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People just dont get it that a debt based society is not long term stable. Eventually you have to pay the piper. Consumer debt just means some pay more for having their ice cream cone NOW. Others whole business model is about profit from financing, not from actually selling a product. Product is nothing but way to get endless stream profit from unending financing.
Notice few consumer items actually manufactured in America, its about profit from financing, product is just an inconvenient part of the process to get suckers to sign their life away on the dotted line.
When a consumer dies, they no longer need a home. Hence, consumer backed mortgage debt is pretty safe generally speaking.
As there become more consumers in the world, the amount of debt will likely increase. So long as the consumption debt flows from real assets in a similar methodology, there's a decent chance things are ok. If it starts to develop differently, that's where the Fed can step in and figure out where it wants to tailor things. The high number by itself is not bad....it's actually ever expected.
Not all cash out refinances are for waste and luxury vacations, I did one a few years ago, lowered my interest rate some and used the money to buy another rental property. It has worked out very well as the economy has been strong and this was prior to the hq2 amazon announcement.
I have thought of doing this too to buy a rental property. I'll have to look into it more once I have more cash saved up.
The current household debt costs are at rock bottom LOW. By far the biggest component of household debt is due to mortgages. That is a system that has worked well for most of us. We buy a house with the help of a mortgage instead of just flushing rent down the drain. Try it. You might find it works for you too.
Debt is a contract, once you sign on dotted line, you are in effect a debt slave having to service that debt. More interest you pay, the less purchasing power you have. You paid extra to get your ice cream cone NOW.
Price to buy a house is indeed higher because of mortgages. Less demand if you have to pony up cash, so cheaper prices. Notice cash prices some were getting houses for in 2009 on court house step auctions! Thats the true value. Course now we have real estate investment companies bidding up "undervalued" houses to try and make killing renting them or flipping them. Money games and speculation, nobody is actually creating wealth, just always looking for the bigger sucker and selling on easy payment plan. And guessing these investment companies are leveraged, they didnt just pony up cash out of their pocket. But business has big advantage using debt over an individual. Meaning things like depreciation and other deductions.
But if you notice I said consumer debt. Mortgages are not like buying a car or toaster oven. There is some long term intrinsic value. Not what real estate is being bid up to, but there is at least intrinsic value in the land. Your car on other hand goes to scrap value eventually. MOst consumer crap is plastic which has no scrap value. Consumer items, you are in effect "renting" them because of limited life expectancy.
Debt is a contract, once you sign on dotted line, you are in effect a debt slave having to service that debt. More interest you pay, the less purchasing power you have. You paid extra to get your ice cream cone NOW.
Price to buy a house is indeed higher because of mortgages. Less demand if you have to pony up cash, so cheaper prices. Notice cash prices some were getting houses for in 2009 on court house step auctions! Thats the true value. Course now we have real estate investment companies bidding up "undervalued" houses to try and make killing renting them or flipping them. Money games and speculation, nobody is actually creating wealth, just always looking for the bigger sucker and selling on easy payment plan. And guessing these investment companies are leveraged, they didnt just pony up cash out of their pocket. But business has big advantage using debt over an individual. Meaning things like depreciation and other deductions.
But if you notice I said consumer debt. Mortgages are not like buying a car or toaster oven. There is some long term intrinsic value. Not what real estate is being bid up to, but there is at least intrinsic value in the land. Your car on other hand goes to scrap value eventually. MOst consumer crap is plastic which has no scrap value. Consumer items, you are in effect "renting" them because of limited life expectancy.
There is value in getting something to the point of usable value. I'm not a mechanic, nor am I handy. I am full retail when it comes to my vehicles. A 69 Camaro needing an oil change, alternator and timing belt is utterly worthless to me if I must do the work myself. No value whatsoever because I can't utilize it as a transportation vehicle yet and don't have the skill to make it a good store of value as a WIP project.
Think of that framework before rushing to decide too much on the zero value add rental stock we have out there. During the recession, it's not just that there were foreclosures, but there were foreclosures of some really really ugly homes. A friend of mine who'd go with called the monster homes and was certain we'd either find a body or become one. Really it became a Where's Waldo to find it and then compare as to who got he right one. People stole their own plumbing and fixtures, dug giant holes, defecated all over the building, filled up their basements with water...one did have dead animal carcasses. Early on, the banks weren't dumping .10 into these properties to get them sold. They were in foreclosure, they were angry and they felt the world was ripping them off. So flippers came in, dumped $20K-$40K on a place to bring it back from the brink and made a healthy reward in doing so. Eventually banks got the memo that they were being dumb in listing these as trashpits because nobody but flippers would buy. Put some money into them and you'll realize more money.
That's really what a "flipper" is. Basically someone that can come in and stabilize a property, making it easier for more people to successfully acquire the property that don't need their own construction crew.
Not all cash out refinances are for waste and luxury vacations, I did one a few years ago, lowered my interest rate some and used the money to buy another rental property. It has worked out very well as the economy has been strong and this was prior to the hq2 amazon announcement.
I have thought of doing this too to buy a rental property. I'll have to look into it more once I have more cash saved up.
That's exactly what I did (twice) - by far the best financial decision I've made during my life so far.
Here's why: where I'm at, residential real estate (long-term) appreciates 4.5-5% annually, and for a rental property, 25% downpayment is the norm. So - that 4.5-5% appreciation on the property's value is really like an 18-20% appreciation on the actual $ used as downpayment. Add to that the tax benefits and cashflow for being a landlord - not an insignificant amount of $ right away, every month.
The current household debt costs are at rock bottom LOW. By far the biggest component of household debt is due to mortgages. That is a system that has worked well for most of us. We buy a house with the help of a mortgage instead of just flushing rent down the drain. Try it. You might find it works for you too.
We owe nothing to no one, in fact its quite the opposite. Thats the side of the fence we want to be on. Enjoy your debt.
We probably will to acquire some funds to get the kids through college. We both have a LOT in 401k and I have a pension but the kids could use the money now. I really don't want them to rack up student loans. Besides, the equity in our place just keeps piling on. We bought the place for 150 and it appraised for nearly 800 grand. We'll shave a good deal off the interest rate too.
We have no problem with this. I could take out a 401k loan but not sure I'll be working here much longer.
People just dont get it that a debt based society is not long term stable. Eventually you have to pay the piper. Consumer debt just means some pay more for having their ice cream cone NOW. Others whole business model is about profit from financing, not from actually selling a product. Product is nothing but way to get endless stream profit from unending financing.
Notice few consumer items actually manufactured in America, its about profit from financing, product is just an inconvenient part of the process to get suckers to sign their life away on the dotted line.
For the last 70 years, except for 1998-2001 and a couple of years in the 1950s, our entire federal government has been debt based. That debt will keep increasing until some event or combination of events makes it untenable.
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That's exactly what I did (twice) - by far the best financial decision I've made during my life so far.
