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Mon Feb 9, 2015, 09:06 AM

Is Buying a House Still the Best Way to Build Wealth?

http://www.theatlantic.com/business/archive/2015/02/is-buying-a-house-still-the-best-way-to-build-wealth/385243/

?njd0ah

Ricardo and Denise Cabrera were so burned by the last housing crash that it is hard to believe they're vying to become homeowners again.

In 2005, the couple bought a starter home for $490,000 just outside of Los Angeles through a no-money-down, interest-only loan. By 2009, after the market crash, that same home was worth roughly $150,000 less. The couple decided to do a short sale to get out from underneath their mortgage. The only problem? It prevented them from pulling any equity out of the house; just as bad, it marred their high credit scores. "We walked away with nothing," Denise says.

Now, after five years of renting, the Cabreras are once again putting their faith (and savings) into the housing market—this time, through a 10 percent-down mortgage on a five-bedroom, Cape Cod-style house in the San Fernando Valley, on the edge of Los Angeles. The seller accepted the couple's bid of $530,000, after receiving roughly 20 other offers, Ricardo says. With the property now in escrow, the Cabreras and their children, ages 9, 5, and 4, hope to move in by the end of February. "For me, the house is something we can pass on to the kids," Ricardo says. "Paying rent is just like throwing your money away."

The ideal of American homeownership may have been tarnished during the recession, as the values of so many homes plummeted and the number of foreclosures across the country soared. But for many Americans, like the Cabreras, the emotional rush of buying a home still represents a significant marker of stability and financial success. Buying often gives families access to safer neighborhoods, better schools, and more services than renting. And, like it or not, homeownership still offers the best way to save money for the majority of Americans by building up equity, especially in this era of dwindling pensions and stagnant wages. "It is a forced saving mechanism, and if you don't have to think about saving, it goes better," says Brett Theodos, a senior research associate at the nonpartisan think tank, the Urban Institute.

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Reply Is Buying a House Still the Best Way to Build Wealth? (Original post)
xchrom Feb 2015 OP
Sunlei Feb 2015 #1
Adrahil Feb 2015 #9
Sunlei Feb 2015 #13
Adrahil Feb 2015 #18
Sunlei Feb 2015 #22
Nay Feb 2015 #32
Adrahil Feb 2015 #85
tabbycat31 Feb 2015 #63
dixiegrrrrl Feb 2015 #41
Sunlei Feb 2015 #54
MADem Feb 2015 #52
mythology Feb 2015 #58
merrily Feb 2015 #2
Phentex Feb 2015 #20
merrily Feb 2015 #23
Lurker Deluxe Feb 2015 #3
Adrahil Feb 2015 #10
FBaggins Feb 2015 #4
Gormy Cuss Feb 2015 #24
pipoman Feb 2015 #5
Adrahil Feb 2015 #11
pipoman Feb 2015 #34
Adrahil Feb 2015 #46
pipoman Feb 2015 #48
Adrahil Feb 2015 #70
jeff47 Feb 2015 #82
FSogol Feb 2015 #16
pipoman Feb 2015 #39
libtodeath Feb 2015 #6
yeoman6987 Feb 2015 #8
tabbycat31 Feb 2015 #7
whatthehey Feb 2015 #12
tabbycat31 Feb 2015 #17
Sunlei Feb 2015 #28
WorseBeforeBetter Feb 2015 #35
Sunlei Feb 2015 #42
WorseBeforeBetter Feb 2015 #49
pipoman Feb 2015 #44
Johonny Feb 2015 #21
pangaia Feb 2015 #57
jeff47 Feb 2015 #88
Johonny Feb 2015 #97
jeff47 Feb 2015 #98
alarimer Feb 2015 #27
Adrahil Feb 2015 #47
tabbycat31 Feb 2015 #64
Adrahil Feb 2015 #65
tabbycat31 Feb 2015 #71
Adrahil Feb 2015 #72
tabbycat31 Feb 2015 #75
Adrahil Feb 2015 #79
PasadenaTrudy Feb 2015 #94
raccoon Feb 2015 #60
treestar Feb 2015 #14
bhikkhu Feb 2015 #15
tammywammy Feb 2015 #19
Gormy Cuss Feb 2015 #26
bhikkhu Feb 2015 #43
TBF Feb 2015 #61
Gormy Cuss Feb 2015 #83
rock Feb 2015 #25
Red State Rebel Feb 2015 #30
guillaumeb Feb 2015 #29
ChosenUnWisely Feb 2015 #31
WorseBeforeBetter Feb 2015 #33
MisterP Feb 2015 #55
lumberjack_jeff Feb 2015 #36
edhopper Feb 2015 #37
PasadenaTrudy Feb 2015 #38
WorseBeforeBetter Feb 2015 #50
PasadenaTrudy Feb 2015 #67
WorseBeforeBetter Feb 2015 #73
PasadenaTrudy Feb 2015 #78
WorseBeforeBetter Feb 2015 #86
Art_from_Ark Feb 2015 #95
PasadenaTrudy Feb 2015 #40
MADem Feb 2015 #53
PasadenaTrudy Feb 2015 #66
MADem Feb 2015 #68
PasadenaTrudy Feb 2015 #77
Augustus Feb 2015 #45
pipoman Feb 2015 #59
Adrahil Feb 2015 #80
FBaggins Feb 2015 #99
Lex Feb 2015 #51
olddots Feb 2015 #56
fxstc Feb 2015 #62
steve2470 Feb 2015 #69
Matariki Feb 2015 #93
dilby Feb 2015 #74
Adrahil Feb 2015 #81
dilby Feb 2015 #84
Adrahil Feb 2015 #87
iscooterliberally Feb 2015 #76
raccoon Feb 2015 #100
madville Feb 2015 #89
TheKentuckian Feb 2015 #90
pnwmom Feb 2015 #91
Matariki Feb 2015 #92
lancer78 Feb 2015 #96

Response to xchrom (Original post)

Mon Feb 9, 2015, 09:11 AM

1. to build wealth for the lender from the thousands of almost pure interest payments.

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Response to Sunlei (Reply #1)

Mon Feb 9, 2015, 10:46 AM

9. As to opposed to enriching your landlord?

 

At least when you buy a house, you own an actual asset.

Ownership is generally superior to renting on an appreciating asset, though, it's never risk free, of course. And interest rates are very favorable for ownership right now.

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Response to Adrahil (Reply #9)

Mon Feb 9, 2015, 10:56 AM

13. mortgages are front loaded for interest. the majority of the first many years are interest payments.

You do not own that house until it is paid off. Though the interest is still a decent tax deduction, as are the children.

Of course renting is throwing money away.

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Response to Sunlei (Reply #13)

Mon Feb 9, 2015, 11:06 AM

18. Yes.. I agree.

 

But my point is that unless you have the cash to outright BUY a house, a mortgage loan is still a good way to build wealth, even in a not-so-great market. Especially so right now with the rates so historically low. I bought my current house back in 2004 (yeah, at the top of the market), with an interest rate of 6 1/8 percent, which was decent back then. Even with the market collapse, and the the fact that my house STILL has not recovered to its purchase price value, I managed to build some $65K in equity. When the loan rates dropped so much, I requested a loan modification from my bank, which they granted due to a spotless payment record, and they lowered the rate to 2 7/8 percent and a 15 year term. Now I'm building equity like a mad man! The house will be paid off before I retire too, which is a nice.

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Response to Adrahil (Reply #18)

Mon Feb 9, 2015, 11:16 AM

22. very similar to what I did. pay very heavy towards the equity.

I just paid off my home this Dec. 2014, (about 15 years early)

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Response to Adrahil (Reply #18)

Mon Feb 9, 2015, 12:15 PM

32. Yeah, we did that too, and now own the house outright in retirement. It

won't work for people in iffy jobs who may have to move out of the area, or people who use their house equity as a cash dispenser for junk they want to buy (we know LOTS of ppl like this), but if you manage it right, it's worth it.

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Response to Nay (Reply #32)

Mon Feb 9, 2015, 05:07 PM

85. Exactly.

 

Since a mortgage is a long term commitment, you do have to consider employment stability before taking on such a commitment. Likewise, you shouldn't use equity as an ATM except in emergencies.

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Response to Sunlei (Reply #13)

Mon Feb 9, 2015, 03:19 PM

63. Renting is not throwing money away

It's paying for a roof over your head with no worries. Problems? Call the landlord. Need to move in a year? Fine. Don't want to mow the lawn? Live in an apartment complex where you don't have to.

IMO a payment that is 90% interest is throwing money away.

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Response to Sunlei (Reply #1)

Mon Feb 9, 2015, 01:01 PM

41. There is a way to really cut the interest you pay, on a conventional loan.

I got a no escrow, no "pre-payment penalty" 30 year loan, in 2005.
And I put 25% down so I could have that bargaining chip.
No escrow means I pay my own house insurance and taxes.

For the first 5 years I paid extra towards the principal every month, ranging from at least 50.00 to 100.00, depending.
This reduced the the total principal to the equivalent of 5 years off the life, and interest, of the loan...I now have a loan that is considered to have only 15 years to go,
as far as the loan servicer is considered.
Plus our payments are about half of what equivalent rent would be for this house.

Anyone who wants to find out what extra payments, even of only 50.00 a month, would do to various home loans can find "mortgage calculators"
online and plug in various scenarios.
The results can be quite surprising.

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Response to dixiegrrrrl (Reply #41)

Mon Feb 9, 2015, 01:55 PM

54. did that but put no money down at all. Lenders handed out mortgages like candy & I took advantage!

"pre-payment penalty" << these days people need to be careful about this, have a good lawyer check your mortgage agreement and make sure there is no penalty.

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Response to Sunlei (Reply #1)

Mon Feb 9, 2015, 01:44 PM

52. Save, put down a big down payment, and pay on the principal every month.

You can always pay down that principal. It's not easy to do, but you will own your own home quicker and pay less if you engage in some serious sacrifice in those early years.

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Response to Sunlei (Reply #1)

Mon Feb 9, 2015, 02:09 PM

58. If you get a 30 year mortgage

 

My parents have a 12 year mortgage and about 75% of their payment goes to principle.

Yes a 30 year no money down mortgage will have a higher interest rate and be paying primarily interest for the first few years, but nobody should get that type of loan under normal circumstances.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 09:14 AM

2. My adorable mom told me the secret was "Buy low, sell high."

She truly did. What she did not tell me was how I could manage to buy low, yet sell high.

However, buying into the market for the first time in 2009-10, maybe even into 2011 was probably not a bad move in most US housing markets.

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Response to merrily (Reply #2)

Mon Feb 9, 2015, 11:11 AM

20. We got very lucky...sort of...

we bought when this area was in transition. Many people were fearful but we saw the potential in the location. Just two years later we could not have afforded to buy our house!

But the area is in transition again with people tearing down old houses and building McMansions. It will be a good investment for us in the long run but I'd rather have the old neighborhood back.

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Response to Phentex (Reply #20)

Mon Feb 9, 2015, 11:18 AM

23. I'm glad you got a good deal. The neighborhood would have changed either way, so it's good

you might at least be able to make a dollar from the "yuppification."

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Response to xchrom (Original post)

Mon Feb 9, 2015, 09:17 AM

3. lol

"through a no-money-down, interest-only loan"

In other words ... renting. You will never pay off the principal of a loan with an "interest only loan". Taking a gamble like this is a sign that you are hoping the market will continue an upward trend and you can sell in 5 years or pull out equity because of gain in value.

"It prevented them from pulling any equity out of the house"

They expected equity without any investment, the true cause of the housing bubble. They had no intention of making this their permanent home.

But hey ... a 490K "starter home".

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Response to Lurker Deluxe (Reply #3)

Mon Feb 9, 2015, 10:49 AM

10. "Interest only" loans do have a purpose....

 

... they are useful for in a rapidly appreciating market. They are, of course, also incredibly vulnerable to bubbles (which they also fuel), and should NEVER be used if the buyer can't ride out a market slump.

The REALLY dangerous loans are the short term balloon loans.... I personally think those are INSANE.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 09:21 AM

4. It prevented them from pulling any equity out of the house?

If they had an interest-only loan with no money down... and the home value dropped by $150k...

... then they didn't have any equity to pull out, because they never put any in.

As for the question - Home ownership was never "the best way to build wealth"... but it can be one way to do so under the same principles that have always applied. A home you intend to live in for at least several years (the longer the better) and that you can afford (which is not the same thing as what you can qualify for).

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Response to FBaggins (Reply #4)

Mon Feb 9, 2015, 11:26 AM

24. They would have had no equity with that price drop even if they had put 20% down.

IOW the reason that there was no equity to pull out was unrelated to the equity they put in. They bought near the top of bubble.

Had they sold the house one year after purchase (before the crash) they would have had about 50K in equity because that's how fast real estate was appreciating in greater L.A. Then the crash happened. By three years after their purchase they were underwater.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 09:24 AM

5. Yeah....I don't think 10% is enough down for most people....

 

Then there's this...

"In 2005, the couple bought a starter home for $490,000 just outside of Los Angeles through a no-money-down, interest-only loan."

Really? A $490k "starter home"...I wonder if they realize how fucking stupid that sounds...love to know their combined income and debt to income ratio at the time..

No money down equals no equity for years and no skin in the game.....interest only is complete insanity....

This is exactly what caused the real estate crash....exactly... (plus the loosening of bank solvency requirements, but that is another thread).

Jesus...it's maddening how fucking stupid this shit is....

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Response to pipoman (Reply #5)

Mon Feb 9, 2015, 10:51 AM

11. The actual value of the "start home" is irrerlevant...

 

... since it depends on where you live. Where I live, that kind of money get's you a 4,000 sq ft house on a nice lot. But in parts of the Eastern suburbs? Chump change.

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Response to Adrahil (Reply #11)

Mon Feb 9, 2015, 12:37 PM

34. I've been in LA, It doesn't cost $500k to live within 30 miles

 

Of any major city in the US. This is the actual "privilege" that exists...I know people who will swear they need to buy new cars, a bedroom for each of their sub 5 year old kids, eat out 3 times a week and splurge on Saturday for some place nice, move into a turnkey home, it is lunacy that banking regs used to keep from happening.

I had a real estate license in 1985 and sold homes for several years. To qualify for a first time mortgage one had to have 20% down, the 20% had to be earned income or in your bank account for at least a year. Your total indebtedness couldn't exceed 35% including the mortgage.Minimum 2 years job time. People had to save and pay down their debt. Their debt/income may support a $1000 payment which a allow $100k mortgage, but if they couldn't come up with $20 plus 10k closing costs (which could be borrowed but not through collateralization of the real estate) you would buy a $50k home. ..paint the bedrooms, put on a new faucet and toilet, refinish the kitchen cabinets, tidy up the lawn, plant some trees, clean out the gutters, get the ac charged, paint the trim, recalk the windows, and sell it in 5 years for $85k leaving you with $45k equity to buy the $100k fixer upper (2nd home) for another 5 years and scoop the equity allowing for the dream house. It took work. It is what kept the housing market safe for everyone's investment.

Before the bust we had first timers 2 months out of RN school buying 'the home we've always dreamed of' consuming 50% of their income for the interest only for 5 years, 40 year mortgage putting no money down and financing 120% of the purchase price so they can swing by IKEA and furnish the entire new house. Then they pulled up in their driveway in their 2 year leased BMW. ...oh they were so proud. ...now they are the Cabreas'...

both parties shared this one...the other piece is the repubs reducing bank solvency requirements exacerbating the problem.

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Response to pipoman (Reply #34)

Mon Feb 9, 2015, 01:14 PM

46. I don't disagree that some feel that way...

 

Seriously... I've been places where $490K doesn't buy freakin' much. Palo Alto, for example. Take a look at this:

http://www.realtor.com/realestateandhomes-detail/123-Wisteria-Dr_East-Palo-Alto_CA_94303_M28497-24104?row=2

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Response to Adrahil (Reply #46)

Mon Feb 9, 2015, 01:22 PM

48. I've spent a lot of time in N. San Diego County, my son lived there 5 years

 

A lot of the people in Carlsbad and Oceanside are first time buyers trying to build equity so they can move either North or south. The train stations are full there on weekday mornings.

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Response to pipoman (Reply #48)

Mon Feb 9, 2015, 03:52 PM

70. California is tough.

 

I have a colleague who had to commute 2 hours each way for a while. She lived in the desert. Her job was in El Segundo.

I had an awful commute years ago, but now I telecommute and I can live pretty much wherever we need to for my wife's work.

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Response to pipoman (Reply #34)

Mon Feb 9, 2015, 05:00 PM

82. Maybe if you mean "city" as the greater LA area.

Or if you mean 30 miles as the crow flies instead of driving.

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Response to pipoman (Reply #5)

Mon Feb 9, 2015, 11:05 AM

16. Perfect call. n/t

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Response to FSogol (Reply #16)

Mon Feb 9, 2015, 12:51 PM

39. It was a little crude..see 34 above. .nt

 

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Response to xchrom (Original post)

Mon Feb 9, 2015, 09:36 AM

6. Shelter is another thing that is a basic human right and should not be

profited from by lending vultures.

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Response to libtodeath (Reply #6)

Mon Feb 9, 2015, 10:30 AM

8. Maybe

 

But nobody can expect good luck on a no money down, interest only payments on a 490 thousand dollar starter home. Yes I know it is California, but still the mortgage they signed up for is not the way to ensure basic housing.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 10:07 AM

7. They fail to mention the money pit that a house is

I'll never buy a house (don't want to, even if I won the Powerball tomorrow) because I don't want the responsibility.

My parents spend 5 figures a year on home improvements. I can think of better ways to spend that $$ (or save it).

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Response to tabbycat31 (Reply #7)

Mon Feb 9, 2015, 10:55 AM

12. Speaking as both a homeowner and a landlord

Who do you think is paying for that expenditure in rental housing, and the landlord's profit as well?

As in most states, non-homesteaded houses where I am pay higher property taxes too. That cost is also passed on to renters. While I personally own too few and charge too little to be rich out of rental property investments, they are investments and I do make a profit. It's only invisible to renters because it's not discretely identified as portion X of the rent.

I rent out quite reasonable small 2/1 houses in a very low cost area. A 100% mortgage for one would cost about $270 PITI at today's prevailing fixed rate. Rents are at $500, and I have them snapped up within hours when one tenant leaves. Sure it costs me money to keep them up, but not that much. Trust me you as a renter ARE spending that $$$.

I've met a few landlords. Most are more grasping than I am, but even at the most benign end, I've not met one who willingly loses money except perhaps to family, so renters ultimately cover all costs and profit too.

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Response to whatthehey (Reply #12)

Mon Feb 9, 2015, 11:05 AM

17. It's peace of mind to me

Yes I'm paying more in the long run, but it means more flexibility (as my job requires me to move a lot) and not to worry about having to sell, etc.

There's a price that I'm willing to pay for my sanity.

I also come from a generation that's not buying homes at the rate that their elders do.

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Response to tabbycat31 (Reply #17)

Mon Feb 9, 2015, 11:59 AM

28. Consider a nice travel trailer and 'live' where ever you choose to park.

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Response to Sunlei (Reply #28)

Mon Feb 9, 2015, 12:38 PM

35. Do you have experience with that?

I've rented, but I've also owned for the past 23 years. My home is paid for, but I do get sick of the maintenance/upkeep. Sometimes I fantasize about selling EVERYTHING, buying a fancy RV, and just hitting the road. Maybe in retirement. Drive till I can't drive anymore, then stick me in a home.

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Response to WorseBeforeBetter (Reply #35)

Mon Feb 9, 2015, 01:03 PM

42. I wouldn't sell a home that is paid for. Rent it for retirement or general income.

The USA is moving towards a society where the majority will not be able to afford a home. There is a growing landlords market in the USA. You could hire a real estate service to care for the home & lease it for you. Could lease it furnished if you wish.

I'm still working long hours and saving. There isn't much time to travel, yet Our state parks are full of people who live in their trailers full time.

Now that my house is paid for, it is time to buy the trailer. Park it here, maybe use it for some close trips or even rent the trailer. To rent it would help cover the costs of maintenance and insurance.



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Response to Sunlei (Reply #42)

Mon Feb 9, 2015, 01:30 PM

49. My mothers' next-door-neighbors sold their home...

bought a massive RV, and hit the road. But they're in their mid-60s; I still have another decade or so before retirement. I've seen a lot of the United States, but cross-country isn't something I've done -- YET. I imagine I'll hold on to my home, bring in a tenant or two, then travel.

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Response to tabbycat31 (Reply #17)

Mon Feb 9, 2015, 01:10 PM

44. The money your parents spend on their home falls into 2 categories

 

Investment and pleasure. If the improvement were unneeded it would be money lost. If it is needed it will either support the original value or add equity. Traditionally, as a long term investment, up kept real estate would appreciate at least in line with inflation. As a short term investment with improvement the equity can be increased dramatically.

I believe mortgage regs should be more like above #34

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Response to tabbycat31 (Reply #7)

Mon Feb 9, 2015, 11:14 AM

21. I agree

The cost of the house is also all the time is takes to maintain it and all the money it takes. Some people love to do that work. I'd rather rent and have someone else clean the pool, weight room, and when things break the landlord fixes it. I don't have to worry about it. Of course you lose ownership of the apartment by renting , but then I don't own all the worries of the apartment.

Real estate is a great investment if you make enough to buy a second home. I never see your first home is an investment because if you sell it... you got to live somewhere. Once you buy rental property then you are investing...

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Response to Johonny (Reply #21)

Mon Feb 9, 2015, 02:08 PM

57. Maybe a condo?

That is the route I took.

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Response to Johonny (Reply #21)

Mon Feb 9, 2015, 05:20 PM

88. So far, I've made $20k in the last two years on my house.

We bought a house near the bottom of the market. It's in a cookie-cutter tract, and the same model houses are now selling for $20k more.

So for "you gotta live somewhere", we could now afford somewhere that costs $20k more, or buy somewhere the same price and pocket that $20k. Or refinance in order to get that $20k out. We're planning to stay for quite a while though.

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Response to jeff47 (Reply #88)

Mon Feb 9, 2015, 07:33 PM

97. You could sell that house and make 20K

but as you said the market is up. Meaning everything you could buy is also up. Unless you down grade or move to a condo you are essentially talking about money you are leaving after you go away. This is the problem many people I know are facing. They have indeed made paper money of 100,000s $. But if they sell there house where do they live? Every equivalent house in the area is roughly the same. Sure some people plan to retire to a "cheap" place to live out of state and some will leave the money to their kids, but essentially it is the main problem with think the house your living in is an investment. If yous ell that investment... where do you live?

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Response to Johonny (Reply #97)

Mon Feb 9, 2015, 07:50 PM

98. Markets don't go up evenly.

That more expensive house may not have gone up by the same percentage. We also have options to not live in exactly the same neighborhood, which opens up other possibilities.

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Response to tabbycat31 (Reply #7)

Mon Feb 9, 2015, 11:54 AM

27. Yes, I prefer not to have to deal with that stuff.

And I get to move a lot, if I choose, by renting.

If I am tired of where I am, or my landlord raises the rent too high, I can be gone.

They usually like me, though, I pay my rent on time and don't cause any problems, so when I have an issue, it is usually addressed. Where I live now, they are good about fixing things, if I remember to tell them.

I hate yardwork, too, so it's better all around.

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Response to tabbycat31 (Reply #7)

Mon Feb 9, 2015, 01:16 PM

47. Five Figures a YEAR?

 

Holy Crap. I think my total over 10 years has been less than that.

But how much do you spend on rent each year? What do you have to show for it?

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Response to Adrahil (Reply #47)

Mon Feb 9, 2015, 03:36 PM

64. I don't care that I have nothing to show for rent

And their 5 figures come from an addiction to HGTV and home design magazines that tell you that your home is outdated and not good enough. 90% of their improvements are vanity, and there's never a weekend where they're not working on something.

I can't remember a weekend as a kid where we weren't working on some sort of home improvement project. I hated it then and I felt I missed out on a lot because of it. I'll happily pay extra to never deal with it again. I honestly don't care what the walls and flooring are in a bathroom, I just want to be able to shit and shower in there without problems.

HOmeownership is not for everyone and I wish the powers that be and society would stop treating renters as if they're less of a person or second class. I've lived in 6 states in the last 5 years and owning a home with that kind of work relocation is not practical at all.

And I'm nowhere near retirement (if that will exist for my generation because we probably won't have SS or Medicare--- my 'plan' is a wooden box and a shovel). I'm of the generation that is not buying homes at the equivalent stage of life that their parents did.

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Response to tabbycat31 (Reply #64)

Mon Feb 9, 2015, 03:42 PM

65. Hey, it's your money... flush it down the crapper if you wanna....

 

no skin off my nose.

I'm with you on home improvement "projects." I do home repair/upkeep only when I have to. And then, unless it's seriously a low effort task, I'll hire someone to do it.... as with you, I'd rather pay extra than deal with it.

If you move a lot, home ownership is not a great idea, I'll grant you that. But rent is the equivalent of throwing cash in the trash IMO, unless you have no other viable option. Someone is making money off the deal and someone owns the property, and neither of them are you.

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Response to Adrahil (Reply #65)

Mon Feb 9, 2015, 03:53 PM

71. Thanks for proving my example

That renters are second class citizens who are lesser people. Paying for a roof over your head is not throwing money away. In return, you get a place to live.

Renting allows flexibility and for me to not find someone (and pay them) to deal with a problem. I'll never mow another lawn again and I'm fine with that (I think they're a waste anyways). It comes with less up front costs (a security deposit is a hell of a lot cheaper than closing costs, home inspections, commission, lawyers, etc and you have a chance of getting the former back). Some apartment complexes have things like gyms, pools, etc (that you would have to pay hefty fees for in a condo community) but are instead included in rent.

I've done more home improvement projects than most people do in a lifetime. The thought of them makes me vomit.

My sister has lived in the same apartment for 5 years. She doesn't own either because she's the same way as me. My parents might have tried to raise us to be homeowners but they did the opposite.

The Atlantic also has articles about the millennial generation and home ownership. I suggest you read them. There's been a real attitude shift among generations about them. Perhaps then you'll see my perspective. (I'm guessing you're a boomer).

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Response to tabbycat31 (Reply #71)

Mon Feb 9, 2015, 03:59 PM

72. Who said you are second class citizens?

 

I said it's not a wise financial move, not that you're a second class citizen. It's not like I think it NEVER makes sense to rent. I rented for 8 years out of college while I settled into a career, a relationship, and saved for a down payment.

No, I'm not a boomer, I'm a Gen-Xer. But I can do math, and IMO, renting is a waste of money, if you can avoid it. In all this, you're creating profit, and building wealth, for someone else. I'd rather build wealth for myself and my family. The way I see it, you have to live somewhere, and you have to pay for it. You might as well actually be buying something.

You can do that, of course. We all make judgments about what we value. I just think the one you're making is REALLY expensive int he long run.

Like I said... I'm lazy. I pay someone to mow my lawn, paint the house, etc. I'm not rich, but I do value my time more than my money when it comes to those sorts of tasks.



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Response to Adrahil (Reply #72)

Mon Feb 9, 2015, 04:06 PM

75. We'll agree to disagree.

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Response to tabbycat31 (Reply #75)

Mon Feb 9, 2015, 04:50 PM

79. Cheers!

 

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Response to tabbycat31 (Reply #71)

Mon Feb 9, 2015, 06:45 PM

94. Renting is great

It allows flexibility. Don't let the old timers get you down. Home ownership isn't for everyone and I think it's becoming less of an ideal now. I've never wanted to be stuck with a house myself.

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Response to tabbycat31 (Reply #7)

Mon Feb 9, 2015, 02:47 PM

60. Thank you. "They fail to mention the money pit that a house is"


You can't compare rent dollars and mortgage dollars; that's comparing apples and oranges.

I've been a homeowner and a renter and right now I'm renting which works for me. I don't have to see to the
maintenance of things. I don't have those headaches.

Maybe I'll become a homeowner again, but not now.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 10:58 AM

14. It was in the 40s through the 80s

When they started those mortgage buyings and sellings, they put it in the realm of risky.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 11:02 AM

15. I think it really depends on how you buy the house

Buying a 500k house on a no money down interest-only loan doesn't build wealth - its practically faith-based investing. It builds nothing if the value of the house doesn't go up, and even if the value does go up the investor has nothing unless he sells, other than a perpetual 500k liability.

I bought my house for 75k a few years ago. Its worth about 130k now, and I have just a few years left paying off the reasonable mortgage. That works well where I live, though I have no idea how people afford housing in some areas.

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Response to bhikkhu (Reply #15)

Mon Feb 9, 2015, 11:07 AM

19. Agreed

An interest only with no money down, they weren't out equity they never had any.

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Response to bhikkhu (Reply #15)

Mon Feb 9, 2015, 11:53 AM

26. The strategic reason to buy property with interest-only loans is that you don't tie up your cash

That cash is available for other investing, for renovating to add value to the real estate, etc.

It's not true that "even if the value does go up the investor has nothing unless he sells." Equity is value that can be leveraged for a HELOC. Equity also may allow the owner to qualify for a less expensive mortgage like a traditional 20% down, 30 year PITI through refi.

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Response to Gormy Cuss (Reply #26)

Mon Feb 9, 2015, 01:07 PM

43. I suppose if you have cash to invest elsewhere, buying or renting is neutral

either way your cash is free to invest. The advantage of renting is mobility, the lack of which trapped a lot of people in the last recession when jobs were elsewhere and the housing market went south.

Maybe I'm old-fashioned in thinking that going 500k into debt just to have a place to live isn't a good choice for most people, especially if the debt is more or less perpetual (interest only). If inflation kicks up, it might wind up being a good choice. If the home value remains stagnant, then you have to earn more on your investment income than you are paying on your loan to get ahead; that's a risky bet either way. I guess I'm risk-averse, and see the least risk in living within my means, however meager that might be. Its hasn't worked out badly for me, though I drive an old car, live in an old house, work hard. Most of my plan is to retire without debt, which should happen. I won't have much of a cash-cushion, but being debt-free should provide options.

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Response to bhikkhu (Reply #43)

Mon Feb 9, 2015, 02:54 PM

61. That's the approach we took -

although I won't claim to have really thought it through deeply. We simply graduated (multiple degrees) with massive debt so we started renting. We don't have the tax benefits of buying, but we don't have the "money pit" or "underwater" issues either. We've been paying off debt, raising our children, and looking forward to being able to send them to college & have a retirement. Now that we have net worth (ie we could actually pay off all the debt with what we've saved - if we were comfortable taking it out of savings) we will likely buy if we come into money through additional promotions or inheritance. I don't know that it would be the right choice for most people but we've been ok with it and we can move at a moment's notice if we do lose employment or want to take a new opportunity.

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Response to bhikkhu (Reply #43)

Mon Feb 9, 2015, 05:05 PM

83. That loan product was designed for people with money to invest elsewhere.

It used to be extremely difficult to qualify for a zero down, interest only loan. The lax lending standards that fueled the housing bubble were disasters waiting to happen.

I'm also debt and risk-averse and took out a very conservative 20% down, fixed-rate mortgage loan when I first bought my house. However my house's value doubled in five years so without spending a cent of my own money I would have had a 50% equity stake at that time. Had I financed it with a zero down, interest-only loan I would had lower payments in those first five years and potentially could have earn more else plus been in a good position to refi. But as I wrote above, I'm risk averse and taking that gamble wasn't even something that I would consider.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 11:46 AM

25. I believe it is a still a pretty good way

But it has gotten riskier in the last few decades. Still though, pretty good.

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Response to rock (Reply #25)

Mon Feb 9, 2015, 12:05 PM

30. I agree!

I found a home near where I was renting that was a HUD foreclosure and bought it for $44,700. In 2-1/2 years I can safely say I have at least $40,000 in equity in it. It was in good shape, I bought used appliances from Craigslist and have done some gardening and painting, but the only major fix was a new tub and surround.

Housing is less expensive in the Midwest but if you know your neighborhood and watch out for deals, you can make money. I financed my house for 10 years so it will be paid off when I turn 65 then I'll decide where I want to retire.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 12:04 PM

29. no it is not. The best way

to build wealth in the US is to be born to rich parents.

Just ask Mitt Romney,
David and Charles Koch,
Donald Trump,
the entire Bush clan,
the Rockefeller clan,
the Pritzkers,
the Hiltons,
the Scaifes,
Chelsea Clinton,
the Gates children,
and on and on and on.

The US is the most unequal country of all the OCDE countries. One of the most persistent fictions is that anyone who works hard can become rich.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 12:07 PM

31. It is still the best way, they are not making any more land. Well they are but not on that large of

 

a scale, well perhaps in some areas they are. However in general they are not.

California is and always has been a hot real estate market with wild swings in prices so it is really an outlier example.

California is not the only one, there are other well known areas were homes are highly desirable too which also have the large price swings.

Avoid homes larger then 3000 sqft and look for acreage for the best value. Larger homes are taking longer to sell now and will in the future too, they built lots of McMansions the last few years, too many.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 12:33 PM

33. Little boxes on the hillside, little boxes made of ticky tacky...

"Starter home" for $490,000. Oy. My parents' starter home back in the '60s was $10,500.

I wonder what their original home is now worth. Bought in 2005 (at peak?) for $490,000, down to $340,000 four years later, but what's it worth 10 years later?

Did their employment situation remain the same? They must make pretty good money... they were able to pay LA rent, raise 3 kids, AND save $53,000 for the down payment on a new house.

Not knowing all the details, but I might have just ridden it out.


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Response to WorseBeforeBetter (Reply #33)

Mon Feb 9, 2015, 02:08 PM

55. like everything else the housing market's been "financialized": suburbs aren't built for housing for

the 90% (well, 60%), for the GI and the blue collars and the immigrants (if they're white enough), they're built as investments for the 10%, for the upper middle class that could remora onto the fact that everything was in Wall Street's hands now: housing and everything else bubbleized

go on Zillow and you can generally easily tell which burb was built before 1980 and after 1990: the ones after are all for sale because they're still 50-33% foreclosed

they even look different--they've gone from "Edward Scissorhands" to "The Sopranos" or these creepy Fauxtalian rabbit hutches with no lawn or even sidewalk; the average walkscore went from 45% to 28% (I make spreadsheets in my spare time: don't you judge me!!!): everything everyone complained about the suburbs 50s and 60s--that they were segregated, car-dependent, identical and full of people with identical lifestyles and class composition--multiplied and hypertrophied beyond recognition

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Response to xchrom (Original post)

Mon Feb 9, 2015, 12:44 PM

36. The point of a house is shelter; a roof over your head.

 

Are you at less risk of losing that shelter if someone else owns it?

I prefer ownership, but I'm glad I don't live in LA.

And yes, in the long run I would expect homes to increase in value at least as fast as inflation.

... but it's kind of academic. People who don't "tap into that home equity" are generally better off, and the benefit of that accrued wealth go to the kids.

Yes, I'd say that homeownership can be investing (in my area house payments are less than rent) but it can also be speculation/gambling.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 12:49 PM

38. Here's a "starter" type home in my town....

I'm over 50 and don't own a house. Never will. Don't really care to. Where would I even get the 20% down for this?

https://www.redfin.com/CA/South-Pasadena/1030-Indiana-Ave-91030/home/7004594

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Response to PasadenaTrudy (Reply #38)

Mon Feb 9, 2015, 01:40 PM

50. Holy shit. And I thought Northern Virginia was bad.

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Response to WorseBeforeBetter (Reply #50)

Mon Feb 9, 2015, 03:43 PM

67. SoCal is prime

Prime for insanity, lol!

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Response to PasadenaTrudy (Reply #67)

Mon Feb 9, 2015, 04:02 PM

73. LOL Well I moved to Raleigh...

an area with pretty sane real estate prices, but it's starting to get crazy. Evidently the population of downtown has doubled since 2010, and many buyers and renters are already priced out.

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Response to WorseBeforeBetter (Reply #73)

Mon Feb 9, 2015, 04:49 PM

78. Wow!

I love NC. My dad was from Asheville.

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Response to PasadenaTrudy (Reply #78)

Mon Feb 9, 2015, 05:09 PM

86. Aaaah, wonderful town. (n/t)

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Response to PasadenaTrudy (Reply #38)

Mon Feb 9, 2015, 07:17 PM

95. A "starter" type home for 3 quarters of a million dollars

and in need of major repairs, at that

That house is about the same age and looks kind of like my childhood home in Arkansas, which we bought for $8000 in the '60s.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 12:53 PM

40. Renting has been great for my brother...

and his wife. They have a 2 bedroom apt. right near the ocean in Laguna Beach, CA. They pay $1950 while homes on their block sell for $7M and up. He's a plumber, she's a high school English teacher. No kids, they are in their late 50s and travel the world in the summer. Great life!

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Response to PasadenaTrudy (Reply #40)

Mon Feb 9, 2015, 01:54 PM

53. Renting is great in cities with rent control, I guess.

But if the building your brother and wife live in decides to "go condo," they'll be offered an opportunity to have first refusal on their apartment, or move.

That's the bad news when it comes to renting. Once the lease is up, you could be out.

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Response to MADem (Reply #53)

Mon Feb 9, 2015, 03:42 PM

66. They've been there

well over ten yrs. If it happens, they will just move. They will be retiring to Mexico or Thailand soon anyways. Best part about this small bldg is no kids! Nice and quiet.

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Response to PasadenaTrudy (Reply #66)

Mon Feb 9, 2015, 03:45 PM

68. If they're at that kind of place in their lives where they can manage to do that without issue, then

they are in a good situation. And "no kids" means fewer strings, too. If they had kids in school, though, that might be tough on the children--sometimes, a move involves a new school, new school district, etc.

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Response to MADem (Reply #68)

Mon Feb 9, 2015, 04:48 PM

77. We are a Childfree family

The world is our oyster, to a point. I didnt have kids either and love the freedom!

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Response to xchrom (Original post)

Mon Feb 9, 2015, 01:11 PM

45. Stocks are the best way to build wealth

 

The headline makes this entire article invalid as it begins with a false premise.

Real estate has never been the way to build wealth. In fact, real estate is a good way to preserve wealth, as its returns on investment typically track inflation. But to build wealth, only equities consistently, over the long term, deliver between 6 to 8 percent returns, after inflation.

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Response to Augustus (Reply #45)

Mon Feb 9, 2015, 02:37 PM

59. It is the only hedge on inflation most people need...

 

A lot of wealth has been earned in equity. The economics of living makes it advisable in most areas and markets to buy. Most places rent exceeds mortgage payments on the same parcel. Not saying renting isn't right for some people.... home ownership has historically been a major step to financial independence.

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Response to Augustus (Reply #45)

Mon Feb 9, 2015, 04:55 PM

80. I agree... a house is not the BEST way to build wealth...

 

Until the housing bubble burst, it was thought to be the safest. And in the long run, probably still an effective one. One advantage real property has is, of course, you can live in it. It goes more complicated when people take out balloon loans on houses they really can't afford, of course....

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Response to Augustus (Reply #45)

Mon Feb 9, 2015, 07:57 PM

99. Yes and no

Many financial planners have correctly stated that most people who say that their home is their largest asset don't have many other assets...

... but remember that even though real estate tends to track inflation (over extended periods), that doesn't mean that the investment returns are merely those of inflation. This is because most real estate investments in a primary residence are heavily leveraged... so a 5% increase in real estate values can outperform a 15% return in stock market investments. Such leverage is almost never appropriate for stock market investments, but can be entirely appropriate when purchasing a home... because the cost of the leverage (the after-tax interest on the mortgage) rarely exceeds the alternative (paying rent).

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Response to xchrom (Original post)

Mon Feb 9, 2015, 01:42 PM

51. There really are so many factors that can weigh heavily for, or against, buying a home

specifically to build wealth. Lots have been discussed on this thread. Interesting discussion.



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Response to xchrom (Original post)


Response to xchrom (Original post)

Mon Feb 9, 2015, 02:59 PM

62. It never was the best way to build wealth NT

 

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Response to xchrom (Original post)

Mon Feb 9, 2015, 03:47 PM

69. starter home = $490K, wow.....

I'd buy a decent home, then put the remainder of my assets into something fairly conservative.

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Response to steve2470 (Reply #69)

Mon Feb 9, 2015, 06:20 PM

93. It was in Los Angeles - that probably was about as cheap as you'd find

during the ramp up of the housing bubble anyway.

What I paid for my 1950's 960 sf rambler in Seattle could have bought me a shiny new McMansion in the midwest.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 04:05 PM

74. A home is not an investment, it's a constant cost.

Once you throw in taxes and maintenance you will be lucky if you make money on it.

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Response to dilby (Reply #74)

Mon Feb 9, 2015, 04:56 PM

81. If you're renting, you can;t even break even, of course.

 

People make money as landlords for a reason...

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Response to Adrahil (Reply #81)

Mon Feb 9, 2015, 05:06 PM

84. That is very true, but you are not responsible for maintenance.

When I owned a home it was just repair after repair which sucked. I was lucky to go 3 months without having something to fix plus the lawn was always a money sink. We were in an area that had this hard clay for soil so grass would never take would spend tons of money on sod every year. When my ex and I divorced, I gladly gave her the house, I said it was so she would not have to find a place to live and the kids would not have to leave their home, but really I just wanted out from that pain in my ass. Of course now that she has it, it's immaculate but that is because she hires someone to do everything when it was expected for me to do it in the past.

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Response to dilby (Reply #84)

Mon Feb 9, 2015, 05:09 PM

87. Well, you still PAY for maintenance, make no mistake.

 

And yeah, I only do the most modest house upkeep. I hate it, so I hire someone if it takes more than an hour.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 04:34 PM

76. I got screwed. It was the worst financial decision I ever made.

I really didn't want a house, but my family pressured me into buying. I saved up the money and bought a 3/2 townhouse. I had it inspected and it passed. It turns out that the place was built with bad plumbing. The incoming plumbing was something called 'Dupont Gray Pipe', but I didn't know about it until it was too late. I put a new roof on the place, and bought all new appliances. I painted the outside, and had the kitchen re-done too. I had to do the kitchen because I got hit with hurricane Wilma and there was damage from the storm. I lived there for 8 years before I had to move out due to toxic mold. That new kitchen only lasted 4 years before I had to throw all the cabinets in the dumpster. It turns out that the plumbing had all these tiny pinhole leaks and the drywall and kitchen cabinets absorbed the moisture and started growing mold behind the walls. Once I realized what was happening I filed an insurance claim, but was repeatedly denied by Citizens (the insurer of last resort in Florida). I hired a public adjuster, but it did no good. I hired a lawyer to see if I could sue. I had already spent all the money I could fixing the place up and had nothing left. I really wanted a single family home, but I realized that I couldn't afford the payments, so I bought something that I thought I could afford. I fucking hated being a homeowner. Now that I'm in my early 50s I just can't see trying again. Paying rent is not throwing your money away. You have to live somewhere. I would prefer to call a landlord when things go wrong. I burned through so much cash buying that POS. Now if you have a home with gray pipe in it in Florida, you can't sell until you get it replaced. There was a class action lawsuit over this, but you had to sign up by 2009 if you were a victim. I didn't have any problems or awareness of the situation until the early part of 2011. I had to walk away and file chapter 7 to protect myself. The mortgage company wanted me to do something called 'deed in lieu'. I told them that if I could do that I would still be living there, or rent it out. You can't live in a home that has perpetual toxic mold. I also found out that the entire building was infested with termites. In south Florida we would have to tent the entire building. With 5 separate owners there was fat chance of that ever happening. I should have been more responsible with my money and just bet it all on 13 black at the casino. Win or lose, the outcome would have been far better than homeownership.

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Response to iscooterliberally (Reply #76)

Tue Feb 10, 2015, 08:14 AM

100. Thank you for sharing your experience. This is a keeper:

Paying rent is not throwing your money away. You have to live somewhere. I would prefer to call a landlord when things go wrong.


ITA!

One thing this thread illustrates is that home ownership is not for everybody. Same as marriage is not for everybody.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 05:21 PM

89. Too many factors and variables

And then there is always risk involved like the property values declining due to rising crime or crumbling infrastructure, those can be hard to predict several decades in advance.

Location is a primary factor, of course some will appreciate in value and some will depreciate.



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Response to xchrom (Original post)

Mon Feb 9, 2015, 05:30 PM

90. Probably is at least an effective defense against poverty in old age...If you can pay it off

by or at least soon after retirement.

In most (every, right?) areas taxes are a much smaller hit than rent or mortgages and if you avoid long term care you can pay a little forward to future generations or provide them with a home.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 05:30 PM

91. It all depends on the circumstances. We encouraged our daughter and son-in-law to buy

and they've been happy they did it. They know where their daughter will go to school and don't have to worry about not getting a rental lease renewed. They both work but are very frugal and have savings in case they hit a rough spot.

In our case, we had a fixed mortgage and saw that payment become a smaller and smaller part of our income over the years. That wouldn't have been the case if we were paying rent. And an elderly relative has been able to use a reverse mortgage to get through her final years.

Many people got burned several years ago because they took balloon mortgages or other risky loans. But if you make a good downpayment on a fixed-rate loan, a house in a solid neighborhood can be a very good investment.

One thing I don't understand in the article -- it says that they bought the house with no money down. Then, after the crash, it was worth $150K less so they couldn't pull out any equity. But they didn't have any equity in the first place! They just had a very risky loan.

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Response to xchrom (Original post)

Mon Feb 9, 2015, 06:08 PM

92. How is home owership supposed to make up for "dwindling pensions and stagnant wages"

That assumes you have to sell your home at retirement. That sounds like fun <sarcasm>

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Response to xchrom (Original post)

Mon Feb 9, 2015, 07:23 PM

96. I bought a

 

3 bedroom 2 bath mobile home in 2005 brand new for 18,000. Bought 5 acres as well and my payment is only $195 a month. I could work at Micky D's and still be able to afford my house.

Houses are overpriced behemoths that barely appreciate faster then the rate of inflation.

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