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Question? Did that $million in debt buy me an asset that produces a positive cash flow at the same time reducing the principle / increasing my equity in the asset?
But no, a million doesn't go as far as it did 20-30 years ago.
Good point. A lot of people mistakenly view all debt as negative. Pretty much every (not all) successful business was built using some kind of debt at some point. They either started with debt or took on debt , such as an SBA loan later on to expand the business. Some businesses were even started by those evil credit cards.
Of course in real estate is the big one where debt can make one rich.
Bonds to build schools are a form of debt. People don't think of that too often.
Wealth is pretty much always built via leverage. Leverage of money, time ,efforts.
That's kind of a short sighted stat given the 5-6 year time horizon is flat to up modestly in a lot of areas
It is... point is housing is a major expense and California was hit hard... parts of Oakland CA were down as much as 80% from the peak and 50% being more typical...
Cost of homes... either renting or buying is off the charts... median 2 bedroom rent in some San Francisco neighborhoods is $5000 a month.
I can point to homes on my side of the bay people walked away from because they could save 50% be renting the same and not have maintenance costs... now that was short sighted because rents are also up and often the same people could no longer afford the homes they walked away from...
Right or wrong... a lot of cycles seen to run 14 or 15 years... like 7 good years followed by 7 bad years.
I live in a high cost area and help several senior homeowners in my neighborhood.
They are all long time owners with some going back the to 1950's... homes range in value from $400k to over 700k. Many live on just Social Security from a lifetime of work with monthly checks averaging $2000 to $2600 and have no problems paying their bills and keeping up their homes.
We do have one saving grace in California and it is Prop 13 which bases property tax on purchase price plus inflation factor capped at 2% annually.
So one of my senior 30k a year friends was paying $1800 annual property tax and the new family that just bought her home will pay over $9000... again based on purchase price.
I find a lot of older people can manage quite well and thrive on modest income by their lifestyle and keeping expenses in check... such as having a low and stable property tax or not having to deal with things like rent increases, new car payments, expensive cell plans... etc.
All of them love their homes and spend much time gardening... which gets them outside, interacting with people and is a very low cost way of doing something they enjoy... and some are so frugal as to make them millionaires with home and savings... of course living a simple lifestyle to 101 made it possible for one friend.
Prop 13....that's a big one.
The question is then...what happens if they have to move?
Good point. A lot of people mistakenly view all debt as negative. Pretty much every (not all) successful business was built using some kind of debt at some point. They either started with debt or took on debt , such as an SBA loan later on to expand the business. Some businesses were even started by those evil credit cards.
Of course in real estate is the big one where debt can make one rich.
Bonds to build schools are a form of debt. People don't think of that too often.
Wealth is pretty much always built via leverage. Leverage of money, time ,efforts.
How can you assert that almost all businesses have debt at some point? For any given business, how do you decide when you can legitimately say the business has "made it" with zero debt?
If your only criterion is profitability....a lot of people's blogs and eBay businesses would count.
How can you assert that almost all businesses have debt at some point? For any given business, how do you decide when you can legitimately say the business has "made it" with zero debt?
If your only criterion is profitability....a lot of people's blogs and eBay businesses would count.
It's pretty easy to say nearly all business run on some sort of credit and most flat out on debt, typically revolving of some sort. With delays in receivables you need something to bridge the gap and that's typically not by spending all your cash and cash equivalents.
It is... point is housing is a major expense and California was hit hard... parts of Oakland CA were down as much as 80% from the peak and 50% being more typical...
Cost of homes... either renting or buying is off the charts... median 2 bedroom rent in some San Francisco neighborhoods is $5000 a month.
I can point to homes on my side of the bay people walked away from because they could save 50% be renting the same and not have maintenance costs... now that was short sighted because rents are also up and often the same people could no longer afford the homes they walked away from...
Right or wrong... a lot of cycles seen to run 14 or 15 years... like 7 good years followed by 7 bad years.
So my answer to the question is it is no longer As Big a deal to be a millionaire because there are more of them...
I've followed the market in CA quite closely for a while now. I remember looking at the properties in Oakland that had fallen so much and thinking this is crazy...eventually more people are going to want to live in Oakland because SF is so expensive. It was like Las Vegas and Phoenix property too...the banks were giving away properties , many properties were $30,000 a property or less..and they were plentiful. That's all done now.
SF didn't have many foreclosures from what I saw because the properties were owned by people that were very established or owned the properties for a long time.
Good point about people that short sales or quite paying on their homes "because rent is cheaper" many are probably regretting the move.
In L.A people are now paying more to rent a one bedroom that my mortgage on a 3bedroom 1700sq house bought in 2010. Interesting that now real estate is cool again , now that prices are back up...and everyone is lining up to get approved to buy a house.
I'm considering selling because I'm worried if the prices are sustainable and I think equity could be put to better use in another market that is not so high.
Do you think Bay Area prices will come down at all? I'm wondering if the current tech boom is sustainable or not . It seems like the .com bubble but this time it's the App bubble. Of course it's different this time as it's mostly Angel /Venture Capital money being invested rather than people buying stocks of these companies on the stock market.
Even Uber and AirBNB are still private...back in the .COM era they would of been public companies years ago.
I'm guessing they will likely go public at some point though.
The question is then...what happens if they have to move?
Many will liquidate or cash out and use the proceeds to pay the higher cost associated with care... it actually balances out pretty well for elderly with a paid off home to sell.
Of course sales add to the bottom line...the city and county collect a little under 2% in local taxes... Prop 13 is typically reset to sales price, Affordable Health Care gets it's cut, the local economy is boosted by remodel and alterations, finance has a hand in originating new loans and so on...
I was too young to have voted for Prop 13... a big reason it passed was so people... especially those on fixed incomes would not be taxed from their homes... so far it has been a huge success and I don't begrudge someone that has lived in their home for decades for pay a fraction of what I pay because I fully intend to be in their shoes one day...
My emphasis on Real Estate is simply because Real Estate... even owning just one home, has made many Millionaires that otherwise wouldn't come close.
I've followed the market in CA quite closely for a while now. I remember looking at the properties in Oakland that had fallen so much and thinking this is crazy...eventually more people are going to want to live in Oakland because SF is so expensive. It was like Las Vegas and Phoenix property too...the banks were giving away properties , many properties were $30,000 a property or less..and they were plentiful. That's all done now.
SF didn't have many foreclosures from what I saw because the properties were owned by people that were very established or owned the properties for a long time.
Good point about people that short sales or quite paying on their homes "because rent is cheaper" many are probably regretting the move.
In L.A people are now paying more to rent a one bedroom that my mortgage on a 3bedroom 1700sq house bought in 2010. Interesting that now real estate is cool again , now that prices are back up...and everyone is lining up to get approved to buy a house.
I'm considering selling because I'm worried if the prices are sustainable and I think equity could be put to better use in another market that is not so high.
Do you think Bay Area prices will come down at all? I'm wondering if the current tech boom is sustainable or not . It seems like the .com bubble but this time it's the App bubble. Of course it's different this time as it's mostly Angel /Venture Capital money being invested rather than people buying stocks of these companies on the stock market.
Even Uber and AirBNB are still private...back in the .COM era they would of been public companies years ago.
I'm guessing they will likely go public at some point though.
I think you are spot on and history repeats to varying degrees... Every time I have seen prices fall... it ALWAYS comes back stronger...
Most people simply don't believe 4 or 5 years ago there were several hundred Oakland homes under 100,000 with many under 50k... you would be hard pressed to find much under 200k with many that were hovering just about 100k now pushing 400k to give an extreme.
Part of the push is even at the higher prices the record low rates make them affordable for many dual income families... a 30 year fixed can be 3.25% and this is like Free Money looking over 30 years...
I know home buyers that paid 15 to 18% in the early 80's... this had far more effect on keeping prices low than anything else...
Many will liquidate or cash out and use the proceeds to pay the higher cost associated with care... it actually balances out pretty well for elderly with a paid off home to sell.
Of course sales add to the bottom line...the city and county collect a little under 2% in local taxes... Prop 13 is typically reset to sales price, Affordable Health Care gets it's cut, the local economy is boosted by remodel and alterations, finance has a hand in originating new loans and so on...
I was too young to have voted for Prop 13... a big reason it passed was so people... especially those on fixed incomes would not be taxed from their homes... so far it has been a huge success and I don't begrudge someone that has lived in their home for decades for pay a fraction of what I pay because I fully intend to be in their shoes one day...
My emphasis on Real Estate is simply because Real Estate... even owning just one home, has made many Millionaires that otherwise wouldn't come close.
Exactly, because of the leverage especially one is able to control/own a property/asset that the otherwise would not have been able to.
How many of those people paying high rents are really able to invest that much elsewhere after all the other basic expenses of life like food, utilities, transportation,etc?
L.A is proposing a $15 min wage hike, I don't think it's a great idea as it puts a lot of small businesses at risk and any increase will be eaten up by higher prices. Landlords will likely charge more, restaurants will definitely charge more.
Just paying rent for many decades is not a financially savvy move. I've met older people in L.A that have just rented and rented and if they had bought when they could of they would of been in a much better position financially.
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