To Preserve Credit Score, Don't Leave Credit Cards Unused

[Jordan]

Rent prices are always higher than the price to buy with a mortgage (assuming creditworthiness being equal) for several reasons.

The landlord has to price in the

1. Cost of an unoccupied home
2. Repairs that are not part of wear and tear, but a bad tenant
3. The cost of time to manage a home
4. Profit

Also, the landlord, since the investment property is a second home, cannot write off interest expenses. I think?

So, unless the WaltM is living in his mother's basement, or in the forest, he's going to be paying more than what Yates would be for a similar home with a mortgage.

If both had the same income, the same spending habits, and the only difference was an owned or rented property, Yates would own a home outright in 30 years for less than what WaltM had rented it for.

Plus, Yates would be able to write off the interest expense at his own tax rate. So, if he paid $300k in interest as mentioned above, he'd actually only pay about 216k thanks to the tax credit.

At the end of 30 years, WaltM would have slightly less savings than Yates, and Yates would own a home outright.

[MelissaWV]

Rent prices are always higher than the price to buy with a mortgage (assuming creditworthiness being equal) for several reasons.

The landlord has to price in the

1. Cost of an unoccupied home
2. Repairs that are not part of wear and tear, but a bad tenant
3. The cost of time to manage a home
4. Profit

Also, the landlord, since the investment property is a second home, cannot write off interest expenses. I think?

So, unless the WaltM is living in his mother's basement, or in the forest, he's going to be paying more than what Yates would be for a similar home with a mortgage.

If both had the same income, the same spending habits, and the only difference was an owned or rented property, Yates would own a home outright in 30 years for less than what WaltM had rented it for.

Plus, Yates would be able to write off the interest expense at his own tax rate. So, if he paid $300k in interest as mentioned above, he'd actually only pay about 216k thanks to the tax credit.

At the end of 30 years, WaltM would have slightly less savings than Yates, and Yates would own a home outright.

At the end of 30 years, Yates would be living in the same home he's been living in for 30 years, and hoping that it's in great shape, a still-good neighborhood, and he'd still be dealing with all the wonderful upkeep of that same old house. I'll have plenty in savings, be able to rent precisely where I want and what I want (do I want to live right in the middle of the city, so I don't have to bother having a car? I can do that!), and not have to worry about selling a house every time I tire of a neighborhood/city/state/country. There are multiple sides to every story

[Jordan]

At the end of 30 years, Yates would be living in the same home he's been living in for 30 years, and hoping that it's in great shape, a still-good neighborhood, and he'd still be dealing with all the wonderful upkeep of that same old house. I'll have plenty in savings, be able to rent precisely where I want and what I want (do I want to live right in the middle of the city, so I don't have to bother having a car? I can do that!), and not have to worry about selling a house every time I tire of a neighborhood/city/state/country. There are multiple sides to every story

At the end of 30 years, Yates will have more money than you, zero mortgage payment, and be able to make the same choices to rent elsewhere if he'd like. And own a home too!

[MelissaWV]

At the end of 30 years, Yates will have more money than you, zero mortgage payment, and be able to make the same choices to rent elsewhere if he'd like. And own a home too!

You're assuming he'll have more money than I. You're assuming he'd be able to sell his home, too. You're assuming he has no obligations associated with the home. You're assuming that he then, in his old age, wouldn't have to pay to maintain that house AND then rent somewhere else. You're assuming I would not invest the difference and be able to do something worthwhile with it. You're assuming we live the same lifestyle. You're assuming that there is a possible monetary value to place on not being tied down for thirty years to a single home. You're assuming that the property value has not gone through the floor (some undesirable project has been constructed nearby, crime has skyrocketed, etc.). You're assuming that the person in question doesn't end up having to get a bigger home for some reason, leaving them in a situation where they need to ditch their thirty-year plan and move into another home, which can complicate matters financially.

Oddly, I heard this argument from so many people a decade ago, when all my friends were financing their "first place" and getting their two-car and white fence. They're not doing so well right now. They're not even remotely happy.

The notion that you can "work the numbers" and decide who's going to have more money on down the line is silly. Home ownership is not everyone's dream, and it is not the most financially-sound decision for some people in some markets. The sooner people realize this, the more likely they'll be to objectively examine their own situation and make a real decision based on their personal context. It's a bit like having both parents work, or getting a college degree, or any number of other decisions along those lines. People who want to apply a one-size-fits-all approach to these sorts of things don't seem to end up happy much of the time.

Home ownership isn't for me. Debt isn't for me. Mowing my own lawn isn't even for me There are hidden savings in not having my own home, and I'm perfectly happy with where that sets me in the grand scheme of things. I have a nice assortment of places to choose from to move into this winter. Next year, I might decide on an entirely different kind of place. A few years from now, I might swap countries again. Who knows I'm perfectly willing to pay the same exact amount most of my friends are paying for their mortgage (or less, in many cases) to get 24-hour maintenance, new appliance allowances every few years, landscaping, gym, pool, convenience store/coffee shop, mass transit access, dry cleaners, and all the other typical stuff I get with an apartment.

I suppose I could buy all those appliances, keep them in tip-top shape, get a gym membership, put in a pool, get a car so I can go around and run errands (not too many houses are built right at TTC/metro stops), pay car insurance, keep up the car, pay property taxes, mow the lawn or have someone do it for me, and deal with the quirky little issues like putting in a new roof every so often, or repaving a driveway, or shoveling snow, or whatever else. Heaven forbid one has termites or a sinkhole. At least that's what the homeowner's insurance is for, though. In the meantime, I could be in debt up to my eyeballs and the bank would really own the house, but you say I'll have more money when it's all done, AND a 30-year-old house! Again, it's just not for me Maybe I'll buy a place to fix it up sometime if I get bored and I marry someone particularly handy, too, but I see the advantages touted as part wishful thinking, part someone else's financial/social situation.

[WaltM]

At the end of 30 years, Yates would be living in the same home he's been living in for 30 years, and hoping that it's in great shape, a still-good neighborhood, and he'd still be dealing with all the wonderful upkeep of that same old house.

Or he can move and sell it every 10 years, just hope he doesn't get caught between 2 mortgages.

I'll have plenty in savings, be able to rent precisely where I want and what I want (do I want to live right in the middle of the city, so I don't have to bother having a car? I can do that!), and not have to worry about selling a house every time I tire of a neighborhood/city/state/country. There are multiple sides to every story

so basically, you're a person who doesn't like staying in the same place too long, in that case, you're probably saving paperwork between selling, buying, and worrying about renting out your empty house.

[WaltM]

At the end of 30 years, Yates will have more money than you, zero mortgage payment, and be able to make the same choices to rent elsewhere if he'd like. And own a home too!

what if his house depreciates? he can sell it for only a fraction of the price he paid.

[WaltM]

Rent prices are always higher than the price to buy with a mortgage (assuming creditworthiness being equal) for several reasons.

The landlord has to price in the

1. Cost of an unoccupied home
2. Repairs that are not part of wear and tear, but a bad tenant
3. The cost of time to manage a home
4. Profit

Yes and no.

Being a child of a homeowner who rents to other people, it's not that simple either.

You also have to factor in the market price. If the market says you can't ask for more than $500, you just can't. Nobody cares what your costs and expenses are, just like a landlord doesn't care whether you lost your job.

You're absolutely right, that owning a home you don't live in has costs, which means over time, some people would be so sick of it they'll sell, causing houses to depreciate. I'm NOT against owning a home, I'm against owning a home without considering the long term costs such as interest, savings.

Also, the landlord, since the investment property is a second home, cannot write off interest expenses. I think?

I think you're right. WHich means you're admitting most people don't need or want more than one home. Depending on the area you live in, this could translate into an abundance of cheap houses, some are literally foreclosure ghosttowns.

So, unless the WaltM is living in his mother's basement, or in the forest, he's going to be paying more than what Yates would be for a similar home with a mortgage.

You're right, I'm not living in a similar home as Yates.
You don't need to live in a forest, there are suburbs, trailer parks, ghettos, lofts...etc.

If both had the same income, the same spending habits, and the only difference was an owned or rented property, Yates would own a home outright in 30 years for less than what WaltM had rented it for.

Yes, IF we had the same spending habits. Which I highly doubt.

I could own a home outright in 15 years too, depending on what price I pay, what I save...etc.

Plus, Yates would be able to write off the interest expense at his own tax rate. So, if he paid $300k in interest as mentioned above, he'd actually only pay about 216k thanks to the tax credit.

Again, you think he saved 84K over 30 years.
I see him spend $216K over 30 years.
If I had $200K over 30 years, wouldn't I just save it to buy a house for less than that?

At the end of 30 years, WaltM would have slightly less savings than Yates, and Yates would own a home outright.

I don't think I'll have less savings than him, or else I'd be stupid not to buy a house NOW. I WOULD be buying a house, even on 100% debt and 10% interest if I was really paying something comparable for the same house.

[WaltM]

For some reason you seem to be totally overlooking the fact that while you are saving up money to buy a house you are also spending money on rent.

Yes, it's my stupid and naive assumption that you're not paying an extra $500-1000 a month on your mortgage compared to my rent.

If you aren't, I'd jump in with you!

Extending credit doesn't depreciate a currency. Credit is a cornerstone of a healthy economy. I'm done arguing in here though...I feel like I'm talking to a brick wall.

So by healthy economy you mean debt, borrowing money you don't have, and screwing hard working people who save.

[WaltM]

That makes no sense.

He paid 4% in interest, compared to paying no interest had he had no mortgage.

We can think mathematically, so why don't we.

Why let one come in, one go out, just to earn less than 1%? Uh, I don't know. Ask the thousands of banks that borrow at one rate, lend at a slightly higher rate, and make billions each year. OPM baby!

They can afford to do it by the volume, when they have millions at a time.
A house is worth less than $500K, would that 1% be worth the hassle?

Houses aren't liquid, but they aren't horribly illiquid either. Sure, there may be a ton of real estate on the market right now, and homes aren't selling like hot cakes, but they can be liquidated. I'm sure you know you can buy a house with a mortgage and sell it before you pay it off.

yes, you can. But for now I'm waiting for more depreciation.
I only think it'll depreciate more, even if banks try to extend credit, solely based on the lack of employment.
(if banks want to throw money at me and pay me to not work, they might as well buy the houses and sell at losses)

[WaltM]

...or someone who doesn't want to pick a place and be stuck there. I'm such a fool!

Yep, same here.

As for paying outright, there's no rule that states you need a $250,000 home.

There is in Jordan or Yates' book, because any house that costs less than $250K is your mom's basement or a forest.

You can go for that, and you can have your mortgage, and do whatever you want, whichever way you want, but I certainly know a lot of people with spectacular homes who put far less than that into building them.

Same here, in various parts of the country. I also know of many foreclosure hoods.

I have seen my fair share of log homes, especially, that put the prefab cookie cutter 1/4 mil homes to shame You don't have to plunk down $250,000 to have a home, and you can certainly invest in a house whose initial value is far less, pay it outright, and make your "payments" via improvements you put into it every year. That certainly isn't for everyone, either.

As for the contention that Ron Paul supporters are entirely against debt/borrowing... that's idiotic. You do not start businesses or make large purchases without investment and borrowing.

So what amount of borrowing and interest is moral, reasonable and Paulite?

Of course, responsibility is the key. There was a time when ONLY your really big purchases were financed, and you thought things over a great deal before getting into such an obligation. Even financing a vehicle was something to consider very seriously, and you saved up for a long time or borrowed from family to get a large down payment on a house, so you wouldn't be in debt for ages.

The trouble now is that people finance everything.

The biggest of which is housing.

as for vehicles, mine cost $1500. I can get another $1500 if I wanted to.

$1500 every 2 years aint a bad idea.
I know enough people who pay $40K after interest for a car they keep 10 years max. To be fair, the vehicle isn't worthless after 10 years, you probably get $4k back. So let's say they spent about $35K for 10 years before they're empty handed again.

$3.5k a year vs $750 a year.

Hell, people put a cup of coffee on their credit card. People finance crappy furniture they can't afford. People finance their car insurance payments and their gasoline and their food and their vacations. This becomes spending money you not only don't have, but are unlikely to ever have, and that is what the very vast majority of us are going to object to.

Oh and I agree that not having kids is an excellent savings plan

cool.

as for vacationing, I'm not against that either, but it's supposed to be a reward for work and saving, not another debt to pay later. Also, learn to shop for those too. (THAT can be worth a hassle and wait)

[Zippyjuan]

If you don't have the money or don't plan to be in the same living situation for several years, paying rent can make sense. The housing bubble was a case for not borrowing more than you can afford to pay or overpaying. It was not the case against home ownership in general. In most areas, prices should be at or near their bottoms by now so I don't think that I would be to concerned about property declining in value after you purchase it- again, as long as you don't over pay or get overextended to make the purchase.

An argument was raised that one should try to pay cash for a home. I would disagree. If you want to save for the home, you have to put that money aside in ADDITION to the rent you are paying plus your other bills. If you borrow to buy a home, then you do not need to have additional money every month- that comes from what you are paying anyways. That frees up that money for something else like say saving for retirement. If say your mortgage and rent would both be $1000 a month and you intend to save $1000 a month towards purchasing a home, you need to have $2000 a month if you are renting and saving while you only need $1000 if you are borrowing.

Lets put the money towards the mortgage (say a $200,000 home) and for sake of simplicity ignore interest rates. If you put aside $1000 a month, you would have enough to buy the house in about seventeen years. If you borrowed to buy the house and saved the $1000 anyways, at the end of seventeen years you have about half the house paid off so a net worth there of about $100,000 PLUS the $1000 a month or $200,000. Scenario one you have $200k, in scenario two you have a worth of $300k. Which one leaves you better off? It certainly would be the second. You are 50% better in this example. Sure I left off some details such as collecting interest on the savings (you get that interest in both examples so that is not relevant anyways). Because you were able to deduct your interest payments on your loan from your taxes, you also paid less in them if you purchased instead of saved up.

I have no problem if you want to buy a car with cash and I would certainly pay for any smaller purchases without debt but it just makes more sense on a home to finance it. It is a secondary (actually more important question) to decide if you want and can afford to buy one. That will depend on your own situation.

Rents can rise over time and continue forever. A fixed rate mortgage locks in your payments and they eventually go away (if you pay off the home). Yes you do have property taxes (if you are a renter, you are paying those too- just not directly). Owning a home give you an asset in exchange for your payments- renting gives you only a temporary roof over your head (which you also get buying a home).

In my own case (yes I was lucky with the timing but would not have bought during the bubble because things got too expensive for me anyways), I am at the point now where comparable rents are higher than my mortgage and property taxes combined (so even my present cost of living is lower than renting) and even after the housing market collapse, my place is still worth more that twice my purchase price. I intend to have it all paid for in just a few more years (probably three). Then my disposable income will increase by about one third. Can't say that if I was still a renter.

[brandon]

...or someone who doesn't want to pick a place and be stuck there. I'm such a fool! As for paying outright, there's no rule that states you need a $250,000 home. You can go for that, and you can have your mortgage, and do whatever you want, whichever way you want, but I certainly know a lot of people with spectacular homes who put far less than that into building them. I have seen my fair share of log homes, especially, that put the prefab cookie cutter 1/4 mil homes to shame You don't have to plunk down $250,000 to have a home, and you can certainly invest in a house whose initial value is far less, pay it outright, and make your "payments" via improvements you put into it every year. That certainly isn't for everyone, either.

Where I live $250,000 will only get me a mid-size 10 year old townhome or a 30 year old 2 bedroom single on 0.1 acres. Prices are insane around here. I know elsewhere a quarter mil will get you a pretty sweet place... not in the philly 'burbs.

[WaltM]

If you don't have the money or don't plan to be in the same living situation for several years, paying rent can make sense. The housing bubble was a case for not borrowing more than you can afford to pay or overpaying. It was not the case against home ownership in general. In most areas, prices should be at or near their bottoms by now so I don't think that I would be to concerned about property declining in value after you purchase it- again, as long as you don't over pay or get overextended to make the purchase.

How do you know you're overpaying?

An argument was raised that one should try to pay cash for a home. I would disagree. If you want to save for the home, you have to put that money aside in ADDITION to the rent you are paying plus your other bills.

That is correct, so this will make zero sense if the payments on a mortgage and rent are comparable. But if there's $500-1000 difference a month, wouldn't saving make more sense?

Plus, waiting for depreciation of the house before buying.

If you borrow to buy a home, then you do not need to have additional money every month- that comes from what you are paying anyways. That frees up that money for something else like say saving for retirement. If say your mortgage and rent would both be $1000 a month and you intend to save $1000 a month towards purchasing a home, you need to have $2000 a month if you are renting and saving while you only need $1000 if you are borrowing.

Then why not pay $2000 all towards your mortgage and get out of it in half the time?

What if 1/3 of the way, 10 years out of the 30 year loan, your house drops to 50% of the cost? You'll still owe $210K, where your house is only now worth $125K.

Now, the person who was saving $500 a month and renting, has $60K in savings.
He can how put 48% down on this $125K house, and owe $60k for the next 10 years, or 20 years.

You, the person who bought the $250K house, will either stick to it, and pay it until you've paid $560K total, $300K in interest. Or, would you sell your house at a loss?

Are you and Yates completely ignoring the possibility that sometime within the 30 year period, your house will be worth a little less than you paid? Even if your house depreciates 20%, and become worth $200, you'll still eventually pay $560K just to own it!

Of course, a lot of this has to do with location, your preference, etc. Some places have too many homeless people, some places have too many houses.

Lets put the money towards the mortgage (say a $200,000 home) and for sake of simplicity ignore interest rates. If you put aside $1000 a month, you would have enough to buy the house in about seventeen years. If you borrowed to buy the house and saved the $1000 anyways, at the end of seventeen years you have about half the house paid off so a net worth there of about $100,000 PLUS the $1000 a month or $200,000.

I can ignore inflation because it fluctuates, even sometimes negative.
I can ignore depreciation of the house, because it goes both ways.
What I cannot ignore is interest, if I can borrow money at zero interest, this would be no debate.

Unless you can get a 2% mortgage interest, in which case 30 years will only cost you $82K in interest for a $250 house.

Wait, if I borrowed to buy the house and paid $1000 a month, no interest.
Why wouldn't I have the house paid off in 17 years just like the guy who had to save 17 years to buy the house?

And if I had $2000 a month to pay or save, why shouldn't I get the house debt out of the way ASAP?

Scenario one you have $200k, in scenario two you have a worth of $300k. Which one leaves you better off? It certainly would be the second.

No it wouldn't. If the house depreciates, the person with $200K (the saver) wins.
Because the homebuyer no longer has $300K, and the saver can now buy the house for less than $200K.

You are 50% better in this example. Sure I left off some details such as collecting interest on the savings (you get that interest in both examples so that is not relevant anyways). Because you were able to deduct your interest payments on your loan from your taxes, you also paid less in them if you purchased instead of saved up.

I have no problem if you want to buy a car with cash and I would certainly pay for any smaller purchases without debt but it just makes more sense on a home to finance it. It is a secondary (actually more important question) to decide if you want and can afford to buy one. That will depend on your own situation.

I have a problem buying a brand new car, because it's ONLY going to depreciate. Unless it's a rare model that becomes a collectible, antique or fuel economy commodity.

Rents can rise over time and continue forever.

So you're basically betting that houses will appreciate.
Otherwise there's no reason rent should increase if houses DEPRECIATE.

A fixed rate mortgage locks in your payments and they eventually go away (if you pay off the home). Yes you do have property taxes (if you are a renter, you are paying those too- just not directly).

How much is property taxes?
I'd really like to know.

Owning a home give you an asset in exchange for your payments- renting gives you only a temporary roof over your head (which you also get buying a home).

What if this asset is overpriced?

In my own case (yes I was lucky with the timing but would not have bought during the bubble because things got too expensive for me anyways), I am at the point now where comparable rents are higher than my mortgage and property taxes combined (so even my present cost of living is lower than renting) and even after the housing market collapse, my place is still worth more that twice my purchase price. I intend to have it all paid for in just a few more years (probably three). Then my disposable income will increase by about one third. Can't say that if I was still a renter.

that's the point, timing is everything!

buying isn't always the answer

[WaltM]

I agree with Yates.

One of the biggest advantages to purchasing a home with a mortgage, rather than renting at a similar (definitely higher) cost is that you're building equity at the same time. Also, interest payments on your first home can be written off against your income.

if it was always so simple, why was there a housing bubble?

if houses are guaranteed to appreciate, then we don't need a gold standard, we need a housing standard for our currency.

[brandon]

if it was always so simple, why was there a housing bubble?

The housing bubble had little to do with the borrowers. It was caused by the lenders lending to too many people (and the wrong people), which was caused by the government/FEDs distortion of the market via interest rate setting.

[WaltM]

The housing bubble had little to do with the borrowers.

It wasn't caused by the borrowers, they were the victims, and how were they supposed to know if they had your mentality, that extending credit isn't bad, and houses will always appreciate, only fools rent?

It was caused by the lenders lending to too many people (and the wrong people), which was caused by the government/FEDs distortion of the market via interest rate setting.

and why would that go wrong if houses are guaranteed to appreciate? by your logic, even if these sucker buyers stopped paying, they can still sell their house, since it's always going to appreciate.

but that's NOT the case, depreciation, foreclosure gone wild!

[brandon]

It wasn't caused by the borrowers, they were the victims, and how were they supposed to know if they had your mentality, that extending credit isn't bad, and houses will always appreciate, only fools rent?



and why would that go wrong if houses are guaranteed to appreciate? by your logic, even if these sucker buyers stopped paying, they can still sell their house, since it's always going to appreciate.

but that's NOT the case, depreciation, foreclosure gone wild!

No they weren't victims, and no one is a sucker. Dude are you a 16 year old living with your parents still? And I don't mean that offensively....just seems like you have yourself in over your head and maybe you should read more and reply less. For some reason your replies always make me rage Josh.

[WaltM]

No they weren't victims, and no one is a sucker.

What are they then?

How can you be neither a victim nor a sucker? Are you a winner then?

Are you at least going to admit houses don't always appreciate?

Dude are you a 16 year old living with your parents still? And I don't mean that offensively....just seems like you have yourself in over your head and maybe you should read more and reply less. For some reason your replies always make me rage Josh.

No, I'm well over 16, and not living with my parents. I don't live the best place in town, but I'm not homeless. I do move around when necessary and falling back on parents is an open option.

Josh??

[brandon]

No where did I ever make the claim that houses always appreciate. I have no clue where you are getting that from, or how it is even relevant to this thread.

[WaltM]

No where did I ever make the claim that houses always appreciate. I have no clue where you are getting that from, or how it is even relevant to this thread.

Ok.

So then you'd have to admit houses do depreciate, and therefore buying isn't for everybody, every time.
Which means your whole argument about owning a house after 30 years vs not owning a house falls apart.

Back to my question. Who are the borrowers, if not victims and suckers? Did they win or earn anything? What do we call people that did what they did and got what they got?

Did people who borrowed during the bubble inflation do anything wrong? (not morally, but incorrectly)

[libertarian4321]

A lot of people think they automatically get some great tax deduction from a mortgage, but that isn't always the case.

It is only helpful if you itemize deductions AND if your itemized deductions are well in excess of your standard deduction.

For example, if you pay $1,500 in property taxes, $3,000 in mortgage, and 1,500 in other deductions ($6,000 total), but the standard deduction is $5,500, your tax advantage from the "mortgage deduction) is only $500 ($6,000-$5,500) times your tax rate- because you could have simply taken the standard deduction.

If you have limited other itemized deductions, you may end up with little or no tax savings from the mortgage deduction.

[brandon]

A lot of people think they automatically get some great tax deduction from a mortgage, but that isn't always the case.

It is only helpful if you itemize deductions AND if your itemized deductions are well in excess of your standard deduction.

For example, if you pay $1,500 in property taxes, $3,000 in mortgage, and 1,500 in other deductions ($6,000 total), but the standard deduction is $5,500, your tax advantage from the "mortgage deduction) is only $500 ($6,000-$5,500) times your tax rate- because you could have simply taken the standard deduction.

If you have limited other itemized deductions, you may end up with little or no tax savings from the mortgage deduction.

Thanks for the info, I didn't realize this. I guess I have to start coming up with all kinds of deductions.

[WaltM]

A lot of people think they automatically get some great tax deduction from a mortgage, but that isn't always the case.

It is only helpful if you itemize deductions AND if your itemized deductions are well in excess of your standard deduction.

For example, if you pay $1,500 in property taxes, $3,000 in mortgage, and 1,500 in other deductions ($6,000 total), but the standard deduction is $5,500, your tax advantage from the "mortgage deduction) is only $500 ($6,000-$5,500) times your tax rate- because you could have simply taken the standard deduction.

If you have limited other itemized deductions, you may end up with little or no tax savings from the mortgage deduction.

you mean there's a cap on how much you can deduct??? DAMN!