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Difference between the asset value and loan value is your equity.
Income flows into your equity.
Value: That's where people got tripped up. Equity also included "estimated" current market conditions (what it will sell for if you sold today) and believing that real estate value always went up and they used their house as their own personal bank and borrowed against their "equity". Then the crash, some people lost jobs, couldn't make the payments, couldn't sell the house because their houses were underwater.
Value is not solid until selling and that money pays off debt against the house and additional money lands in your bank account. Now is the selling price pay what you have into it and more? If yes, then you won.
Cash Flow: When a piece of real estate throws off positive cash flow, it's an asset. Then you hope the value holds out or increases more than you paid if you decided to sell.
It is just how you use your asset that determines whether it generates positive or negative income.
The loan on the house is a liability.
Difference between the asset value and loan value is your equity.
Income flows into your equity.
I looked into buying before the crash but couldn't understand how people were doing it. Buying real estate was all the rage... after all, everyone "deserves" a house right? Well that's how politicians sold it to the masses. My cat could have been considered an asset at the time. And they got really creative to get you to sign the dotted line. I passed, the numbers didn't make sense. They would have been crazy to lend me that much and I knew money to pay the mortgage wasn't going to fall from heaven.
People thought "they had an asset" but didn't understand that cash coming out of their pocket meant it was a liability. When buying and selling it seemed people chose to ignore numbers and didn't look at the true cost of home ownership, Someone would brag... "I bought my house and made a profit". Did they really? All the numbers are important.
Closing cost Fee's paid when obtaining a loan,
Interest paid (depending on % and term)
Taxes,
upkeep,
insurance
Selling fees
You would think right? Our gov schools are not teaching basic financial education. Is it by design? to keep people financially uneducated, poor or struggling so the politician can make promises to save us.
Parents are not good teachers either because they went through the same educational system. They make it worse by"blaming" (scapegoat) others .. as if that will solve the problem right? ... instead of learning from their mistakes and making changes. And then there are people who think they can get it for nothing, someone owes them.
I looked into buying before the crash but couldn't understand how people were doing it. Buying real estate was all the rage... after all, everyone "deserves" a house right? Well that's how politicians sold it to the masses. My cat could have been considered an asset at the time. And they got really creative to get you to sign the dotted line. I passed, the numbers didn't make sense. They would have been crazy to lend me that much and I knew money to pay the mortgage wasn't going to fall from heaven.
People thought "they had an asset" but didn't understand that cash coming out of their pocket meant it was a liability. When buying and selling it seemed people chose to ignore numbers and didn't look at the true cost of home ownership, Someone would brag... "I bought my house and made a profit". Did they really? All the numbers are important.
Closing cost Fee's paid when obtaining a loan,
Interest paid (depending on % and term)
Taxes,
upkeep,
insurance
Selling fees
I don't know, just my thoughts.
There were a lot of low doc loans and some virtually no doc loans.
Imagine that... letting someone borrow on the promise they would pay with the property held as collateral.
Believe me... when I first started out... I would have loved to have been able to get a low or no doc loan...
When they did become mainstream... I was no longer in the market.
There were a lot of low doc loans and some virtually no doc loans.
Imagine that... letting someone borrow on the promise they would pay with the property held as collateral.
Believe me... when I first started out... I would have loved to have been able to get a low or no doc loan...
When they did become mainstream... I was no longer in the market.
When I started out interest rates were as high as 18%. As interest rates came down housing prices went up.... And kids talk about feeling like they can't buy today? It's no different than in my days, just different circumstances. It's as if they think we were all given a house... WRONG!
Later we could afford to buy (if willing to be house broke) but working in healthcare through the Hillarycare era I was well aware how you could have a job today, gone tomorrow. We still felt stuck.
We saved a 20% down payment, at least 1yr living expenses, invested, contributed to our 401k and when we were ready, they offered fancy loans and sky high real estate. I now realized how people were doing it (way too much debt) and living like they had a job forever. When the market crashed and interest rates came down we bought and paid off our house in 4 years.
My point, nothing is guaranteed, nothing is owed to anyone, and no matter how much politicians promise, no matter how much tinkering they do, the ball is still in your lap. You just got to be ready for the opportunity and use common sense when buying.
I looked into buying before the crash but couldn't understand how people were doing it. Buying real estate was all the rage... after all, everyone "deserves" a house right? Well that's how politicians sold it to the masses. My cat could have been considered an asset at the time. And they got really creative to get you to sign the dotted line. I passed, the numbers didn't make sense. They would have been crazy to lend me that much and I knew money to pay the mortgage wasn't going to fall from heaven.
People thought "they had an asset" but didn't understand that cash coming out of their pocket meant it was a liability. When buying and selling it seemed people chose to ignore numbers and didn't look at the true cost of home ownership, Someone would brag... "I bought my house and made a profit". Did they really? All the numbers are important.
Closing cost Fee's paid when obtaining a loan,
Interest paid (depending on % and term)
Taxes,
upkeep,
insurance
Selling fees
I don't know, just my thoughts.
Upkeep and upgrades are the one's people typically forget about. I had a friend tell me their grandmother bought a house in New York in 1965 for 68k and sold it in 2006 for 625k. She made a killing. But if you count inflation that eats up most of the gains as that 68k would be worth 435k in 2006 dollars. However, my question to him was...did she really sell the same house?
Did it have the same roof? Same carpeting/flooring? Same appliances? Same windows? Same kitchen? Same bathrooms? Same furnace? Same AC Unit (if one had been installed)? If not, how many times had each of those been upgraded? When had they been upgraded and what was the cost at time of upgrade? Plug those #s into the inflation calculator as well.
This is why I say, your home is actually a depreciating asset. The appreciating asset is the value of the land your home is on. If your home were truly an appreciating asset, then if I provide you with 2 identical lots next to each other one with a home built in 1965 that hasn't been changed and another with a home built in 2005, the older home should sell for more.
Upkeep and upgrades are the one's people typically forget about. I had a friend tell me their grandmother bought a house in New York in 1965 for 68k and sold it in 2006 for 625k. She made a killing. But if you count inflation that eats up most of the gains as that 68k would be worth 435k in 2006 dollars. However, my question to him was...did she really sell the same house?
Did it have the same roof? Same carpeting/flooring? Same appliances? Same windows? Same kitchen? Same bathrooms? Same furnace? Same AC Unit (if one had been installed)? If not, how many times had each of those been upgraded? When had they been upgraded and what was the cost at time of upgrade? Plug those #s into the inflation calculator as well.
This is why I say, your home is actually a depreciating asset. The appreciating asset is the value of the land your home is on. If your home were truly an appreciating asset, then if I provide you with 2 identical lots next to each other one with a home built in 1965 that hasn't been changed and another with a home built in 2005, the older home should sell for more.
Ah yes, I forgot, inflation and then there is opportunity costs.
When I first started out interest rates were as high as 18%. Then we were just married, had excellent credit and applied for a mortgage we were approved at 12% but ended up walking. As interest rates came down housing prices went up. And kids talk about feeling like they can't own today? It's no different than in my earlier days, just different circumstances. It's as if they think we were all given a house... WRONG!
We could afford it but being in healthcare and living through the Hillarycare era I was well aware how you could have a job today, gone tomorrow. We still felt stuck. We saved a 20% down payment + 1yr living expenses + invested, and contributed to our 401k and when we were ready, they offered fancy loans and sky high real estate. I now realized how people were doing it (way too much debt) and living like the good times would last forever. When the market crashed and interest rates came down we bought and paid off our house in 4 years.
My point, no matter how much politicians promise, no matter how much tinkering they do, the ball is still in your lap. You just got to be ready for the opportunity and use common sense when buying.
I have been working and paying into Social Security since age 12... started making $1.65 an hour.
My first loan was 13.5%... family though I was crazy paying that kind of interest to buy a duplex.
I lived in the one bedroom rear cottage and rented out the front 3 bedroom home and the rent covered the mortgage and taxes from day one.
As rates dropped... I bank recast the loan at no charge to 12%... so my cash-flow increased two ways... rent went up and payment dropped.
It was so hard to qualify back then... home had to appraise... all termite work done, 3 years in the same line of work and 2 years on the job... 6 months cash reserves... etc.
It did help buying a duplex... even though they only added a little from the projected cottage rent... and that is where I was going to live... they said they couldn't count rent from the 3 bedroom house because that is where I had to live...
My current mortgage is 2.75% fixed and was no cost... retired a 5% loan.
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