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the great folly of the post boomer generation is to think of a home as an investment.
that is like thinking of your sexuality as an investment you can turn into cash when you want.
home is sacred. the film "its a wonderful life" was so clear on this point. home the sweetest place on earth. we are experiencing the greatest movement of personal home ownership to bank property ownership since the 1930's. "a wonderful life" in reverse. we are becoming a nation of renters.
That has been my game plan too. Other assets have appreciated far more than homes.
I rent and invest elsewhere.
Same for me.
Disclaimer: Housing costs in my area are very high. While I technically could probably afford to buy a small condo, it would be much more than I'd be comfortable paying. The owning lifestyle just doesn't fit for me financially and otherwise.
Residential property is a pretty tough place for making money. Highly over-rated for investment returns.
That said. Everybody should own ONE house and pay it off as quickly as possible. You are going to have a rent or mortage payment anyway.
We bought a house and paid it off in five years. That was tough. In today's dollars that mortgage was about 1500/month.
Once we paid off the house we started traveling to nice places on vacation. 18,000 a year that went to some pretty nice vacations. Some our friends were jealous of how we can afford to travel....well, they were still paying off their mortgage. It was that simple.
We bought the house for 75,000 and sold it for 125,000 15 years later. When you take the interest payments for five years that is a pretty poor return on investment. However, NOT having a mortgage payment was a great addition to our lifestyle and allowed all sorts of flexibility.
Residential property is a pretty tough place for making money. Highly over-rated for investment returns.
That said. Everybody should own ONE house and pay it off as quickly as possible. .......
Why???? The loans are at 4% with tax benefits. Money that you would use to pay off the mortgage earned say 15% this past year and a solid 7% most years. As an example if you have a $200k mortgage, the 4% will cost you about $8k per year to borrow but you can earn $14k on that money with a safe mix of equities and fixed income investments.
I don't see any reason to pay it off fast as long as you have a fixed rate.
What's good about home ownership is once it is paid off, you will have a large asset.
It's almost like forced savings because so many Americans are bad at saving.
Why???? The loans are at 4% with tax benefits. Money that you would use to pay off the mortgage earned say 15% this past year and a solid 7% most years. As an example if you have a $200k mortgage, the 4% will cost you about $8k per year to borrow but you can earn $14k on that money with a safe mix of equities and fixed income investments.
Tax benefits are minor in most cases.
Take the standard deduction....what is it this year??? 13,000??? Take your mortgage and deduct 13,000 and then multiply by your marginal tax bracket. Is it worth??
It might be if your rich and in a high income tax state. But for most people they are better off just taking the standard deduction and having NO mortgage. In my case, our joint family income never crossed 100,000 while we were working. So having NO mortgage payment made a huge difference in our quality of life.
For many people a mortgage represents about 30-40% of take home income. That is a huge percentage of income!!
Your example of investing works for a VERY small percentage of people. Most people have a very hard time maintaining the discipline to save rather than spend. I did it easily when I was single. It became much more difficult when I got married. We tried it....and looking back we would have been better off paying the mortgage to zero much earlier. Money just seemed to get spent unless it was locked up in an IRA, 401-k, or the mortgage.
It works fine on paper, but hardly anybody does it in real life.....unfortunately.
In our case, paying off the mortgage not only allowed us to travel, but buy a income property with its own mortgage that is now pretty much free and clear. We probably would not have qualified for the income property mortgage had we had a loan on our primary residence. It also allowed my wife to work part-time for almost all of that time and about five years as a stay at home mom.
I listened to Peter Schiff hawking gold for years now, and its gone nowhere. However, real estate in the area I live in is now almost back to bubble prices. This is not in Manhattan or in California or Seattle.
But this ain't no bubble. I have a sneakin suspicion (and these sneakin suspicions are often right on) that real estate is gonna eclipse gold, and a lot of other things. It's just getting started. Foreigners for one, are snapping up prime real estate at exhorbitant asking prices where I live, and a lot of it is owned and for sale by...realtors who snapped up all the good stuff during the foreclosure days a few years back. I have heard, to the effect, that the "world economy" (which you can assume we are now part of) will separate the landowners from the renters. And for some reason, I can see this coming. Real estate has zoomed up for no apparent reason where I live, in Canada and in many parts of Europe. You might as well assume the same thing is gonna happen here.
So don't wait. Mark my word. You'll pay double in just a few short years. I have a very strong feeling about this.
StuffedCabbage, I doubt prices will double in just a few short years, at least not in most parts of the country. I live on Long Island. I see demand growing in the future. Sandy wiped out a lot of houses. The bust in the housing market all but killed new construction for quite a few years now. People have to live somewhere.
Why???? The loans are at 4% with tax benefits. Money that you would use to pay off the mortgage earned say 15% this past year and a solid 7% most years. As an example if you have a $200k mortgage, the 4% will cost you about $8k per year to borrow but you can earn $14k on that money with a safe mix of equities and fixed income investments.
I guess the assumption is that it's not easy to make that kind of return, and that's why banks lend to you at such a low rate to begin with.
Personally I will borrow any amount of money I can get my hands on at 4% per annum.
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