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If he was really that rich to pay off a $500,000 house in 7 years, he could save up the $500,000 cash and not pay the $50k in interest at all.
Now I know I am asking the wrong person this question but how much could he expect to pay for that house in the 7 years it may take to save up? $575,000 possibly? While also paying rent during that time of lets say $1000 a month very conservatively. So he saves $50,000 in interest and pays $75,000 more for the house and $84,000 in rent, looks like a loss of $109,000 to me.
Edit: Forgot the tax write offs, add a bit to that $109,000
I own the company. I have decided to not lay myself off.
More seriously, loss of income is a risk for an owner, or for a tenant. I would rather be sitting on equity if I lose income, than to be a tenant and suddenly unable to make the rent.
The vast majority of people I meet are not underwater.
I'm not one for continually living in excessive debt, and consider a decent home loan a reasonable debt. Possibly a car loan, but not much else. Credit cards paid off every month, or not used.
It is easy to save money if one manages one's cash flow and banks the difference.
Interest is the price of using OPM today for future needs, in lieu of saving for 15-20 years to purchase while renting at a higher price. It is wise to borrow well within one's means. Using one income, not two, and keeping DTI low and hedging against inflation, both in home prices and value of the dollar.
And speaking in generality, I often recommend making 13 or more mortgage payments a year, which reduces a 30 year loan to under 18 years.
I know a fellow who borrowed 80% on a nearly $500,000 home last year. 7 year ARM, at 2.1%. It was a home run, IMO, to borrow below the rate of inflation and lock in that rate to be able to dedicate more cash to paying off the balance as fast as possible. Or, to bank the money and pay off in 7 years when the rate adjusts.
Having been divorced twice and underwater once I don't hedge anymore, I look at every what if scenario and make sure I'm covered 10 ways from Tuesday. That's just me though, I have found realitors don't always have their clients best interests. Like the one realitor on here I don't need a religious or moral lecture if I want to do a short sale or foreclosure, if I'm paying out 5 figures they just need to get it done without me writing a check, but they don't so what are they good for. It's like paying big bucks for a lawyer who does not get you off the hook
That way the only thing I have to worry about is taxes and utilities which you can never really get out of. I also make sure I'm covered legally with robust contracts for any buisness I do so I can either walk away.
Its why I don't leverage, there are risks to leveraging capital like that. Just because Joe down the street got lucky and is out side grilling steaks and driving a beamer does not mean you will.
Its why I don't leverage, there are risks to leveraging capital like that. Just because Joe down the street got lucky and is out side grilling steaks and driving a beamer does not mean you will.
I'm sure that even you would agree that a MAJORITY of Americans would not / are not able to save up the entire purchase price of a home. Also, there are certain tax advantages to homeownership. And if I need to pay for housing I might just as well put that money into ownership and equity. You would agree, wouldn't you?
I have no idea what prices will do in the future. I have no idea what will happen at work in the next 10 to 15 years. I can not answer any of those questions.
Here is what I do know:
We bought with a 1st time home owners program in California with only 3% down. I don't even feel guilty for doing that. We could not do it any other way. To do that we have to pay PMI for the 1st 5 years if we can get up to 20% in equity.
Prices in my area have increased to the point that we may have been priced out of the market if we had waited the past 3 years to buy now. A smaller home on our street just sold for $70,000 more than we paid. Another is on the market for $90,000 more than we paid. If prices were to stop where they are at now, we would have 25% equity in our home.
We are paying additional principle payments on our mortgage with the goal of paying the home off in about 10 years. With a fixed interest rate I know that in about 120 months our home will be paid off.
What I have found is that of the people I know that own their homes free and clear, they don't seem to care what the market is doing. The point for them was to just pay off the home. That is our goal as well, to just pay off the home and retire the debt.
As far as work, my wife and I work for the same hospital and the work is stable. We love our jobs and it would seem that we are well liked at work. I would love to stay there the next 30 years if I can. We will see how things go.
I'm sure that even you would agree that a MAJORITY of Americans would not / are not able to save up the entire purchase price of a home. Also, there are certain tax advantages to homeownership. And if I need to pay for housing I might just as well put that money into ownership and equity. You would agree, wouldn't you?
The thing is your only into an apartment lease for 6 months to a year and then most places go month to month so if im laid off or need to change jobs getting out of an apartment is REALLY easy. Getting out of a house is not so easy and I have seen more cases than I would have cared too where it was an absolute night mare, realitor fees putting myself and a few other people I know underwater (where as without the realitor fee would have made a few bucks), taking eons to sell, etc. This day and time no one knows if they will have a job for 5 years let alone 15-30 years.
What I will likely do is buy raw land with cash (probably 100k) then design and have the shell built and so on and so forth, yea I will be renting during this time and it kinda sucks paying out rent at the same time but its no more than the interest I would be paying to a bank and then I don't have the bank holding me over a proverbial barrel.
If I need to bail for work/job reasons I can let the land and shell sit and seal it up and all im into it for is taxes (which is fairly nominal compared to bank interest, realitor fees, etc if I were to have to buy and sell with bank loans). Paying out rent is worth every cent to not have to deal with having a banks hands around my throat or a realitor that wants doctors wages for a 3 month training class.
Banks and lendors are getting really aggressive going after people for deficiency judgements, especially if you have a good job somewhere and are making good money, you could take it in the shorts BIG time, it will make that rent look like peanuts.
I have no idea what prices will do in the future. I have no idea what will happen at work in the next 10 to 15 years. I can not answer any of those questions.
Here is what I do know:
We bought with a 1st time home owners program in California with only 3% down. I don't even feel guilty for doing that. We could not do it any other way. To do that we have to pay PMI for the 1st 5 years if we can get up to 20% in equity.
Prices in my area have increased to the point that we may have been priced out of the market if we had waited the past 3 years to buy now. A smaller home on our street just sold for $70,000 more than we paid. Another is on the market for $90,000 more than we paid. If prices were to stop where they are at now, we would have 25% equity in our home.
We are paying additional principle payments on our mortgage with the goal of paying the home off in about 10 years. With a fixed interest rate I know that in about 120 months our home will be paid off.
What I have found is that of the people I know that own their homes free and clear, they don't seem to care what the market is doing. The point for them was to just pay off the home. That is our goal as well, to just pay off the home and retire the debt.
As far as work, my wife and I work for the same hospital and the work is stable. We love our jobs and it would seem that we are well liked at work. I would love to stay there the next 30 years if I can. We will see how things go.
If you had bought a piece of raw land with cash then you would be in the game, then you would only have to worry about the cost of building materials and not "the market" which is a big shell game of flippers and vultures who artificially inflate the cost of housing but raw land is typically in a different sutset of the market because no one wants to take the time to develop raw land other than major construction companies or developers.
Its like these guys that wanted to sell me a hangar for 700k yet the lots are only 100k and I can hire a builder to put up a hangar for 300k and they wonder why they cant sell their property, everyone is trying to make money off of nothing. Everyone is trying to make a quick buck and do very little for it, they are exploiting people that don't know any better.
The thing is your only into an apartment lease for 6 months to a year and then most places go month to month so if im laid off or need to change jobs getting out of an apartment is REALLY easy. Getting out of a house is not so easy and I have seen more cases than I would have cared too where it was an absolute night mare, realitor fees putting myself and a few other people I know underwater (where as without the realitor fee would have made a few bucks), taking eons to sell, etc. This day and time no one knows if they will have a job for 5 years let alone 15-30 years.
Fact is, the percentage of homeownership is at one of the highest rates in history. Another fact, people who own their home tend to take better care of it than those who rent. As a result, property values are better (typically) where there are more owners than renters.
Fact is, the percentage of homeownership is at one of the highest rates in history. Another fact, people who own their home tend to take better care of it than those who rent. As a result, property values are better (typically) where there are more owners than renters.
I don't doubt that is true but is not really relavent if you get laid off, even if the market is doing ok its still not a fun process to sell, you have inspectors that are going to pick at every little thing in the house and then you have to get a licenced contractor to fix it and produce a report, if you loose HSA standing then no one can buy your place (this was my case in a condo I owned).
Im not saying that people don't make money on the sale of their home AND sell it in a timely manner so they can make their move to a new job, etc, but there is a lot more risk in owning (with a huge bank note) than renting.
After your done screwing around with:
3-6% realitor fees that can amount to 5 figures
bank interest on hundreds of thousands that can easily top 50 grand in the life of the note
repairs and inspections in the sale which generates huge head aches
banks not willing to loan others money to buy your house making it an albatross and preventing you from moving (not very tenable to pay a mortgage and rent in another state where your new job is).
In my area a nice house that I would want to buy is around 500k, with an interest rate of around 5% (because the rate people "talk" about is never as good as the rate in ink at signing) your looking at least 25000 in interest and 30000 in realitor fees plus all the other fees involved. I can rent for a long time and save for a house outright for almost 60 grand. Even if I went high end on my apt, I could rent for over 3 years on 60 grand, that's more than enough to get a shell put up or even perhaps a really nice place livable. Or if I went a little less low end on the apt I could go almost 5 years in an apt and not be a whipping boy to a bank who has their hands around my throat if I cant pay.
I think a lot of people get involved with all this because they have wives who are pushing for a certain time line for things to happen, the guys sign because they want their wives to stick around. When things go south the wife is not going to have to deal with all the liabilities that the husband will in regards to the bank and forclosure etc so of course she is going to push it or go to the next guy down the street.
Last edited by highlife2; 07-06-2013 at 05:36 PM..
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