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I'm just curious if you include among this borrowing to own a home?
If you do, its simply unrealistic to think people won't be borrowing money to purchase a home. People can holler all day long about the "dangers of credit" all they want too. I'm quite happy with my home and my 2.99% 15 year mortgage.
Well, it's not unrealistic to think people can choose to save up and pay cash for their house, but of course most people won't because they want short-term gratification, because they don't have the discipline to actually save money long term, because they live in areas where it actually makes financial sense to borrow to buy a house, or because they live in an area with serious public education problems and have school-aged kids and thus find it to be the only practical way to provide them with decent schooling without worries of being kicked out when their lease is up. This isn't the issue, though. The issue is that I was responding to a poster who seemed to imply that they would only borrow to build credit, not for any other reason, buying a house included. Hence my comment.
What we learned is that to think a house will always be a wise investment is a joke. You can do everything right: buy conservatively, buy with excellent credit, down payment, no other debt, great job and savings...BUT you have no control who is buying around you and they may have none of those things. If they walk away, they take your home's value down with them.
I will never look at housing as an investment after what we went though. A place to live and enjoy, yes. But that's it.
Well, it's not unrealistic to think people can choose to save up and pay cash for their house, but of course most people won't because they want short-term gratification, because they don't have the discipline to actually save money long term, because they live in areas where it actually makes financial sense to borrow to buy a house, or because they live in an area with serious public education problems and have school-aged kids and thus find it to be the only practical way to provide them with decent schooling without worries of being kicked out when their lease is up. This isn't the issue, though. The issue is that I was responding to a poster who seemed to imply that they would only borrow to build credit, not for any other reason, buying a house included. Hence my comment.
I'm one that paid cash for my first "Home" if you could call it that...
Turned out to be the best single investment I have ever made... starting out without a mortgage and low taxes because the place was scheduled for a condemnation hearing let me learn home repair with little to lose.
Used it as a springboard for future purchases when it became a rental...
I could have been living large renting and instead moved into a dump in the one of the worst neighborhoods in my city... learned a lot and didn't owe anyone anything... and this is in the San Francisco Bay Area...
I used large infusions of credit to leverage several large investments into a massive fortune that I am now very comfortably retired upon. Do what you love, invest in what you know. Just as effective as buy low/sell high, but a whole lot easier to pull off.
I used large infusions of credit to leverage several large investments into a massive fortune that I am now very comfortably retired upon. Do what you love, invest in what you know. Just as effective as buy low/sell high, but a whole lot easier to pull off.
I'm one that paid cash for my first "Home" if you could call it that...
Turned out to be the best single investment I have ever made... starting out without a mortgage and low taxes because the place was scheduled for a condemnation hearing let me learn home repair with little to lose.
Used it as a springboard for future purchases when it became a rental...
I could have been living large renting and instead moved into a dump in the one of the worst neighborhoods in my city... learned a lot and didn't owe anyone anything... and this is in the San Francisco Bay Area...
I learned to buy low. When people are getting hammered then it's the time to make acquire some assets.
Always have enough money to pay your mortgage for a year if things go south.
Just about everyone will go for a huge bargain. What most people fail at is backing out during boom times, or waiting a few years to buy. When prices were spiraling, it was a stupid time to buy a home, for stupid prices, but a lot of people did.
The Great Recession essentially served to confirm what my wife and I were already doing.
I did a lot of consulting for the real estate and banking sectors in the early part of the last decade. It was apparent to me (And, for that matter, anybody who was halfway objective) that the yearly double-digit increases in home prices were completely unsustainable. So I kept looking for the signs the bubble was going to pop.
I got my cue in the fall of 2005, when I was asked to sit in on a meeting at a large mortgage lender. It was a presentation on why banks should underwrite mortgages for illegal aliens. I remember sitting in that darkened room during the powerpoint presentation and watching all these bankers nod their heads at how illegal aliens were going to be the next great mortgage market.
When we got to Q&A time, I raised my hand.
"Do you mean to tell me you would lend $250K to someone who could be deported the next day?" You would have thought that I urinated on the board room table. Every one there sat there and tried to convinced me how it wouldn't be bad at all, how they just sold the mortgage upstream to someone else. I remained unconvinced. I went home, talked to my wife, and we put our house on the market a couple of months later. We wound up selling it in June, 2006, the statistical peak of home prices.
So when we bought our next home, we chose something undervalued in a desirable suburb. Something we could fix up. The mortgage officer said, "Why are you buying such an inexpensive home? You could afford one three times this price." No, we replied, we're playing it safe. Boy, are we glad we did.
But at the time, nobody understood that the entire rotten edifice was about to collapse. They thought they were crazy at the time. They don't think so any more. So here are our thoughts:
1) Don't keep up with the Joneses.
2) Live within your means.
3) Save something, anything every month. Put it where you have to think about accessing it.
4) If you are a two-income household, try your damnedest to live on one person's salary.
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