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Old 01-26-2015, 10:41 AM
 
18,859 posts, read 13,621,188 times
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Quote:
Originally Posted by TheOverdog View Post
Yes it does because in the real world you have things called 'transaction costs', which are pretty steep on a house. The general consensus is that unless your home appreciates ahead of inflation, you will lose money on it if you have to sell in the first 5 years due to the transaction costs. Also generally, houses are more expensive than apartments due to repairs, taxes, fancy furniture, etc but that is much more minor.
In general the transaction cost to get in are far less than to get out. While it's true these front end cost may cause a slight drop in net worth or even into negative territory it's usually not what people are talking about when they make the mistake of counting the debt and not the asset when having this discussion
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Old 01-26-2015, 10:46 AM
 
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Quote:
Originally Posted by ncole1 View Post
What about mortgage points? 3 points on a $300k mortgage is $9k in points alone, even excluding other closing costs. $9k would make the difference between a $6k net worth and a $15k net worth.
What idiot would pay 3 points??? lol
well, unless it reduced your rated by 1 or 2 percentage points....
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Old 01-26-2015, 10:46 AM
 
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Quote:
Originally Posted by synchronicity View Post
If you're paying 3 points on a mortgage that's a choice to get a much lower rate (unless one has the Worst Mortgage Broker Of Ever). 3 points is a helluvalotta points.
Yes. The net worth hit would be made up eventually via the lower interest payments, but it may take several years.
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Old 01-26-2015, 10:47 AM
 
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Quote:
Originally Posted by Lowexpectations View Post
In general the transaction cost to get in are far less than to get out. While it's true these front end cost may cause a slight drop in net worth or even into negative territory it's usually not what people are talking about when they make the mistake of counting the debt and not the asset when having this discussion
Not if you FSBO!
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Old 01-26-2015, 10:51 AM
 
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Originally Posted by Thinking-man View Post
Not if you FSBO!
The counter to that is that a lot of sellers make mistakes that reduce the amount they get for the house.
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Old 01-26-2015, 10:52 AM
 
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Quote:
Originally Posted by Thinking-man View Post
Not if you FSBO!


I said typically.
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Old 01-26-2015, 11:19 AM
 
Location: Vallejo
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Also FSBO severely restricts the market unless you're willing to cough up the fee for the buyer's agent.
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Old 01-26-2015, 11:34 AM
 
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Quote:
Originally Posted by Malloric View Post
Also FSBO severely restricts the market unless you're willing to cough up the fee for the buyer's agent.
What you 'can' do, is pay a thousand or so to an agent to list for you on MLS, and have a contract in place that says that's ALL he will do for you. you get the exposure, then can reject those who come in with an agent expecting a percentage.
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Old 01-26-2015, 12:17 PM
 
Location: Moscow
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Quote:
Originally Posted by synchronicity View Post
No, "taking on a mortgage" does NOT lower net worth, and anyone who stops to think for a second will realize that. If I buy a 200K house, paying, say 40K in cash and taking on 160K in debt, then MY NET WORTH IS UNCHANGED BEFORE AND AFTER THE TRANSACTION! Before I have 40K in cash and no debt, for 40K net worth. After I have a 200K asset and 160K debt, for 40K net worth. Now, one can discuss all sorts of other issues (the house may have larger carrying costs associated with it going forward, the house may or may not appreciate, whatever), but "taking on a mortgage" should be a neutral event regarding net worth.
Math must work differently in your world vs mine.

In my world networth=assets minus liabilities

Using your example I start with a networth of $40000 and no debt.

I buy a $200k house, putting down $40k. I now have $40k invested in an asset (lets ignore transaction costs). I owe an additional $160k (Lets ignore the additional over $100k I'm paying the bank over 30 years on the loan).

networth=assets($40k principal in the house)-liabilities ($160k mortgage debt)

Networth = -160k

Simple. Neat. Real.

Would love to see how your world works. I guess your going to tell me you can sell the house and zero out the debt, thus it doesn't count. Right?

What if the house burned down. Would the bank tell you to stop paying on your mortgage?

Or in your world networth=assets, and we can ignore debts. Sweet! How do I move into your world? Please tell me ASAP-I'm already packing.
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Old 01-26-2015, 12:23 PM
 
18,859 posts, read 13,621,188 times
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Quote:
Originally Posted by Keim View Post
Math must work differently in your world vs mine.

In my world networth=assets minus liabilities

Using your example I start with a networth of $40000 and no debt.

I buy a $200k house, putting down $40k. I now have $40k invested in an asset (lets ignore transaction costs). I owe an additional $160k (Lets ignore the additional over $100k I'm paying the bank over 30 years on the loan).

networth=assets($40k principal in the house)-liabilities ($160k mortgage debt)

Networth = -160k

Simple. Neat. Real.

Would love to see how your world works. I guess your going to tell me you can sell the house and zero out the debt, thus it doesn't count. Right?

What if the house burned down. Would the bank tell you to stop paying on your mortgage?

Or in your world networth=assets, and we can ignore debts. Sweet! How do I move into your world? Please tell me ASAP-I'm already packing.


You are doing the math wrong. You are only counting equity which isn't how net worth is calculated


Try

Assets - liabilities = net worth

200k house - 160k debt = 40k net worth
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