Does anyone else eschew credit?

@chai2,

chai2 wrote:

how could they not be privy to the intial exchange if we are all reading the same thread?

I, for one, have not read the entire thread. I came in in the middle, and replied to something I found interesting.

chai2 wrote:

Yes indeed I did compound the error, which was my intent.

What an interesting style of debate.

chai2 wrote:

Made it very obvious it is an error in other words.

You are certainly welcome to believe that to be the case.

chai2 wrote:

I don't worry that people think I have no grasp of market forces.

Obviously.

chai2 wrote:

I think they got my irony, as did you.

You are certainly welcome to believe that to be the case.

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Chai, I saw what you were getting at. DD sometimes gets a bee in his bonnet.

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@georgeob1,

georgeob1 wrote:

That's why Bzerkeley has so little investment in new or upgraded housing.

If that's the reason, we need more rent control in America. I already noticed that the best looking small towns in America are the poor ones -- because investors haven't yet found it worth their while to tear down the beautiful historic structures and replace them with bland, plastic, pre-fab, streamlined investment objects. If rent control gives us more of that, I hereby demand more of it, and renounce my libertarianism.

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@Thomas,

+1

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Cyclo, As you are saving your money for the house, you are still paying rent.... Isn't that almost the same as paying interest on a mortgage?

I bought my house before housing in Baltimore went up. And even though I was told that I qualified for a much larger loan, I knew exactly how much I wanted to pay each month. And I that's what I bought. My mortgage payment is less than what I would be paying in rent. I've been here 10 years. I plan on being here at least 5 more years. I know even if the market declines, my house will still sell for twice what I paid. I don't consider the house a debt, it's equity.

As far as upkeep and repairs, I save money. I look to the future, to see what I'll need.

I save my money anyways because I work in an uncertain job market. I never know when or how long I'll be working. I've been unemployed now for three months. I'm starting work next week. I'm not starving. I have been doing this for 10 years now. I have no debt.

If I want to redo my kitchen, I save the money.
I'd love a new car or a dishwasher. But, even though I have the money right now to go buy them, I won't because I simply do not need them badly enough.

I have perfect credit. I could get a huge loan. But it doesn't make sense to me to do so.
I use credit cards and I pay them off every month.

I simply don't spend money I don't have.
And I don't need a lot of expensive things to complete me.

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@maporsche,

maporsche wrote:

Cyclops, I'm having trouble with your numbers.

Saving $500 / month for 15 years an 8% interest rate will equal about $175k in savings. That's equalivent to about $135k in today's dollars (adjusting for 3% inflation). And let's assume that home prices only grow at 3% over this time frame, now you're talking about $104k in today's dollars.

On the other hand, if you able to pay $2100 (your current rent + $500 that you're saving) you'd be able to buy a home worth $250k and have a 15 year mortgage (assuming a 1.25% property tax rate, and 6% interest rate). In addition, you'd have paid $120k in interest over 15 years, but due to the tax breaks, you'd have received about 40k of that back.

So, with your plan at the end of 15 years you end up with about 104k in todays dollars and no home.

In my plan, at the end of 15 years you'll have paid the same amount of money, but will have a home worth 250k in today's dollars (assuming a 3% inflation rate and 3% increase in home prices) and you'll have saved 40k in income taxes.

If I were you, I'd rethink this plan.

Now, if you plan on moving repeatedly then I wouldn't buy a home, but if you think in 15 years you'll still be living where you are now...well.

First, you used 500 a month instead of 1000. That's certainly a critical part of the plan; if you don't save enough, it doesn't work. I have some pre-existing savings that also weren't accounted for in your calculations, as I've been saving like this for a while.

Second, there are no homes worth 250k here. Period. I'd have to be on a mortgage three times that big just to have a simple place.

Third, you didn't account for insurance or upkeep of the home once you own it; and also, I don't know who pays 1.5% in property tax fees, but here it's much higher.

Fourth, the value of homes go up and down, not just up. When you own no home, you are never underwater - a situation which I am sure you can appreciate. This housing market downturn has not affected me personally in the slightest. How much is that stress worth?

Cycloptichorn

1 Reply

@chai2,

Quote:

I don't think my example is lame, or as DD said, made me look silly at all.

Nobody thinks their own examples are lame or make them look silly. This does not mean that people's examples are not, in fact, lame.

Chai, I say you are being defensive because you are acting defensive. When people launch into long-winded defenses of their position, and act as if they are somehow being personally attacked (the 'member of an evil empire' line, iirc), it's a sign that they are getting defensive on a subject.

Why you feel that people always know or admit when they are acting this way is beyond me. How many people who are acting like jerks, know and admit they are? Your admission is not necessary for a judgment of your behavior.

Cycloptichorn

1 Reply

@caribou,

And Caribou just presented us with the basic economics 101 course on what to do to acquire wealth. I can't fault any point of that.

I would add that it is a good thing to have three to six months in living costs stashed in liquid assets as a hedge against the unforeseen before taking on any long term debt.

Our house payment, including taxes, insurance, and interest, is also less than half than we would likely pay in rent for equivalent square footage in a decent location, and we recently qualified for and locked in a 4.65% fixed interest rate for a re-fi which will bring the payment down even more from the existing 6.5% rate we currently have. It will take about 18 months of the difference in payments between the old and new loan to recoup the costs to refinance and then our cost of living costs will be significantly improved which at our age is a good thing as we look to fully retire one of these days.

For those who have established the necessary credit and have the down payment and are willing to accept only a mortgage which they can easily afford, and assuming that they don't plan to move within the next three to five years, buying a house makes tremendously good sense.

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@caribou,

caribou wrote:

Cyclo, As you are saving your money for the house, you are still paying rent.... Isn't that almost the same as paying interest on a mortgage?

Nope. I have very little of the associated liability that comes with home ownership, and at my age, there's no real benefit to owning one.

Quote:

I bought my house before housing in Baltimore went up. And even though I was told that I qualified for a much larger loan, I knew exactly how much I wanted to pay each month. And I that's what I bought. My mortgage payment is less than what I would be paying in rent. I've been here 10 years. I plan on being here at least 5 more years. I know even if the market declines, my house will still sell for twice what I paid. I don't consider the house a debt, it's equity.

As far as upkeep and repairs, I save money. I look to the future, to see what I'll need.

I save my money anyways because I work in an uncertain job market. I never know when or how long I'll be working. I've been unemployed now for three months. I'm starting work next week. I'm not starving. I have been doing this for 10 years now. I have no debt.

If I want to redo my kitchen, I save the money.
I'd love a new car or a dishwasher. But, even though I have the money right now to go buy them, I won't because I simply do not need them badly enough.

I have perfect credit. I could get a huge loan. But it doesn't make sense to me to do so.
I use credit cards and I pay them off every month.

I simply don't spend money I don't have.
And I don't need a lot of expensive things to complete me.

It sounds like you are being very responsible and things are going great for you. I'm not against anyone doing what works best for them.

Cycloptichorn

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@Cycloptichorn,

dig this about me cy.

I am long winded.

that's just how I am. doesn't have a thing to do with being defensive, offensive, intensive or apprehensive.

I'm just long winded.

don't read any more into it than that.

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Alright Cyclops, I hope your plan works for you. Personally, unless you have a few hundred thousand in the bank, I have no idea how saving $1000/month will get realistically get you to $750k in 15 years.

There has to be condos selling for $150-250k. Maybe not SFH, but you could buy some property and get the same benefits I'm speaking of.

As far as being upside down on my home, I'll admit to some challenges that it presents (I wouldn't call it stress), but even given these challenges, I'm glad I bought my home. On a day to day basis it doesn't matter at all.

1 Reply

@Cycloptichorn,

Cycloptichorn wrote:

This housing market downturn has not affected me personally in the slightest. How much is that stress worth?

I bought my first house at a particularly bad time -- mid-2004. Yet, my house is currently worth significantly more than I paid for it. And I LOVE my house and love being a homeowner, love the idea that I'll be here to see trees that I plant now grow into maturity, love the stability. The housing market downturn hasn't affected me personally in the slightest, either.

I think the theme here is that while there are some underpinnings that are universally true (don't buy what you can't afford, etc.), there are other elements that you are presenting as universally true when they aren't. Of what you've said here so far I probably agree with this the most:

Cycloptichorn wrote:

It sounds like you are being very responsible and things are going great for you. I'm not against anyone doing what works best for them.

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@maporsche,

maporsche wrote:

Alright Cyclops, I hope your plan works for you. Personally, unless you have a few hundred thousand in the bank, I have no idea how saving $1000/month will get realistically get you to $750k in 15 years.

There has to be condos selling for $150-250k. Maybe not SFH, but you could buy some property and get the same benefits I'm speaking of.

As far as being upside down on my home, I'll admit to some challenges that it presents (I wouldn't call it stress), but even given these challenges, I'm glad I bought my home. On a day to day basis it doesn't matter at all.

Well, there are better and worse case scenarios. In better case scenarios, we save more money as time goes on per month (when my fiancee graduates psych grad school and starts working) and can pay it all off at once/the market drops to the level where things are more affordable/we move somewhere where housing is more affordable but take the money we made with high bay-area salaries.

In worse case scenarios, we can only save up enough to have a huge down-payment on the house of half or more of the money necessary; then pay off double and triple payments to get the rest moved out in just a few years.

Even condos here are 400 grand - for small ones. What can I say, it's an aspensive place!

Cycloptichorn

1 Reply

Forgot to mention this:

Once you've locked in your monthly payment, it doesn't change much. (Ours has actually gone down every year, as they tweak the escrow withholding.)

It may go up a little with increased taxes and insurance, but the payment for principle and interest will stay the same for 30 years.

1 Reply

@sozobe,

Sure. I just hate paying interest. I hate it. I don't like seeing what I owe go up over time, I don't like paying part of my monthly payments to interest instead of principal.

It's just a personal choice I s'pose. Part of the reason I bring it up is that people don't seem to think you can save for a house, when the math seems to work out almost even to me...

Cycloptichorn

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@Cycloptichorn,

Here's a decent looking place for $280k.

http://realestate.sfgate.com/homes/listing/219-350071/San-Francisco-CA-USA/2-beds/CONDO-type/0-300000-price/104-350262--219-350071-ls/2-t

1 Reply

@Thomas,

Thomas wrote:

georgeob1 wrote:
That's why Bzerkeley has so little investment in new or upgraded housing.

If that's the reason, we need more rent control in America. I already noticed that the best looking small towns in America are the poor ones -- because investors haven't yet found it worth their while to tear down the beautiful historic structures and replace them with bland, plastic, pre-fab, streamlined investment objects. If rent control gives us more of that, I hereby demand more of it, and renounce my libertarianism.

Clearly you haven't visited Potomac Maryland, Marin County CA, Rowland Park in Baltimore, Coral Gables FLA, Atherton or Rancho SantaFe CA, or many other such communities lately.

I agree that much of modern construction is vulgar, excessively commercial and the like. However, this has always been true - even when the lovely old neighborhoods to which you referred were built. In addition I note that most of the "bland, pre-fab, streamlined investment objects" that have infected depressed urban areas lately were precisely those being funded & encouraged under the directed mortgage investments program that forced banks to meet government assigned quotas for lending to preferred minorities and in selected areas - regardless of conventional credit standards. Central Oakland is full of them now - and they are all empty. (However they do look better than what they replaced.)

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@DrewDad,

Unless you fall for an adjustable rate mortgage. Interest rates are as low as I've ever seen, but I bet people are still going for it.

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@sozobe,

Quote:

It sounds like you are being very responsible and things are going great for you. I'm not against anyone doing what works best for them.

I agree with this. I don't not want to own a house because I think it's more fiscally rewarding in the long run - I don't think that at all.
I don't want to own a house because for me, it's not what works best. I don't like being tied down - never have.
But I DO have other financial sureties in place which will work to secure my future- so that I don't have to worry about equity in a house as a source of income. or security.
But you ARE getting something when you pay rent - you're getting a place to live where you choose to live and the freedom to go where you want or need to go when you want or need to, as well as the freedom to invest your money in something other than bricks and mortar if you see fit.
As I said - it makes financial sense for some people to rent just as it certainly makes good financial sense for others to own.

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@Cycloptichorn,

Sure... we did something similar-ish. Well, the money was supposed to go towards supporting us while I stayed home with sozlet (I saved it while I was working), but we just lived way cheaply and didn't touch it until we used it as a down payment on our house, four years later.

Basically, if you're saying "I'm doing it this way and I think it'll work and this is why," cool.

If you're saying, "I'm doing it this way and I think it's the best possible way and that people who buy a house and pay a mortgage instead are idiots," not so much. But you seem to clarify in the thing I quoted that you're NOT saying that.

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Does anyone else eschew credit?

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