintenance for holding stocks. You could hold them and not make money from them but they still wouldn't constantly cost you.

You are right that those houses may be worth more in the future, but there are two things to consider. Firstly, the time horizon for them to stop being underwater may actually be longer than the people with the mortgage live in some cases, or even beyond that, what might look like a positive return on investment could still be a real (inflation adjusted) negative return. Secondly, the more acute problem may be that if the problems with the housing sector spread into other areas of the economy, the people concerned might lose their jobs, and therefore their abilities to service their loans. In turn, that could lead to foreclosure. In that case what was a paper loss would become a real loss. Of course, in some places, people can just leave the keys in the letter box and walk away (which would still represent a loss of equity). In other places, that's not possible and the debt follows them around.

You are also right that the mortgage could still be less than local rent. Again, I am not saying buying a house is always bad, I am only pointing out that it is not always good.

Post: #74

(12-23-2013 02:57 AM)Feisbook Control Wrote:  WWT: I am not saying it is necessarily a good or bad deal to buy a house. It might be either.

Your stocks analogy would be true if margin were involved in the purchase of those stocks. Otherwise, it's not quite the same thing because there is usually/often debt involved with buying a house. You also don't pay ongoing fees such as property tax, insurance or maintenance for holding stocks. You could hold them and not make money from them but they still wouldn't constantly cost you.

You are right that those houses may be worth more in the future, but there are two things to consider. Firstly, the time horizon for them to stop being underwater may actually be longer than the people with the mortgage live in some cases, or even beyond that, what might look like a positive return on investment could still be a real (inflation adjusted) negative return. Secondly, the more acute problem may be that if the problems with the housing sector spread into other areas of the economy, the people concerned might lose their jobs, and therefore their abilities to service their loans. In turn, that could lead to foreclosure. In that case what was a paper loss would become a real loss. Of course, in some places, people can just leave the keys in the letter box and walk away (which would still represent a loss of equity). In other places, that's not possible and the debt follows them around.

You are also right that the mortgage could still be less than local rent. Again, I am not saying buying a house is always bad, I am only pointing out that it is not always good.

No, stocks are not the same thing but they are the same when it comes to realizing profits or losses. You don't realize anything until you sell it (unless they are paying a dividend). I assume you don't consider stocks an asset unless they are paying out a dividend.

Saying something isn't an asset because there are ongoing expenses would be wrong.

If you lose your job, how would you pay rent? You would be paying all those property tax, insurance, etc... fees anyway, they just group them into a rent payment.

Maybe not all fees, but the majority of fees will be taken care of via rents so don't think you are not really paying them or at least some of them when you pay your rent.

Problems in housing sectors that end up in mass foreclosures will raise rents in that area. People have to live somewhere and you're seeing this in many areas within the US.

You do know banks can't sell a house they took back in foreclosure and still try to collect on the whole loan, right? They can go after you for the difference if they take a loss but most will write it off.

Post: #75

WWT: Those are a lot of good points. Maybe we're just coming at it from a different angle.

I know what the textbook definition of an asset is, I'm simply saying that the term is sufficiently broad to not be very useful a lot of the time. One of Robert Kiyosaki's points is that a lot of people buy things that are technically assets, but that end up costing them money in the long term. Far from being a good financial decision, they become massive money pits. Those types of things are what I am railing against and the near obsession some people have with them (not saying you have such an obsession).

You're right about stocks, but unless they were on margin, you still wouldn't owe money to anyone. Debt amplifies any financial pain and/or forces one's hand.

In terms of fees being bundled into rent, perhaps. Sometimes the market is sufficiently irrational (see my above example about a previous landlady -- several apartments in that building were empty the entire time I was there) that you can get a good deal, though as you also point out, in many areas, rents will go up in a real estate market where there are lots of foreclosures. Of course, someone may have locked in a rental agreement prior to that though. My response to those situations, as well as losing a job, would be to move to a completely different place. I guess it depends upon how psychologically tied to one location you are. I am not so tied down, but you definitely have a valid point for people who are more tied down. I think a lot of people have unnecessarily committed themselves psychologically to something that isn't working out too well for a large number of them. Whether it is ignorance or fear, they won't take advantage of the whole world out there.

Your points about banks and foreclosures are also right, but it depends upon the jurisdiction. In certain parts of the world, the debt will follow people around and life will become very difficult for those people, at least for a while. This happened to the parents of one of my closest friends. His parents were able to walk away from the debt, but it still wiped out their financial progress for the previous decade and has continued to make life very hard since.

Again, I am not saying that renting is always the best option. Often it's a worse option. I am merely saying that buying is not without potential problems.