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Most renters cannot buy so there is no cashflow surplus for those who cannot buy.
like other person said above, the no cashflow surplus is due to them paying $100s on smartphone/starbucks/etc instead of investing said money to create a cashflow surplus...
People don't get to whine about being poor when they are spending their money on luxury items. Yes, smartphones/starbucks/etc are luxury items, luxury being it adds no improvements to your life that a cheaper option couldn't provide as well but you buy it anyways because you want the logo stamped on it
Asset-liability mismatch...WTF? I can get high safe yields that are much greater than my mortgage cost. If not I can always pay off the mortgage. It is instead very likely that interest rates will increase eventually and my low cost mortgage will be an even bigger bargain.
If interest rates increase, you could get higher coupon yields than your mortgage rate. However, your bonds will have depreciated.
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Originally Posted by jrkliny
I have no hint what this gibberish is supposed to mean. I merely stated that today's very low interest rate loans make sense for the buyer. The car dealers don't seem interested in giving a big discount for cash so it makes sense to take advantage of the very low loan rates. I said nothing about apples and oranges.
Ok - let me try this again:
"It makes sense to take advantage of low loan rates" - another way of saying this is - "If the loan rates are very low, as they are currently, you do better if you buy the car using the loan and invest your cash, rather than paying cash for the car." Is this a fair and correct paraphrasing? If so, notice the last part of that, "better than paying cash for the car". The question is, "what car?". If it's the same car you'd buy on a loan, then fine. But by your own admission, it isn't, in many cases. This is my point - the "makes sense to take the loan" argument assumes that people won't buy a newer or more expensive car with the loan than they would have if the loan were not available.
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Originally Posted by jrkliny
People who are broke typically cannot buy new cars. I spent $67,000 driving my car for over 200000 miles and 10 years. The $1500 options package hardly made a difference. If it did I guess I would have bought a KIA instead of a Honda.
Ok, but my point remains, just because it was worth the added cost to you doesn't make it worth it to others - and personally, I will never buy a car if it means having a loan on it.
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Originally Posted by jrkliny
What "grants" are you talking about?
Pell grants, education tax credits, etc.
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Originally Posted by jrkliny
Where do you live, rural Iowa? For many of us living in high cost of areas on the east or west coasts, we make good salaries...at least on a nation wide basis. Unfortunately high taxes and high costs of living leave us struggling.
Well, this is because you choose to have an expensive lifestyle. I live in the greater DC area and probably only spend about $16k/year. It does require some sacrifies such as car- and house- sharing, but IMHO it is well worth it in order to make it with no student loans.
The exemption amount for income that you aren't expected to use for school, is, IIRC, about $33k. This is about twice my living costs, so I'd actually argue if you know how to live frugally, it is more than generous enough.
like other person said above, the no cashflow surplus is due to them paying $100s on smartphone/starbucks/etc instead of investing said money to create a cashflow surplus...
People don't get to whine about being poor when they are spending their money on luxury items. Yes, smartphones/starbucks/etc are luxury items, luxury being it adds no improvements to your life that a cheaper option couldn't provide as well but you buy it anyways because you want the logo stamped on it
Um not most renters who have an income shortage not an overspending problem other than the exorbitant rents they often must pay. Median renter income is half median homeowner income and frugal living will not get you a mortgage if lenders consider your income insufficient.
People do get to whine about being poor when they have are not spending on luxury items.
Um not most renters who have an income shortage not an overspending problem other than the exorbitant rents they often must pay. Median renter income is half median homeowner income and frugal living will not get you a mortgage if lenders consider your income insufficient.
People do get to whine about being poor when they have are not spending on luxury items.
Not you though. You chose to be poor. Your life is the culmination of your choices.
Of which contributed to the rise in the cost of purchasing a home and rent.
My point of view is that debt is a highly misused tool by the American consumer. Some debt is not as bad as others. In the case of mortgage, its a vehicle to home ownership which reflects to what has already been said.
Sometimes a mortgage is an effective vehicle to home ownership, other times it isn't. It depends on whether housing is overvalued or not relative to rent minus expenses, and of course on the interest rate.
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Originally Posted by usayit
I'm actually fairly debt adverse and conservative in spending.
Doesn't this assume that current cash flow and funding future needs are mutually exclusive?
No. However, you can make up a shortfall in one by reducing the other. For example, if you have poor cash flow but great future wealth (for example due to a high future property value), you have the option of reducing your 401k or IRA contributions. Conversely, a reduction in your property value which will lead to a loss of future wealth means that in order to restore your future wealth to the level you had previously planned for, you must increase your retirement or other savings.
Thus, once you account for indirect effects, any change (whether up or down) in future wealth ultimately propagates to a corresponding change in how much you can currently spend, without your future wealth dropping below a given threshold.
After accounting for both the cash flow (i.e. monthly mortgage payments, etc.) and the adjustment you make to your other savings in order to compensate for the future wealth effects, the amount the housing or other capital costs is the EAC. Thus, if the appropriate adjustments are made to insure the adequacy of future wealth, the affordability of other things (e.g. travel or entertainment) is determined not by cash flow but by EAC.
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Originally Posted by usayit
Are you saying that EAC is favorable to the renter?
In some cases it is, in others it isn't. I was merely trying to emphasize that the relevant user cost is not the cash flow, it is the EAC.
Renting vs. owning depends highly on your local market.
Where I live, rents have outpaced sale prices for more than a year which made buying more attractive than renting around the end of 2012.
Median home sale price for my county is $258,000. Median rent is $1482, 13% higher than a normal mortgage, assuming 20% down and 4.25% rate, for a median home which would be $1284.
If you search only for the homes under the median price, then you could do even better. I bought a house that needed some fixing for under $100K. It did require about $25K worth of work and will probably require a few thousand more over the next two years.
My mortgage is $100 less than my rent was for a 2br borderline slumlord apartment.
The rental vacancy rate for my county is under 1%, so there are not many rental options available for less than $1000 a month. You can rent a trailer out around here for $700 a month or more. Anyone with affordable housing that is loathe to let it go so apartments that are under $1000 are really not available, even though in theory they exist. The only housing really available are duplexes that are in the $1000-1300 range.
This was an area hit extremely hard by the housing crisis and our foreclosure rate is still well above the national average. People have income but no credit and that means landlords hold all the cards.
Last edited by redguard57; 11-30-2014 at 03:48 PM..
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