The have and have-not: Two discarded receipts from same New York bank show the inequality of life in city (credit card, loan)

[Forest_Hills_Daddy]

Credit cards are useful so that ordinary people don't have to carry loads of cash in their wallets/purses which could pose as a safety risk.

Just try not to keep balances outstanding and pay them on time as CC interest rates are obnoxiously high and CC balances carry a huge penalty to one's credit score. Also after one has already built credit history there is no need to carry-over CC balances just to keep credit history.

Nowadays there are more alternative products to consumer loans such that people no longer need to borrow as much money to have access to something. Homes can be rented, cars can be leased. Diversified investing offers better risk adjusted returns than owning a house. The only major item that can require substantial borrowing are college costs but even that can be managed and maybe changed over time.

[NyWriterdude]

Originally Posted by Forest_Hills_Daddy

Yes but my assumption is correct. If they are buying a $500K home, where will the majority of their savings be in the next 10 to 20 years? It will be in the house. As a percentage of total savings, the house will be the largest asset in the portfolio versus stocks, bonds, insurance etc. Doesn't look like very good diversification.

Now compared with renting - it really depends where you rent. If they pay the high rents in Manhattan and brownstone Brooklyn, then renting doesn't look like a big advantage. But if they rent in other boroughs or the suburbs, then it becomes more attractive. Consider that with a $500K house, they will pay thousands per month in interest expense, taxes (that keep going up!), maintenance and repairs etc. Those are expenses, not investments especially in the first 10 years. That amount will almost approximate a monthly rent of $2,500 - $3,200. At least when they rent, they can put the majority of the remainder of their savings (after paying expenses) to diversified investments that have a higher ROI and better risk profile than home ownership. If they own a mortgage, most of the savings will go to paying down the balance. They may own the house but as a financial asset it is losing money.

If I can find a rental for 3K or less it will definitely be more attractive in the financial sense than buying a $500K house.

Putting one's money in stocks and bonds isn't for everyone. At least if you bought the 500k home and its PAID for, one has a place to stay in old age. Rents in the city have gone up tremendously, which places a number of older people on the very edge of homelessness if they try to stay here. The average small investor does a poor job investing. They typically don't have the connections or enough money to really spread things around and go for the best (riskiest investments). Investors who are wealthy and connected businessmen are more likely to start or invest in new businesses (many of which fail, but those that do well give fantastic returns on their investment) or purchasing distressed businesses or real estate assets and turning them around (if successful, you make a lot of money here).


Also, the home provides space for one's self, particularly if you have a family. There's other reasons why people by homes (homes are quieter than many apartment buildings, etc.) Also, even for individual homeowners it dependings on timing. If you bought your home in Harlem or WIlliamsburg in the 90s and you decided to sell today, you've gotten a huge return or your original investment.

[NyWriterdude]

Originally Posted by Forest_Hills_Daddy

Credit cards are also useful so that ordinary people don't have to carry loads of cash in their wallets/purses which could pose as a safety risk.

Just try not to keep balances outstanding and pay them on time as CC interest rates are obnoxiously high and CC balances carry a huge penalty to one's credit score. Also after one has already built credit history there is no need to carry-over CC balances just to keep credit history.

Nowadays there are more alternative products to consumer loans such that people no longer need to borrow as much money to have access to something. Homes can be rented, cars can be leased. The only major item that can require substantial borrowing are college costs but even that can be managed and maybe changed over time.

Good points about the convenience of credit cards (so people don't have to carry loads of cash which are indeed safety risks). If the credit card is stolen one just has to call the bank and report it stolen. And obviously no hotel is going to accept thousands of dollars in cash for a hotel room rental (ditto automobile rentals). You cannot use cash to order online (you have to use either a credit or debit card). Purchasing things electronically gives one an additional proof of purchase (the transaction will be on your bank or credit card statement). If you purchase a service or product which isn't good with a card, you can dispute the transaction with the bank. If you just used cash you might be screwed.

[Forest_Hills_Daddy]

Originally Posted by NyWriterdude

Putting one's money in stocks and bonds isn't for everyone. At least if you bought the 500k home and its PAID for, one has a place to stay in old age. Rents in the city have gone up tremendously, which places a number of older people on the very edge of homelessness if they try to stay here. The average small investor does a poor job investing. They typically don't have the connections or enough money to really spread things around and go for the best (riskiest investments). Investors who are wealthy and connected businessmen are more likely to start or invest in new businesses (many of which fail, but those that do well give fantastic returns on their investment) or purchasing distressed businesses or real estate assets and turning them around (if successful, you make a lot of money here).
.

You need to see my second paragraph. It depends where you rent. There are many places in the boroughs where rents haven't gone up tremendously and in some cases, can come out even cheaper than the monthly mortgage.

As for investing, you are correct that you need to be active with your investments. But it isn't rocket science. likeminas, mathjak and myself are able to do it even if we are not money managers.

[likeminas]

individual stock picking is a risky bet, IMO, so I would agree that it isn't for everyone.
But when it comes to mutual fund and index investing, I agree with FHD, it isn't rocket science.
Of course, you still need to do reasearch and careful reading, but it's generally the safest best for a small fish swimming among sharks.
Over the last 3 yrs, my overall ROI on all the indexes I've purchased has been around 9%. Not bad for an average small time investor, if you asked me.

[jad2k]

Originally Posted by Forest_Hills_Daddy

You need to see my second paragraph. It depends where you rent. There are many places in the boroughs where rents haven't gone up tremendously and in some cases, can come out even cheaper than the monthly mortgage.

Well yes, but not everyone wants to live in those areas. If one can comfortably afford $3000/month for housing costs that gives me a fair amount of wiggle room in terms of neighborhoods to rent. Now, if one can buy a place and have my monthly payments be the same as that $3K that would have been paid in rent, I don't see anything wrong with it at all. And if you are about to say "you could have invested your down payment else where." Well, not everyone wants to or is comfortable with, investing $125K in stocks and the like. I listened to all the renting vs owning arguments and I still, 100% would pick owning for what I should do with my money. As I said before, I have to have a place to live so if I can "invest" in my home, why not?

Originally Posted by NyWriterdude

Putting one's money in stocks and bonds isn't for everyone. At least if you bought the 500k home and its PAID for, one has a place to stay in old age. Rents in the city have gone up tremendously, which places a number of older people on the very edge of homelessness if they try to stay here. The average small investor does a poor job investing. They typically don't have the connections or enough money to really spread things around and go for the best (riskiest investments). Investors who are wealthy and connected businessmen are more likely to start or invest in new businesses (many of which fail, but those that do well give fantastic returns on their investment) or purchasing distressed businesses or real estate assets and turning them around (if successful, you make a lot of money here).

If you bought your home in Harlem or WIlliamsburg in the 90s and you decided to sell today, you've gotten a huge return or your original investment.

Also, if you buy wisely, the home will see an appreciation in value- especially if one is buying to live in it for several few years and not just "flip" for a profit. People who are Buying in Bed Stuy now are buying homes to live in and raise families. While there are no guarantees, I'm almost sure that when they eventually do sell in down the line, they will see a profit. It doesn't matter that they could have plopped down that money all in other investments and made a "faster" return, the point is they wanted to invest in a home for their family.

Originally Posted by NyWriterdude

Good points about the convenience of credit cards (so people don't have to carry loads of cash which are indeed safety risks). If the credit card is stolen one just has to call the bank and report it stolen. And obviously no hotel is going to accept thousands of dollars in cash for a hotel room rental (ditto automobile rentals). You cannot use cash to order online (you have to use either a credit or debit card). Purchasing things electronically gives one an additional proof of purchase (the transaction will be on your bank or credit card statement). If you purchase a service or product which isn't good with a card, you can dispute the transaction with the bank. If you just used cash you might be screwed.

Yes, that's all true but my point was really that people rely using credit cards too much for consumer purchases for the "buy now, pay later" nature of credit cards and that can get them in a lot of trouble. One certainly does need a card for the things mentioned or even an emergency expense. But I make it a point to NOT put general [consumer] items on my CC and if I do, I make a point to pay it of the next month.

[11KAP]

i wonder how much will a million dollar
row house in the former ghetto really
be worth 5 years from now, or is this
all hype just like the last real estate
fiasco?

[Forest_Hills_Daddy]

Originally Posted by jad2k

Well yes, but not everyone wants to live in those areas. If one can comfortably afford $3000/month for housing costs that gives me a fair amount of wiggle room in terms of neighborhoods to rent. Now, if one can buy a place and have my monthly payments be the same as that $3K that would have been paid in rent, I don't see anything wrong with it at all. And if you are about to say "you could have invested your down payment else where." Well, not everyone wants to or is comfortable with, investing $125K in stocks and the like. I listened to all the renting vs owning arguments and I still, 100% would pick owning for what I should do with my money. As I said before, I have to have a place to live so if I can "invest" in my home, why not?

For a middle class household, why wouldn't they want to rent for below $3K in Kew Gardens, Bayside, Forest Hills, Kew Garden Hills, Middle Village, Glendale, Astoria, Staten Island, etc? Those places have been MC bulwarks for decades and MC families are more likely to buy in those places than anywhere else in NYC. When I lived in Kew Gardens, my rent was only $1,700. Now I live in a suburb and my rent is only $2,500.

In terms of the monthly payments, I wasn't talking about principal. I was talking about expenses - interest, taxes, maintenance, etc. When you add it all up, it almost comes to what they would pay in rent. Remember those are expenses and therefore do not earn an ROI. My acquaintances in the suburbs spend as much as $1.7K/month in RE taxes alone. Then consider the upgrades one would have to make to a house once they try to sell it. Once you get to $2.5K in expenses, owning doesn't seem to offer much of a benefit.

Bed-Stuy is not a good place to buy for MC if they are concerned with public schools plus not sure if there are any houses/townhouses there selling for $500K that would not require upgrades. And no matter how wisely you buy, houses in most places attractive to MC families will not see a net appreciation in value over time when you factor in inflation and expenses. Brownstone Brooklyn is not a typical neighborhood for MC families at this point and it is far outnumbered by MC neighborhoods where prices will be capped for the long haul.

I agree there is "nothing wrong" with paying $2.5K in house and loan expenses instead of renting. Just saying there are other ways to get a much better ROI than owning a house. And the reality is if you're not investing in stocks, bonds and other asset classes, you're losing money to inflation. Investing is something we will all have to get comfy with.

[urbanlook]

What if a homeless person opened the door for the million man?

[Bronxguyanese]

Originally Posted by Forest_Hills_Daddy

American individuals are over-indebted way above their means to pay. There is nothing wrong with borrowing money but if someone owes more than 50% of net income and their net worth cannot cover 100% of borrowings then they are in trouble especially if they lose their jobs.

Businesses are a different story because of their access to capital markets, their ability to diversify their earnings and reorganize their operations, and the legal and political protections they have at default which ordinary individuals do not have.

I believe Bronxguyanese was talking about personal debt and not business debt.

Thank you for pointing that out, I know that their is different types of debt, personal debt is not a thing no one should carry around their backs with and can hinder life itself. As for business debt, I hope some business have access to good capital and not disappear into darkness by poor lending and borrowing practices which happened to many companies during the financial crisis which I call the great crisis.

Originally Posted by jad2k

But you're assuming that they aren't also investing. In the case of those that are home owners, self include, some invest in addition to owning a home. After all, you have to live somewhere and there are really only two choices. Pay money to a landlord and at the end of the day not own the place, or pay money to a bank and at the end of the day, own the place. The reality of the situation is that the amount I'm paying to mortgage my place (including the taxes and maintenance) is comparable to what I would pay in rent given my income.

For some people owning an home is an investment while they may not have any other capital to invest in anything else for a rainy day which is very likely.

Originally Posted by jad2k

Yes but he was treating it like a "four letter word." Personal debt is not always a bad thing since it allows you to buy things like an education, a house, a car, etc. The problem is lending more than someone can afford to pay back. I've personally never liked credit cards because they are mostly used for purchasing consumer goods and if you can't afford to buy a $2,000 handbag and need to put it on your card, you probably shouldn't buy it at all. That, however, is totally different from not being able to pull out $500,000 to buy a house BUT being able to come up with 25% of that total amount as a down payment as well as having a well paying, stable job that will allow you to pay off the amount that you borrowed.

I ran into very smart but also idiotic people who racked up on debt with purchases they could not pay off for, not consumer material goods like a MacBook, 64gb iphone, Louis Vuitton Handbang no, but property, even Manhattan rents, education and autos, hell expensive weddings which ended in messy divorces which resulted in debts. I befriended this out of town chick from Dixie country some years ago, one day she cried on my shoulders while I caressed her backside. She told her BF about how much money she owes for attending some masters degree program plus previous education bill unpaid off for, surprisingly her BF bought her an engagement ring but before he placed the ring on her finger, the BF ended up taking the ring back to the jeweler. He made the right call by not marrying into debt! Even though one is approved for a loan, he or she must have the financial means of paying it back. If one can afford a loan and purchase, or attain something and are realistic about paying it back through necessary means, then pay it back. Overall I agree with you and a rep jad especially on that 2000 dollar handbag, no need for it if one cant afford it, but then again their is always Russian, Chinese and Russian knocks which cost 80% less.

Originally Posted by NyWriterdude

Credit cards are also used to purchase certain things you cannot do with debit cards, such as car rentals and checking in hotels. Also, using your credit cards and paying them off can help build your credit history, enabling you to do auto loans or mortgages or other types of loans you may need. Credit cards are a good back up to savings in case of emergency.

Even though we disagree a lot, I agree with you on this. I primarily use credit cards primarily travel and other expenses, however I know I have to pay them off in a timely fashion or else, so I try to spend within my means. Credit Cards are a good back up, hell one might not even know if they may have a family crisis like or even a health scare that HMO don't cover, credit might come in handy for treatment. My credit score is in the mid 700s which is good compared to most people in my area who either have no credit or have poor to bad credit due to not being able to afford to pay back creditors. These days people much be smart about finances.