How much debt do you have? Let's talk credit cards and student loans.

[Moonbear]

We've gone out five times over about 2 months and things are going well, but the word "girlfriend" implies a commitment. We're not there yet.

I was only being half coy.

I never knew it was possible to be "half coy."

I'm still really sure men and women define these things differently, but you tell me. To me, if you say "girlfriend" implies commitment, and you're not there yet, that means you're still open to dating other people in the meantime. I guess I would use the term boyfriend or girlfriend to mean exclusivity, not necessarily commitment (you might still break up, but until or unless that happens, you're not seeing anyone else). Does that difference make sense to anyone else but me?

 

[franznietzsche]

you are the LAST person who needs to be pipping with comments like that

QFE.


*10char*

 

[member 5645]

I avoided that trap
I never wanted to pay 3 times the cost of a house via time payment traps

every thing I own , like my dad taught me, was paid for in CASH inc houses
cars boats ect
I lived in a trailer THAT I PAID CASH FOR intill I could afford a boat to live on and only got a house when I could pay for it

so not a single time payment EVER
esp as the banks want you to pay for INSURENCE an other RIPOFF

That's one way to do it.
Me? My liquid cash works better as an investment and easily outpaces the interest rate on anything I owe on.
Locking up cash into something you are going to be in regardless (ie a house) isn't always the most financially smart move.
However, there IS the trade off of ease of mind. Still impressive, good job

 

[member 5645]

What does that mean? Men are so difficult to keep up with, they have all these different code words and their definitions of girlfriend and dating and relationship and love are so different from women's definitions of those terms. I think we need a male to female dictionary to help us translate! (The men could probably benefit from the female to male dictionary too.)

You are not girlfriend/boyfriend until you've had "the talk".
Oh the stories I could tell about assumptions made without such communication

 

[Monique]

That's one way to do it.
Me? My liquid cash works better as an investment and easily outpaces the interest rate on anything I owe on.
Locking up cash into something you are going to be in regardless (ie a house) isn't always the most financially smart move.

I think so too, when you buy a house all your money is gone. When you invest, you are flexible what you do with your money.

 

[Polly]

And with owning, in a relatively short period of time, you own something (equity is basically an inverted loan to yourself). Wrong. If you lose your job, you are in a better position than someone who is renting: you own something you can sell to get money to rent something. If you're renting and you lose your job, you're screwed - you have no money to pay your rent.

And after ~30 years, you end up with pretty extreme financial independence: once you pay off your mortgage, your cost of living drops dramatically.

Ever heard of "negative equity asset"?

 

[Polly]

QFE.


*10char*

Just out of curiosity, what does it mean?

 

[Moonbear]

I think so too, when you buy a house all your money is gone. When you invest, you are flexible what you do with your money.

I don't think that's true. Maybe for some people who buy a huge house that requires all their money (we call them "house poor"), but I look at it as I was going to be spending that money on a place to live either way (rent if not a house), so I wouldn't have had that cash anyway. By buying a house, that cash is going toward actually owning something so I can stop paying at some point in my life (like when I retire and have to live from savings). Then again, I'm in a house that I know I won't spend the rest of my life in, so I'm not dumping money into it for things I might do if I was going to live here a long time. Instead, I just do the required maintenance so everything stays in good working order, and some small improvements that will increase the ability to sell the house (like updated colors of paint).

 

[brewnog]

I'm with moonbear on this one. Investing in bricks and mortar has got to be a good thing. Either you buy a house in which to live, in which case you have a home and aren't paying rent (aka dead money), or you buy to rent, and you'll make more off your tenants that you pay on the mortgage, have an income, AND have a house at the end of your mortgage period which has essentially bought itself.

 

[Moonbear]

I'm with moonbear on this one. Investing in bricks and mortar has got to be a good thing. Either you buy a house in which to live, in which case you have a home and aren't paying rent (aka dead money), or you buy to rent, and you'll make more off your tenants that you pay on the mortgage, have an income, AND have a house at the end of your mortgage period which has essentially bought itself.

One of my step-sisters (the one I get along with) did quite well for herself with this strategy. She bought a duplex (house divided into two side-by-side apartments), lived in one side and rented the other side. As rental (and home purchase) prices increased in the area where she lived, she was eventually able to charge enough rent for the rented half to cover the mortgage for the entire property. That mortgage got paid off early, and she moved herself into a nice big house with 3 acres of land, including a horse pasture, and enough room for her growing family (at the time, two teenaged kids and one "oops" on the way...not "oops" as in unwanted, just "oops" as in unexpected). The rent from the duplex then paid (still pays) her mortgage on the new house. So, she owns one house free and clear of any debts, and a second house that her tenants are paying for. The reason is that the cost of rent will always reflect prevailing market prices in the area (if the price of houses goes up, landlords can charge more for rent), but landlords are still paying the same mortgage based on market prices when the bought the property. They might just break even initially, but 10 or 15 years down the road, that mortgage is substantially cheaper than the rental prices. Even in the short term, rent is going to cost more than a mortgage because the landlord is going to charge enough to cover the mortgage, insurance, taxes (which you'd also pay owning the house), anticipated repair costs (which may or may not end up being needed), plus include something over that to keep it profitable.

 

[russ_watters]

Ever heard of "negative equity asset"?

Sure. It takes time to build-up equity, which is why a down-payment is usually required. If you don't give a down-payment, you start with negative equity (instead of zero or positive) and the bank charges more interest because there is more risk to them. But this doesn't really have anything to do with the discussion: I certainly would not suggest that someone should put themself into that situation.

Moonbear - I've looked into that situation and damn, would that be sweet. With my gadget-buying, I don't know that that'll happen, but for a while I might be able to have a condo and a roommate and enough left-over money to double-up on a payment every now and then.

 

[Moonbear]

Moonbear - I've looked into that situation and damn, would that be sweet. With my gadget-buying, I don't know that that'll happen, but for a while I might be able to have a condo and a roommate and enough left-over money to double-up on a payment every now and then.

It was a pretty nice way to do things. Once the mortgage was paid on the duplex, of course she didn't need to move anywhere right away, so could save up more toward an even larger downpayment, but more importantly, she had the luxury of time to shop around for another house and wasn't being pressured by someone else closing on one house to buy another, or needed to get out of an apt before the lease ends. She got a pretty good deal on the house she's in. If she had to find something quickly, she'd have had to pay a lot more for comparable houses in the area (that also means if she sells that house, it will be at a substantial profit...even before NJ propery values started going up so ridiculously fast).

I prefer living roommate-free, but when I bought the house I'm in, I figured with the extra bedrooms I don't need, if I was ever in a bind, I could take in a roommate to offset the mortgage.

 

[Monique]

What is the interest you have to pay when you're paying off a house in the US? I agree if you get rid of your mortgage soon, it's a good deal.

Otherwise you're just paying a lot of money without owning anything. I know friends that have a huge mortgage and only pay the interest.. house prices are at its peak, they risk losing value on the house, not owning a brick of it, while having put money into it for years.

 

[Zantra]

One of my step-sisters (the one I get along with) did quite well for herself with this strategy. She bought a duplex (house divided into two side-by-side apartments), lived in one side and rented the other side. As rental (and home purchase) prices increased in the area where she lived, she was eventually able to charge enough rent for the rented half to cover the mortgage for the entire property. That mortgage got paid off early, and she moved herself into a nice big house with 3 acres of land, including a horse pasture, and enough room for her growing family (at the time, two teenaged kids and one "oops" on the way...not "oops" as in unwanted, just "oops" as in unexpected). The rent from the duplex then paid (still pays) her mortgage on the new house. So, she owns one house free and clear of any debts, and a second house that her tenants are paying for. The reason is that the cost of rent will always reflect prevailing market prices in the area (if the price of houses goes up, landlords can charge more for rent), but landlords are still paying the same mortgage based on market prices when the bought the property. They might just break even initially, but 10 or 15 years down the road, that mortgage is substantially cheaper than the rental prices. Even in the short term, rent is going to cost more than a mortgage because the landlord is going to charge enough to cover the mortgage, insurance, taxes (which you'd also pay owning the house), anticipated repair costs (which may or may not end up being needed), plus include something over that to keep it profitable.

That's a good strategy. The next logical step in that plan would have been to leverage the equity in the duplex to purchase another rental property, then repeat until she has enough passive income to completely support her.

 

[Moonbear]

What is the interest you have to pay when you're paying off a house in the US? I agree if you get rid of your mortgage soon, it's a good deal.

Otherwise you're just paying a lot of money without owning anything. I know friends that have a huge mortgage and only pay the interest.. house prices are at its peak, they risk losing value on the house, not owning a brick of it, while having put money into it for years.

Interest rates vary. They hit some lows around 4.5 or 5% about a year ago, and I've seen them as high as 8 or 9%. But, even if you buy when the rates are high, if you see them drop (usually most will advise it's worthwhile if they drop a full point) you can re-finance (get a new mortgage) at the lower rate. The amount you're paying in interest vs principle varies over the life of the house. In the first years, you're paying a higher proportion toward interest and less toward the principle, but as the principle decreases, so does the interest portion. There are some unscrupulous lenders who will make loans where someone pays only the interest (they make it look good by offering very low interest rates): never take one of those loans, that's not going to get you anywhere, and if that's the only way you can afford the house, then you are better off renting because you're still getting nowhere and the lender still owns your house no matter how long you're paying into it.

There are times when it makes more sense to rent than to buy. If you plan to live somewhere less than 5 years, renting makes more sense; if you don't have money for a downpayment, renting something small and saving up toward a downpayment is a good strategy; if you don't have a little extra money as a "cushion" for unexpected repairs, you're better off renting; if you are completely inept when it comes to household repairs, unless you can afford to hire someone to do everything, you should rent so the landlord is responsible for repairs.

 

[russ_watters]

What is...

From time to time, I like to play with the calculators on sites like this: http://www.mortgage-calc.com/

Clicking on the "amortization calculator" and using values of $120k at 6% for 30 years (roughly what my roommate is paying for his 3 bedroom condo) gives $719. a month. His condo fee is about $300 a month. That works out to a toal of $264,153.60 paid for the property, plus $108,000 for services (trash, maintenance, snow removal, lawn care, etc) over 30 years. So assuming no appreciation (there will almost certainly be some) and no inflation (there will certainly be some), in 30 years, he'll own a $120,000 condo and will have flushed $144,153.60 down the toilet (that's the bank's income). He'll have paid an additional $108,000 for services.

The amortization schedule says in your first month, $119 goes to principal and $600 goes to interest. Basically, that's $119 back into his pocket and and $600 down the toilet. It should be noted that if you get a good loan and double-up your payments, every cent of the doubled-up payment goes to principal - it goes straight back into your pocket.

Compare that to renting: My roommate's 3 bedroom condo would go for about $1,000 a month renting (maybe even $1,200). Subtracting out the services ($108,000), over 30 years, that's $252,000, every cent of it straight down the toilet.

I agree if you get rid of your mortgage soon, it's a good deal.

Otherwise you're just paying a lot of money without owning anything.

Its important to remember that equity is ownership (you wouldn't be able to borrow against it later it if it wasn't). If a house is worth $100,000 and you put in a $20,000 down payment, you own 1/5 of a house before you even start making payments. If you suddenly need to sell, you get that money back. From above, his first payment meant he owned $119 more of the house than he did before.

house prices are at its peak, they risk losing value on the house, not owning a brick of it, while having put money into it for years.

Prices are high and interest rates are low and they typically are opposites of each other. So actually, the total price of a piece of real estate is relatively constant (before appreciation). And again, from the first day, you do own a brick of it - essentially, you are buying the house one brick at a time.

Since a lot can change in the short term, like any investment, owning property is better long term. If you're not planning on keeping a house for more than 5 years, you are gambling on market conditions and yes, it is possible to lose money. But the longer you own it, the less the risk. And again, compare that to renting: with renting, you are guaranteed to lose every cent you put into it.

 

[Monique]

in 30 years, he'll own a $120,000 condo and will have flushed $144,153.60 down the toilet (that's the bank's income). He'll have paid an additional $108,000 for services.

So that is $120,000 that he can get back and $252,153.60 down the toilet?

over 30 years, that's $252,000, every cent of it straight down the toilet.

here it is $252,000 down the toilet.. so renting or buying is the same amount of money down the toilet according to your calculation.

 

[Moonbear]

So that is $120,000 that he can get back and $252,153.60 down the toilet?...

here it is $252,000 down the toilet.. so renting or buying is the same amount of money down the toilet according to your calculation.

No, the actual amount paid for rent would be $360,000 (assuming the rental price never went up) over 30 years. The $252,000 was the figure after subtracting out the $108,000 for services that are paid either way and included in the rent.

 

[russ_watters]

So that is $120,000 that he can get back and $252,153.60 down the toilet?

here it is $252,000 down the toilet.. so renting or buying is the same amount of money down the toilet according to your calculation.

No, if you include the money paid for services, that's $252,000 if you buy and $1,000*12*30=$360,000 if you rent. I pulled out the money you pay for services, because it is separate from the value of the property. Whether you live or rent, properties cost money to maintain.

And again, my assumptions are heavily biased toward renting. In real life, inflation causes rent to rise by a couple of percent a year, while pushing up the value of your house a couple of percent a year. At the same time, appreciation pushes up the rent/value by an additional couple of percent a year. All the while, your purchase price remains constant. At 3% a year combined inflation and appreciation, your $120,000 (you paid $264,000 including interest) condo is now worth $291,000, and you've got a net profit of $27,000. (this does not include the services)

Calculating the damage from renting, at 3% increase in rent a year, you've paid a whopping total of $350,000 to live in a house you don't own. (this does not include the services)

edit: Also, re: that $27,000, since I consider housing a fixed cost of living (like food), profit starts at every penny you save: ie, a $.50 coupon at the supermarket is $.50 of profit because that money was lost otherwise. So since that $350,000 rent is a fixed cost of life, I consider any savings from that to be profit. So that $27,000 profit really is...

 

[Zantra]

On a related note, has anyone ever had any personal experience with rental/income property? Is it a worthwhile investment, or not worth the added grief?

 

[Monique]

Ok, ic.

At 3% a year combined inflation and appreciation, your $120,000 (you paid $264,000 including interest) condo is now worth $291,000, and you've got a net profit of $27,000. (this does not include the services)

If you have stable market. The way things are managed here in the Netherlands.. it's like a big inflated balloon. House prices are kept artificially high by by several factors. Actions of the EU and the government could have a big negative effect on house value here.

A factors is that agricultural land can not be used for building houses, which is 89% of the country. Neighbour countries like Germany and Belgium don't have this restriction and their house prices are low. Another factor is that the government currently subsidizes people that buy a house, I think the EU will put a bar to this, when these subsidies are gone most people won't be able to afford to buy a house and the prizes must thus drop.

It's rediculous what the cost of ground is here, you can buy land from an uninformed farmer for €6.5/m2 and sell it again for €300/m2. Ground speculation is big bussiness here, not houses I'm told. There was this guy on television, who bought a farm for 10 million and sold it the same day for 20 million to ground developers.

But I'm not an expert in these fields, I will watch the media and see how things develop.
For the interested dutch-speakers, you can watch a documentary here http://cgi.omroep.nl/cgi-bin/streams?/tv/vara/zembla/bb.20050224.asf

 

[russ_watters]

I know nothing of real estate market conditions in the Netherlands, of course, so obviously anything I say can't really be applied there without taking that into account.