Sigh - I give up on my friend...

I agree wholeheartedly that buying a property is not necessarily the right thing to do for everyone. Too many people oversimplify the renting vs buying argument. As weakestlink mentioned -- look at history. The 80's weren't that long ago and many people lost everything they had when they invested heavily in real-estate. I know of two people who stretched and over-leveraged with 2nd and 3rd mortgages to get multiple rental properties and then had the whole thing collapse on them as rates rose and they couldn't afford to hold onto their properties. It's just like the stock market -- in the long run you'll be fine.. but the short run can last several years and if you need to sell before then for whatever reason you can get screwed. The housing mentality today is the same as it was in the early 80's, and with interest rates rising, it should be a sign to be cautious going forward.

By the way, I don't understand how burdening yourself with a mortgage makes for being "financially free"? To me, being debt-free is when you're financially free! If you're referring to using the house as an investment as a method of eventually becoming financially free, then you can make the argument that there are plenty of other methods of investment that will result in the same thing, often with lower risk.
 
Arshad said:
...By the way, I don't understand how burdening yourself with a mortgage makes for being "financially free"? To me, being debt-free is when you're financially free! If you're referring to using the house as an investment as a method of eventually becoming financially free, then you can make the argument that there are plenty of other methods of investment that will result in the same thing, often with lower risk.
Click to expand...
Arshad, you fail to understand the purpose of debt.

There's bad debt and good debt.

Bad debt is when it's used to acquire things that are consumable, such as a vacation, depreciating items like a TV, etc.

Good debt is when it's used to acquire things that either increase in value, or free you from future cash outflow.

A house mortgage is good debt. It will either be used as leverage as the house may increase in value, or it for sure will free you from future rental payments which will last until you die.

In addition, unlike a vacation that has passed, the house may be sold to eliminate that debt.

So being "debt-free" is an over-simplification of one's financial status.

Being financially free means you are no longer obligated to have cash out-flow for things like rent, etc., unless, of course you don't mind being debt free and living in a homeless shelter or a box in the street.

Also, I don't know of any other investment that is safe as a house, given the incentives that the government provides in the form of tax deductions, and tax-free capital appreciation up to $250,000 per person in profit!!!

The government is practically begging the average tax payer to buy a house. What other investment has such incentives?

Are they making more land? I don't think so either. So the time to buy a house is whenever you are financially able. Houses may lose value in the very short term, but long term they are guaranteed to rise. And everyone needs a place to live. I can think of no safer investment than a house, especially as a primary residence, with all the tax incentives the government provides.

There is one more thing to consider. You may throw money into other investments, but you are risking the possibility that housing prices may continue to outpace your other returns.

Let's say I had failed to buy a house when I first did, and threw all my money into bonds, stocks, etc. Let's say I didn't lose money in those investments, I would still have lost money on an opportunity level, because if I wanted to buy a house today, the cost of that property I wanted to buy has doubled.

So not only did I not capture the gain on my property, but now the entry price for a home has doubled!!! The real estate market is now working against me, instead of for me.

You can never time the market, therefore, for a primary residence, with all the incentives the government is providing, the best time to buy a house, regardless of short-term fluctuations in housing prices, is NOW.
 
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nsxmas,

You may want to consider listening to some of the advice that has been given to you free of charge.

Three people (nsxtasy, Carguy!, and WeakestLink) have wasted their time attempting to educate you because you fail to consider anyone else's point of view.

I'd love to attempt to persuade you, however, I don't think I can articulate any better than those three.

I hope others are able to see that there is value in the words written by those three.

Matt

91 NSX
01 Viper RT/10
95 M3
92 SC300 (5 Speed)
 
milz50 said:
nsxmas,

You may want to consider listening to some of the advice that has been given to you free of charge.

Three people (nsxtasy, Carguy!, and WeakestLink) have wasted their time attempting to educate you because you fail to consider anyone else's point of view.

I'd love to attempt to persuade you, however, I don't think I can articulate any better than those three.

I hope others are able to see that there is value in the words written by those three.
Click to expand...

I don't think it is NSXMAS doesn't see his friends point of view. I think it is more that he doesn't understand it. I also suspect he may think his friend is being less than honest about why he feels the way he does.
Maybe it is a trust issue his friend doesn't want to talk about so his friend makes up a BS excuse so he doesn't have to deal with the way he really feels. If I were in NSXMAS' shoes I would not only be perplexed as to why but also pissed that my "friend" doesn't just come clean so I can drop the issue once and for all. This would allow me to make better use of my time with other friends that may pan out into something viable for both parties involved.
 
milz50 said:
nsxmas,

You may want to consider listening to some of the advice that has been given to you free of charge.

Three people (nsxtasy, Carguy!, and WeakestLink) have wasted their time attempting to educate you because you fail to consider anyone else's point of view.

I'd love to attempt to persuade you, however, I don't think I can articulate any better than those three.

I hope others are able to see that there is value in the words written by those three.

Matt

91 NSX
01 Viper RT/10
95 M3
92 SC300 (5 Speed)
Click to expand...
Steveny is right, of course, as I am perplexed by my friend's fear of buying a house. I also accept and appreciate input from everyone as well, of course.

However, your post is the only one that I think is quite useless. Just as I solicit feedback here, and have an open and honest dialogue, I see no "wasting" of any advice. I fail to see why you should take your tone and stance.

As someone who has studied successful people, successful financial tactics, and successful life strategies, I am welcoming of dialogue with other successful people (former CPA, MBA w/ finance concentration, 100% debt free in life, looking for other investment opportunities). If I am wrong, I am glad because then I have learned something. However, I don't see anything I can learn from your post.

What are you going to say - it's wrong to buy a house? It's a financial disaster? Please, enlighten me.
 
The point of my post was to get you to understand that there are multiple ways of viewing things. My impression is that you are very close-minded, so I'd like for you to see others' points of views. I took my stance because it didn't seem that the logical posts were making any progress.

I'm not going to say it's wrong to buy a house. However, I don't think it is for everyone's situation. There are several categories of reasons not buy a house. Some of them are:

Situational - Those who want the flexibility to move or switch jobs certainly value renting over owning.

Risk - Those concerned about the possible loss of property value, loss of a job, loss of spouse's job, etc.

Emotional - Those who are scared to have a large amount of debt. Obviously, this isn't always logical, but dealing with emotion is necessary with financial concerns for some.

Self Control - Those who are concerned that their or their spouse's spending will rise too much to overcome the financial advantages of home ownership. A lot of people's spending goes up drastically after buying a house.

Pride - Those who want to be proud of the accomplishment of buying a home without the assistance of others.

Convenience - Those who are apprehensive about the work of home ownership. Those who can't buy a home in the location they desire.

Ignorance - Those who don't understand the benefits of home ownership.


Your friend is most likely in one of those categories. You seem to think it is ignorance. I don't think that it is ignorance because you have tried to convince him and are very articulate and passionate. I don't know which category he is in, do you have any ideas?


You said, "However, I don't see anything I can learn from your post". I agree, my last post was not constructive. If there is one thing that you can get from this post it is:

Buying a house can be more of an emotional decision than a financial decision for some people. You are trying to persuade your friend with logic. You need to understand his emotional reasons for being apprehensive. Once you understand them, you may attempt to help him overcome his apprehension.

Regards,

Matt
 
NsXMas-

I like the terms of your deal. If your friends fails to come around, give me a ring.

Let's see:
You're willing to pay the front and backend transaction costs. In addition, you're willing to buy out your partner at a loss. Sounds like a pretty good deal to me:)
 

or sure will free you from future rental payments which will last until you die.


I suppose so, but most people have 25-30 year mortgages which ensnare them for the majority of their income earning life. Sure, you'll be rent-free after that, but I'd rather not spend 30 years paying multiple times the value of the house in interest to a financial organization. I'd rather take that money, put it to good use and become financially free so I can pay off my house without a mortgage.


Being financially free means you are no longer obligated to have cash out-flow for things like rent, etc.,


I dunno, I consider a mortgage a cash-outflow too, particularly when it's building marginal equity.


Houses may lose value in the very short term, but long term they are guaranteed to rise. And everyone needs a place to live. I can think of no safer investment than a house, especially as a primary residence, with all the tax incentives the government provides.


My point was that there are many different places to put your money, and many of these can be as lucrative if not more lucrative then putting it into a house. Up here in Canada, we don't get the same tax incentives in terms of being able to write off the mortgage, although there is no cap on the tax-free capital gain on a primary residence.


Let's say I had failed to buy a house when I first did, and threw all my money into bonds, stocks, etc. Let's say I didn't lose money in those investments, I would still have lost money on an opportunity level, because if I wanted to buy a house today, the cost of that property I wanted to buy has doubled.


Let me give you my real experience versus your hypothetical opportunity-cost. Back in '99 I bought a house and I paid it off in cash. At the time I thought it made a lot of sense, but in retrospect it was a mistake. In that period I put approximately the same amount of money into the stock market. Even though the stock market has been largely crap the last 5 years, I still managed to make 3x the after-tax amount that my house appreciated in that same time period. This is in spite of the housing market going sky-high in Toronto and my taking a huge hit on a sizable position I had in Nortel. So for me, if I had put that entire amount into the stock market and rented the past 5 years I would have been quite a bit ahead of where I am today. Of course hindsight is 20/20, and I can tell you stories from the opposing viewpoint as well. (One of our VP's purchased a 1.5M property which he turned around and sold for 2.7M a year later!)

Anyways, it's silly to say that the housing market will definitely outperform other forms of investment in the long run. In the long run both will go up, but in the short run you can get get screwed on either. The upside on the stock market or some other investment is you can generally move your money around when things are going badly, whereas if the housing market is on a downtrend, you have to wait it out.
 
Anyways, it's silly to say that the housing market will definitely outperform other forms of investment in the long run. In the long run both will go up, but in the short run you can get get screwed on either. The upside on the stock market or some other investment is you can generally move your money around when things are going badly, whereas if the housing market is on a downtrend, you have to wait it out.


I also invest in the stock market. I have made a lot of money and lost a lot of money. As you know, with Nortel, your money can evaporate overnight. If you are an aggressive investor and margin your account you can really take a beating in a very short period of time.
With real-estate the investment is tangible, it won't completely disappear. You really have to try hard to lose money with real-estate. I for one have NEVER lost money on one single piece of property EVER. Last month alone I lost 20k, not on paper, in real money in the stock market. :mad: No investment is secure but I think real-estate may be the one of the more secure investments.

I would like to finance people who can't borrow money for an education. In return for financing them I would receive 10% of all their future earnings for the rest of there lives. That repayment would go into the fund to finance future candidates.

I am not talking about just paying for the cost of the classes I am talking about giving a financially challenged kid the entire college experience from the perspective of a wealthy student.
Money to pay for classes, getting into a fraternity or sorority, BMW, ski trips, GRE tutor the entire package that the poor never get a chance to experience. College with no financial worries. I bet that would be a good investment. When you change someones life and show them something they would have never seen I bet they would repay with a big smile.
 
Last edited:
Arshad, some good points. Here's my thoughts on the matter.

Arshad said:
I suppose so, but most people have 25-30 year mortgages which ensnare them for the majority of their income earning life. Sure, you'll be rent-free after that, but I'd rather not spend 30 years paying multiple times the value of the house in interest to a financial organization. I'd rather take that money, put it to good use and become financially free so I can pay off my house without a mortgage.
Click to expand...

Sounds good. This is assuming, of course, you are getting free rent. What I'm proposing my friend is that his rent payments do not change, but rather that the money goes towards a house. And he gets a tax deduction on the interest on top of that.

And... here's the best part - the appreciation on the house will be tax free, up to $250k. What investment are you talking about that will beat that? I'd really love to know, and get in on it.

I dunno, I consider a mortgage a cash-outflow too, particularly when it's building marginal equity.
Click to expand...
So ok, you don't have a cash outflow for your mortgage. But what do you call your rent, then? :confused:

I mean, you've got have a place to live, right? I don't think living with the parents is an option for my friend. He loves his folks (they live close by), but he loves his independence.

My point was that there are many different places to put your money, and many of these can be as lucrative if not more lucrative then putting it into a house. Up here in Canada, we don't get the same tax incentives in terms of being able to write off the mortgage, although there is no cap on the tax-free capital gain on a primary residence.
Click to expand...
That's awesome. I love the tax-free capital gain on the primary residence. If I was in Canada I'd be a house whore, buying and selling houses like crazy.
Let me give you my real experience versus your hypothetical opportunity-cost. Back in '99 I bought a house and I paid it off in cash. At the time I thought it made a lot of sense, but in retrospect it was a mistake. In that period I put approximately the same amount of money into the stock market. Even though the stock market has been largely crap the last 5 years, I still managed to make 3x the after-tax amount that my house appreciated in that same time period. This is in spite of the housing market going sky-high in Toronto and my taking a huge hit on a sizable position I had in Nortel. So for me, if I had put that entire amount into the stock market and rented the past 5 years I would have been quite a bit ahead of where I am today. Of course hindsight is 20/20, and I can tell you stories from the opposing viewpoint as well. (One of our VP's purchased a 1.5M property which he turned around and sold for 2.7M a year later!)
Click to expand...
I'm not opposed to investing in the stock market. However, a primary residence is a SOLID investment from virtually any perspective.

Anyways, it's silly to say that the housing market will definitely outperform other forms of investment in the long run. In the long run both will go up, but in the short run you can get get screwed on either. The upside on the stock market or some other investment is you can generally move your money around when things are going badly, whereas if the housing market is on a downtrend, you have to wait it out.
Click to expand...
No one can time the market. Let me tell you a story.

I had a great realtor who helped my buy my first house. A couple of years after I bought my house, he thought the real estate market was over-heated and things were going to take a dive. As a result, he sold his home, and started to rent from the guy who bought his house.

He watched painfully as housing prices continued to rise, and he was being priced out of his house. When the time came for me to sell my house, I used him again. We had an interesting conversation about the real estate market, and he now admits that it was foolish to try to time the market.

Whether market is up or down, you need a place to live in. Unless your primary goal is to flip houses, house prices in the short term should have no effect on your mentality of home ownership.

What is the biggest expense most of us will ever have? It's taxes.

The government taxes everything we make, except for insurance and our main residence. Anytime there's such a sweet deal, I think people who qualify for a house and can live there for a while, are silly not to take advantage of such an opportunity.

Again, I appreciate your feedback, and I see your points.
 
steveny said:
...I also invest in the stock market. I have made a lot of money and lost a lot of money. As you know, with Nortel, your money can evaporate overnight. If you are an aggressive investor and margin your account you can really take a beating in a very short period of time.
With real-estate the investment is tangible, it won't completely disappear. You really have to try hard to lose money with real-estate. I for one have NEVER lost money on one single piece of property EVER. Last month alone I lost 20k, not on paper, in real money in the stock market. :mad: No investment is secure but I think real-estate may be the one of the more secure investments.
....
Click to expand...
You're my new hero!! :biggrin:

As I stated, I would love to invest with you, given the right opportunity. :smile:

PS - my folks also have been real estate investors since 1990. They've bought and sold homes in 3 states and overseas. They've never lost money either. They've had bad tenants, but never lost money on a house.
 

If you are an aggressive investor and margin your account you can really take a beating in a very short period of time.


Steve, I agree, but if you're going to be a speculative investor who leverages heavily through margins/options or other instruments then I compare that to those who leverage heavily to speculatively buy property. Like my uncle in the 80's who owned dozens of properties where he had 2nd and 3rd mortgages on one property so that he could get the next one. At the time he had a fantastic executive level job at Nortel which he quit to do this full time and it didn't look like he could lose money. Then BAM, the housing market collapsed, he couldn't afford to hold onto his properties, and he lost millions. I think one of the problems is that when things are good, whether it's the housing market in the early 80's (and today), or the stock market in the late 90's, we tend to think that we're infallable and fail to learn from history because we think that things are somehow different. History has shown us that the trend is upwards but that it is a cyclical market -- it doesn't just keep going up. And today you can see that record-low interest rates were a primary catalyst for the current housing boom and that the market is already starting to cool off somewhat as rates start their hike upwards.

With the stock market, you can also diversify or buy index funds or whatever which mean that short of a nuclear war your money isn't going to evaporate overnight as well. It's a hell of a lot easier to lose all your money on the market than it is on a house, I'll agree with you there, but it's largely because people will put all of their money in a stock that their bus-driver recommended.

NsXmas: I agree that what you're offering your friend is a fantastic deal and that must be some other reason why he won't jump into it. Maybe he's just scared of becoming part owner with a friend because he thinks in the long run it may impact your friendship (just like many people avoid going into business with friends and family).

I agree with you that nobody can time the market, whether it's the housing or stock market. Like your realtor friend, back in 99-early 2000, Alan Greenspan and many others were warning people that the stock market was built on "irrational exhuberance". Most people (including myself) agreed with what he said but ignored his advice because it's hard to pull out when your money is growing 10% every week! (I actually pulled out all cash mid-'99, then jumped back in late '99 because it showed no sign of slowing down! Duh!) There were those with cooler heads who pulled out, and like your realtor friend, saw the market continue to head up and perhaps cursed at their bad luck. But guess who had the last laugh when the entire thing collapsed like a big card house? :D

Anyways, in principle, I agree that buying a house is a good thing, especially if you can put a substantial amount of money down on the downpayment. It gives you a place to live and to the risk-averse, this is the only form of capital gains they'll realize in their lifetimes.
 
Four cents is usually my max investment in a thread but I feel obligated to offer another two cents.

The concept of having "fixed payments" for 30 years...similar to fixed rent...isn't quite correct. As you know, the interest paid at the beginning of a loan is much higher than at the end of a loan. As your loan matures, your net cost of the mortgage payment goes up.

Look at a simplified example. If your payment is $3000, the payment stays the same (assuming a 30 yr fixed mortgage) but the cost (most equal to rent) changes. Payment 1 is almost all interest, so if you assume a 30% tax rate, the net cost of a $3000 payment is $2100. At the end of the loan, the $3000 payment is almost all principal so the cost is $3000. Having your "rent" go from $2100 to $3000 is a $900 increase or almost 45% increase in "rent". Granted this is over 30 years so it isn't that bad. But the point here is that you are not establishing a "fixed rent" as asserted. And this assumes property taxes are flat.

There have been many articles on how people can no longer afford to live in their homes b/c of rapidly escalating values and corresponding tax rates. This also negates the concept of a "fixed rent" payment. I recognize that rising taxes is a probably a good problem to have since your property value is going up. But if your payment keeps going up b/c of a declining tax benefit and rising property taxes, you aren't really establishing a constant net payment.

http://www.washingtonpost.com/wp-dyn/articles/A21836-2005Feb13.html
http://www.washingtonpost.com/wp-dyn/articles/A55469-2005Feb1.html
http://www.washingtonpost.com/wp-dyn/articles/A55387-2005Feb1.html

Again, not saying that real estate is a bad investment. Just pointing out that it's not as simple a decision as it may sound.
 
One thing I must clarify...The housing market here has not had any huge swing up or swing down in my lifetime. A two family house here can be had for as little as 20k if one spends time searching. Not 20k down but 20k and you own it. I would not be buying real-estate if I lived in LA. The housing prices out there are just f...ing nuts. I visited a friend in Huntington Beach who had just bought a condo for 555,000 dollars :eek: Here for 555,000 I can buy a 20 unit apartment complex. I can see how someone with very little experience and a heavy leverage practices could find himself in trouble in a CA type of environment.

If someone were to ask me "do you think the real-estate market today is similar to the stock market of late 99 early 2000." My answer would be in the southwest particularly CA, yes, in NYC, yes. In my area, No. Friends and family that I have who own their own home have seen the value of their home maybe double in the last 10 years if they have done zero improvements.

I am not a real-estate investor/speculator. I don't buy a really nice piece of property and let the thing appreciate for 5 years then sell it at a gain. I buy totally POS houses that are run down with the roof leaking the pipes broken, full of garbage, left abandoned for years. Then my crew and myself fix them up and resell them for a huge profit. I am doing the work, not "hoping" that the market will increase and I can make money for doing nothing, life only works that way for a very few individuals.

I do take huge risks in the stock market but I do not take risks with real-estate. I don't buy any property that I couldn't sell tomorrow at a profit, including realtor fees. I think I may do a thread in the off topic of the next place I flip if anyone is interested. I am currently setting up a deal to buy a house and property for 5 grand, that's right 5 grand for the house and 3/4 of an acre of property. How could I lose?
 
I'll chime in here with my penny, as I'm not as wise as a lot of you.

I'm in the same situation as your friend- I've been renting for almost 3 years. I'd love to have a home, but I'm still finding out where my job is going and my wife's job as well. If I wanted to, I could buy an average home in cash, but are all the expenses worth it if I decide to move within the next 5 years? Also, there's a number of homes for sale, but I personally don't like any of them, looks/design wise, that I'd even want to buy, even if I knew I was settling here.

Maybe your friend is waiting for an opportunity so that he can jump on it, job-wise, girl-wise, or otherwise. Maybe he's waiting to start up his own company, and would like to tie up money there. Maybe he's just like me, in a waiting game to see how it goes. Meanwhile, my investments are going up >10% a year, my bad debt (cars and CCs) is decreasing fairly rapidly, and my rent hasn't changed one cent. Not too shabby, as far as I know.

There's a lot of good reasons to buy, but there are some legit reasons not to. There might be a need for some more digging to find out, but he's got to have some reason. Also, I know people who are perfectly happy living in an apartment- they can afford a house, but they don't want anything big or that takes work. That leaves the rest of us a chance to get and stay ahead...
 
it ended feb 28th:

850s of America - we want you!
The Hunt ends on February
28th, so don't delay. Click here
to participate in TrueCredit's
Hunt for the Perfect Credit
Score today!
 
robr said:
it ended feb 28th:

850s of America - we want you!
The Hunt ends on February
28th, so don't delay. Click here
to participate in TrueCredit's
Hunt for the Perfect Credit
Score today!
Click to expand...

What I find stupid about the whole "Hunt" is they are a credit reporting company so they know who has 850, why not just send each one of them $1,000?
 

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