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We are looking at a house now - the owners originally borrowed about $300k to buy it in 1994. As of the last time they refinanced, they owed $820k. I just don't understand how people live like that - pay a mortgage for 20 years and have basically zero equity to show for it. (it's me, I'm bad at money for looking at an expensive house)
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Nov 11, 2014 20:53
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Not a Children posted:What did he spend $112k on in 6 months? When I try to think about how I'd blow that money in that time I'd probably get through about $30k on expensive booze and nice dinners and video games then... I got nothing Well, it wasn't a lump of 112k, that was his tax-free salary while he was there. I think he had 86k in the bank when he came home. Paid cash for a new truck (jacked up Silverado crew cab), multiple trips, college football season tickets, new TVs, new computers, and booze/strip club tabs for himself and all his friends (myself included a couple of times) for like 6 months. Also he paid off the car he had at home, and basically gave it to a friend of his with the loose promise to pay it off (for like 15k less than it was worth). He never saw another penny. The worst was the 75k when his mom died. I wasn't close with him then, but he took ten of his closest friends to Cancun for two weeks. All on his tab.
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Nov 11, 2014 21:05
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Guinness posted:Maybe, but I make 2x+ what I'd make at the same job in Middle America, if I could even find a similar job. And you're not in Iowa. That's a big positive worth paying more for.
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Nov 11, 2014 21:19
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Another house buying point: People obsessed with property tell you to do the dumbest things including moving thousands of miles away *just* to own a house. I'm regularly told to move to the country, away from family and friends, in order to "get on the property ladder". I know people who have done this. I'm not bitter at all!
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Nov 11, 2014 21:27
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Moving away to buy something is silly but moving away to make more money totally rules, fyi.
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Nov 11, 2014 21:42
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My income would drop dramatically if I moved to the country. Also consider no safety net of people you know? For a massive raise? Sure. For a massive drop in income and a black hole on my resume? No way.
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Nov 11, 2014 21:46
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CelestialScribe posted:My income would drop dramatically if I moved to the country. Also consider no safety net of people you know? Yeah I moved in the opposite direction(small city->big city). I meant net income, of course you still do the cost of living math.
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Nov 11, 2014 21:53
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Then it makes sense, for sure. I agree you should never just block moving as an option.
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Nov 11, 2014 22:00
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gvibes posted:We are looking at a house now - the owners originally borrowed about $300k to buy it in 1994. As of the last time they refinanced, they owed $820k. I just don't understand how people live like that - pay a mortgage for 20 years and have basically zero equity to show for it. Arrgh. People who do that are so bad with money. Like my friends mom who bought a 120k duplex in 1991 to live in with her daughter and parents, mortgaged and borrowed against it until what was probably a $800 a month payment was $3,000 a month, then sold it for 250k in 2011 and took a slight loss on it. Buying isn't always a bad idea. If you plan on staying somewhere a while and can avoid using your home like an ATM, it's a nice hedge against inflation. Rents are going up by nearly 10% a year where I live. My salary certainly doesn't. House payments stay about the same year to year unless you do some adjustable rate crap or remortgage to pay off debts or some crap. We rent now, and what we pay in rent on a 2 bedroom, 900 square foot apartment would cover the mortgage, insurance, HOA, and maintenance on the 3 bedroom town homes right behind us. I've seen condos for sale downtown for monthly payments that are 25% less than average rents even factoring in HOA's. We'd lose the pool and gym... that we don't use anyway. We'd lose some moving flexibility...but my commute is already 30 miles one way, so I doubt it'd get worse, and the area gets commuter rail in 4 years anyway. Goal for next year is to start saving money for the down payment and improve our credit scores in prep for this. That being said, I don't think it's a good idea if you're not planning on staying in a place long term or you can't keep your finances straight. Which is why we're still waiting...
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Nov 11, 2014 22:51
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Jeffrey of YOSPOS posted:Moving away to buy something is silly but moving away to make more money totally rules, fyi. The population distribution of Australia is totally different to the US. You live in a capital city or you live in the middle of nowhere (only a mild exaggeration).
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Nov 11, 2014 22:54
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fiery_valkyrie posted:The population distribution of Australia is totally different to the US. You live in a capital city or you live in the middle of nowhere (only a mild exaggeration). Yeah I tried not to make any assumption about where one lived and make what I said generally true - presumably my advice would apply to people with an opportunity to move to the capital and get a higher income, not away from it.
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Nov 11, 2014 22:57
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Sometimes good/bad with money depends on luck. My $240,000 townhouse is worth $300,000 now (3 years later), while rents have gone up 25%. Smart of me to never not buy! 
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Nov 11, 2014 23:00
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Don't make it about Iowa or whatever. Its just different market places. Its just a completely different scneario buying a house in Des Moines vs New York or Baltimore. Its simply more affordable and rental rates are closer in parity to mortgage rates (For well qualified buyers!) As I said, I have a hard time wrapping my head around paying that much for a tiny place with less security and more volatility. I feel like I get so much more for my money here without all th nonsense. Bad with money! A lot of friends from North Idaho lost their job when the major employer went out of business. A lot of people stayed there because its beautiful. Now, a year later, they are complaining that they don't make enough to pay back student loans or that employment isn't stable. Why stay in the boonies with no job and a depressed economy up there? Bleh.
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Nov 11, 2014 23:08
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Moving to the middle of nowhere to buy a house is maybe good with money but probably bad with life. But I won't lie, it's a weird dream of mine to move to some coolish cheap place away from the coats and quasi-retire in my 30's. I know a few people who have moved or are moving to those places. If you live there during your income earning years it sucks though, because you're going to be paid poo poo, unless you work from home full time and you can take advantage of that sweet sweet geo arbitrage.
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Nov 12, 2014 01:56
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Jastiger posted:Don't make it about Iowa or whatever. Its just different market places. Its just a completely different scneario buying a house in Des Moines vs New York or Baltimore. Its simply more affordable and rental rates are closer in parity to mortgage rates (For well qualified buyers!) As a property investor I've studied listings for years and years, and I've found one surprising simple rule of thumb. The more expensive the area, the more sense it makes to rent. The cheaper the area, the more sense it makes to buy. There are certainly exceptions. If you spent a lot of money in NYC in the 90s, you did pretty well.
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Nov 12, 2014 06:17
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Jastiger posted:Don't make it about Iowa or whatever. Its just different market places. Its just a completely different scneario buying a house in Des Moines vs New York or Baltimore. Its simply more affordable and rental rates are closer in parity to mortgage rates (For well qualified buyers!) I mean, not really. http://money.cnn.com/real_estate/storysupplement/price_to_rent/ I mean, sure, if we're discussing San Francisco home buying vs renting and contrasting that with anywhere, yeah. But New York? Baltimore? Nearly identical ratios. They're also in the same general ratio as Houston, Indianapolis, Jacksonville, Fort Lauderdale, Kansas City, Los Angelas, New Orleans, and Washington DC. Those places aren't similar. There are cases of cities where renting looks very good vs buying, but it's definitely tied to something unique to those cities. But there's one city in which buying is a much cheaper option than renting: Detroit. Because it sucks. Iowa isn't represented on the list, I don't think. Maybe home prices look so cheap to you because it sucks to live in Iowa? May I suggest moving further south, possibly east?
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Nov 12, 2014 06:50
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Blackjack2000 posted:As a property investor I've studied listings for years and years, and I've found one surprising simple rule of thumb. The more expensive the area, the more sense it makes to rent. The cheaper the area, the more sense it makes to buy. There are certainly exceptions. If you spent a lot of money in NYC in the 90s, you did pretty well. Well, if you invested in the S&P in 1995 just to pick the middle of the decade you made over 500% as of today with generally favorable tax treatment, it was a good decade to own money
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Nov 12, 2014 06:58
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Jastiger posted:As I said, I have a hard time wrapping my head around paying that much for a tiny place with less security and more volatility. I feel like I get so much more for my money here without all th nonsense.  ). The homeowners I've seen tend to end up with excess rooms, which invites extra money spent on furniture/decor. Nobody ever leaves unused rooms totally empty, after all. Houses also enable you to buy more junk since you have more storage areas to put it in.Apartments are nice for forcing you to keep clutter down and for making sure you actually use all the space you're paying for. They're also nice if you don't enjoy mowing lawns, doing(or paying for someone else to do) maintenence & repairs, or any of the other timesinks that come with owning a home. That said, they're not that great if you have a burning desire to remodel your living space, do your own landscaping, or any of the other things that you legitimately need a house for. I think you just don't like apartment life, which is fine! But don't act so shocked that some people like to rent, or that they think it makes sense for them even if they're not a huge fan of it.
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Nov 12, 2014 07:34
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MJBuddy posted:Maybe home prices look so cheap to you because it sucks to live in Iowa? Lived in Iowa for 24 years, this is accurate.
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Nov 12, 2014 07:46
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BEHOLD: MY CAPE posted:Well, if you invested in the S&P in 1995 just to pick the middle of the decade you made over 500% as of today with generally favorable tax treatment, it was a good decade to own money Housing prices in Manhattan are up around 130% since 1995. But most people don't pay cash for real estate, they borrow. So that 130% becomes 650% at 5x leverage. Then you have to account for the cost of borrowing, of course, but also account for the fact that you're no longer paying rent. In any case, if your point is that stocks are generally a better investment than real estate, I would agree.
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Nov 12, 2014 13:59
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BEHOLD: MY CAPE posted:Well, if you invested in the S&P in 1995 just to pick the middle of the decade you made over 500% as of today with generally favorable tax treatment, it was a good decade to own money Haha, I try to make this argument with my coworkers all the time to no avail. Even engineers (maybe especially engineers?) are bad with money. Hey! I bought my house for $150k in 1995, and I just sold it for $300k! See young man, property is a good investment. *Forgets inflation, taxes, closing costs, maintenance, opportunity costs of stock market* Blackjack2000 posted:Housing prices in Manhattan are up around 130% since 1995. But most people don't pay cash for real estate, they borrow. So that 130% becomes 650% at 5x leverage. Then you have to account for the cost of borrowing, of course, but also account for the fact that you're no longer paying rent. So the equivalent today would be to take out a loan for a quarter million dollars and invest it in the stock market, and I don't see many people lining up to call that a wise financial move.
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Nov 12, 2014 14:22
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District Selectman posted:Haha, I try to make this argument with my coworkers all the time to no avail. Even engineers (maybe especially engineers?) are bad with money. Yes, but in this case the opportunity cost is primarily the forgone rent payments that instead went into equity over 20 years.
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Nov 12, 2014 14:54
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Haifisch posted:I think you just don't like apartment life, which is fine! But don't act so shocked that some people like to rent, or that they think it makes sense for them even if they're not a huge fan of it. Apartment living can be pretty great. You're generally closer to work, have greater mobility, and maintenance is cheaper. The biggest problem for me was taxes. Our last year in an apartment netted us a 5k tax bill (and that's with 1 deduction on our W-4's). We had to move into a home for reasons, but one of those was a tax shelter. District Selectman posted:Hey! I bought my house for $150k in 1995, and I just sold it for $300k! See young man, property is a good investment. *Forgets inflation, taxes, closing costs, maintenance, opportunity costs of stock market* 19 years of housing, plus who knows how much money not paid in income taxes.... Also property is relatively stable. If he had borrowed $150k and stuck it in the stock market it might have turned into 600k or he might have had a lot of WorldCom stock. Your ROI on a home is historically smaller, but it's less likely to lose value, and you get to have sex in every room of it.
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Nov 12, 2014 15:36
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Uh I'm no money wizard but the entire point of the post is the little bit of money earned on the house equity (when you adjust for inflation) you made a lot less than it seemed, and possibly could have out earned what you "made" by just sticking your down payment into index funds. What equity are you talking about? The real profit from that sale is not $150k, and if they put the $25-30k down payment into the market in 1995 they'd probably have come out way ahead. Krispy Kareem posted:Also property is relatively stable. If he had borrowed $150k and stuck it in the stock market it might have turned into 600k or he might have had a lot of WorldCom stock. Your ROI on a home is historically smaller, but it's less likely to lose value, and you get to have sex in every room of it. I swear every time houses come up the posts from 2004 come out of the woodwork. Nobody is suggesting they should have put their $25k into AMZN or AAPL in 1995, good loving god. How can you even type "it's less likely to lose value" with a straight face? For one, it's significantly more likely to lose value than an index fund, and for two, the entire topic of conversation is about how houses aren't nearly as stable as everyone thinks. xie fucked around with this message at 15:40 on Nov 12, 2014 |
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Nov 12, 2014 15:36
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xie posted:I swear every time houses come up the posts from 2004 come out of the woodwork. Nobody is suggesting they should have put their $25k into AMZN or AAPL in 1995, good loving god. How can you even type "it's less likely to lose value" with a straight face? For one, it's significantly more likely to lose value than an index fund, and for two, the entire topic of conversation is about how houses aren't nearly as stable as everyone thinks. Only nerds and 401k managers buy index funds. If you're the kind of person who for-goes a house to invest in the stock market, you're probably not buying a slow growing index fund. And if you're buying shares in a specific company, then your risk factors just jumped exponentially. Houses are fantastically stable over the long term. Stable as in they aren't likely to lose value, not beat the market.
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Nov 12, 2014 15:51
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Krispy Kareem posted:Only nerds and 401k managers buy index funds. If you're the kind of person who for-goes a house to invest in the stock market, you're probably not buying a slow growing index fund. And if you're buying shares in a specific company, then your risk factors just jumped exponentially. ...what? Index funds aren't even particularly slow-growing. SPY went up like 30% in 2013. I think most people who forego a house to invest do so as the result of reasoning about expected return, not because they think they are stock picking rainman.
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Nov 12, 2014 16:04
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Jeffrey of YOSPOS posted:...what? Index funds aren't even particularly slow-growing. SPY went up like 30% in 2013. I think most people who forego a house to invest do so as the result of reasoning about expected return, not because they think they are stock picking rainman. 2013 was the stock market's best year since 1997. You can't possibly use that as a benchmark. EDIT: correction, I was looking at the wrong index. 2013 was the best year since 1995 and is the 3rd best year ever since 1975 for the DJIA. Krispy Wafer fucked around with this message at 16:28 on Nov 12, 2014 |
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Nov 12, 2014 16:24
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MJBuddy posted:I mean, not really. http://money.cnn.com/real_estate/storysupplement/price_to_rent/ That's an interesting chart. Des Moines would probably be most similar to kc or Minneapolis on there. I guess I just see people renting rooms for $800 or looking for 2brs for $300k, and I'm glad I live in iowa. We make about 70k a year, closer to 100k, once she starts working and I feel like living here where our dollar goes further is better with money than living in say Chicago, making the same but being in a shoebox. Now OWNING said shoe box would be good with money to rent out to others!
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Nov 12, 2014 16:28
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Krispy Kareem posted:Only nerds and 401k managers buy index funds.  Just want this to marinate for a minute.
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Nov 12, 2014 16:31
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Nerds are precisely the kind of people who rent in order to maximize their investment savings. People looking for get rich quick schemes (such as stock picking) are generally pretty happy to live well above their means, because in a few years they'll be rich anyhow!!!
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Nov 12, 2014 16:40
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Jastiger posted:That's an interesting chart. Des Moines would probably be most similar to kc or Minneapolis on there. Sure your dollar goes further - that's because it's not desirable to live there. You couldn't trade me all the salary in the world to move from Chicago to Iowa. SPY has a $192B market cap and VFIAX isn't that far behind. I'm sure that's just nerds and 401k managers though.
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Nov 12, 2014 16:41
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xie posted:Uh I'm no money wizard but the entire point of the post is the little bit of money earned on the house equity (when you adjust for inflation) you made a lot less than it seemed, and possibly could have out earned what you "made" by just sticking your down payment into index funds. Let's look at that index I posted above, which has flaws but it's a number (http://money.cnn.com/real_estate/storysupplement/price_to_rent/). If the index says 15, it means the rent cost for a home comparable to the median house is 1/15th the cost of that home. If you're looking at a home worth, say, 150k, that's projecting a rent of 833. A 150k home with 20% down payment, 5% interest, with 2% taxes and insurance is 894/month. Adding another 125/month for maintenance and repair is 958. So over a 30 year loan, if the house appreciates from 150k to 300k in 20 years, assuming linear growth, it should come to about 450k after 30 years. For that, you pay 345k over the life of the via monthly payments. So that's 450-(345k + 30k) (down payment) = 75k. On top of that, the interest on mortgage payments is tax deductible somewhat. I'm probably underestimating the monthly maintenance cost here a little because I'm holding it to the original purchase price. For renting, at the 833*30, with a 3% rise in rent yearly (my rent went up over 8% last year but CPI has 3% typically), you'll pay 475k over that same 30 year period. 30k put into the down payment is 186k over the same 30 year period, so 475k - 186k = 289k spent. Within 5 years, the cost of renting is higher monthly than the monthly payments, so there's nothing to set aside to invest at all; quite the opposite (this is where people probably derive the 5 year number). You actually come out ahead buying, not because of the property value, but because you stop your monthly rate from inflating. If you're going to own for 30 years, it's a pretty clear case of preferring to buy a house. 3 years? Really close. It doesn't matter what you could invest that money in because rent rates increasing take about half your earnings (and taxes take a bunch of it too).
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Nov 12, 2014 16:42
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Here, play with some sliders: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
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Nov 12, 2014 16:44
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Krispy Kareem posted:2013 was the stock market's best year since 1997. You can't possibly use that as a benchmark. Yeah I didn't mean to imply it was typical, obviously not. Clearly an insane year. Still, look at average returns. I was more trying to gauge what you mean by slow-growing. Most investors aren't primarily buying stocks they expect to triple this year or something crazy like that. People buying poo poo based on "hot stock tips" and nothing else are not representative. If I had to guess, I'd wager you think that most lay-investors do that because the people who blab all day about individual stocks are the suckers who do that and most people don't really talk about it or bring it up.
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Nov 12, 2014 16:44
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District Selectman posted:Haha, I try to make this argument with my coworkers all the time to no avail. Even engineers (maybe especially engineers?) are bad with money. Inflation erodes all investments equally, so it can be ignored when comparing one investment against another. It's funny that you mention taxes because there are tax benefits to owning vs. renting. Yes, there are substantial transaction costs with real-estate, and they should be considered when comparing investment options. Opportunity costs should not, since you are literally comparing one opportunity vs. another. The first thing to remember is that when you purchase your dwelling place, you now no longer have to pay rent, the second thing is that your mortgage interest is tax deductible (but again, you need to remember that the benefit is only to component that exceeds the standard deduction). The third thing to remember is that you don't have to pay capital gains taxes when you sell (again, up to a certain amount). My point in all of this is that it's a much more complicated analysis than most people want to admit, and it's a very individual analysis. If I qualify for certain tax benefits from owing that another person does not qualify for, then my analysis is not the same as his. That's why I said that someone who invested in NYC real estate in the 90s did well. I didn't say they beat the stock market, I didn't say that they made the best choice with their money, but simply that they did well as an example of an exception to the genera rule of thumb I shared. Finally, if interest rates stay down and I have sufficient cash flow, I do intend to take home equity loans and invest them in the stock market. I don't see any reason not to, especially considering that the interest will be tax deductible, so I could be earning 8% on money I'm paying 2.5% interest on. If you have the capital, why the hell not?
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Nov 12, 2014 16:50
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Jeffrey of YOSPOS posted:Yeah I didn't mean to imply it was typical, obviously not. Clearly an insane year. Still, look at average returns. I was more trying to gauge what you mean by slow-growing. Most investors aren't primarily buying stocks they expect to triple this year or something crazy like that. People buying poo poo based on "hot stock tips" and nothing else are not representative. If I had to guess, I'd wager you think that most lay-investors do that because the people who blab all day about individual stocks are the suckers who do that and most people don't really talk about it or bring it up. Slow growing in that you don't make a big score putting all your money in an index fund. And someone investing their home down payment into the stock market is probably looking to make a big score, whereas the average mutual fund buyer is making incremental contributions. It's not that you don't make money with mutual funds. All I buy are mutual funds. You just don't say, "big money big money" while buying an index.
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Nov 12, 2014 17:14
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Jastiger posted:That's an interesting chart. Des Moines would probably be most similar to kc or Minneapolis on there.
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Nov 12, 2014 17:18
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i like nice words
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Krispy Kareem posted:someone investing their home down payment into the stock market is probably looking to make a big score Yeah this is the part I disagree with - I would guess that people investing their home down payment into the stock market are doing so because they believe they can beat the average return of a house even given their rent payments which doesn't imply big score to me, just sufficiently returns based on whatever math they've done. I'm guessing stock pickers are the minority and are just loud about their bad decisions so you think it's more common. I could be wrong here, and e-trade certainly makes a killing off of its "customers", but I imagine most investors are more reasonable.
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Nov 12, 2014 17:31
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Jeffrey of YOSPOS posted:Yeah this is the part I disagree with - I would guess that people investing their home down payment into the stock market are doing so because they believe they can beat the average return of a house even given their rent payments which doesn't imply big score to me, just sufficiently returns based on whatever math they've done. I'm guessing stock pickers are the minority and are just loud about their bad decisions so you think it's more common. I could be wrong here, and e-trade certainly makes a killing off of its "customers", but I imagine most investors are more reasonable. I worked at E*Trade during the tech stock boom. It was funny terrible when day traders on dial-up bought 2 or 3 times their order because they kept pressing buy while the next page was loading. Tada! You now own lots of Pets.com!
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Nov 12, 2014 17:40
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Anne Whateley posted:If you like living in the middle of nowhere, knock yourself out, but you're missing the entire point: in Chicago you would not be making the same. Half your posts itt are bad with money. Actually in my field I'd be making very close to the same. I also look at the median income for an insurance salesperson and I'm right there in the middle. My middle income goes further in this area than the same job in Chicago. Chicago isn't bad, not by any means, and a lot of this is personal preference and for ME living in a massive city with all of the positives (and for me, tons of negatives) is far less desirable than a lower cost of living and the positives that come with a mid-major city. I mean, I can make a case for Des Moines all day long but that isn't the point. My point is that its hard, or it was hard, for me to comprehend what other posters were saying because of the inflated costs of living elsewhere. Dude in here is paying like $2k for a small apt in NYC. It just makes me all  .I find this rent vs mortgage chat interesting though. A lot of this assumes you take every last dollar you have and either invest/set aside while keeping an eye to what you would be paying in a mortgage. I know I'm not able to do it, and I doubt a lot of others are, but are people really able to say "up up up! Can't go to McD's today, that would push my cost of rent vs mortgage over .05% and I'd be LOSING money by renting!" It seems like it requires a spartan life style to make sure every cent is maximized in the home/apartment you chose to spend your money on.
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Nov 12, 2014 17:41
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