Investing General Discussion

Khane · Jan 4, 2020

Sanrith Descartes said:
I have to disagree. For those who can afford to own, owning is the way to go. That is an important distinction. We suffered a near catastrophic economic meltdown in 2007/08 because a large swath of people who couldnt afford to own tried to do so. I'm not placing blame (there is enough to go around to everyone), just stating a point.

There are situations where renting is the right call and i have been a renter numerous times in the past. Outside of those home ownership is better in my opinion.

This is a very reductive view of what caused the problem. Did some people fall into the trap of buying more than they could afford? Sure. But mortgage lending has been a predatory practice for many years now (still is) and many mortgage brokers will purposely try to make people lead with their hearts instead of their heads. A lot of the lending programs and loan formats are designed to trap people. Things like 5/1 ARMs and 80/20 loans are proof positive. These things would not exist in a good faith business practice world.

A big problem that leads to people buying into bad mortgages is the idea that home ownership is a good investment. If you're buying a home you shouldn't think of it as an investment. It's a depreciating heap of wood, metal, and stone that requires a lot of upkeep. The land is the real asset but who actually buys homes this way? Instead people throw out arbitrary numbers to hand wave thought and reason as part of the biggest purchase almost anyone will make in their life. "If you're going to stay here for at least 5 years it's worth it!" Uhh... what? If you take a conventional 30 year loan you're going to be paying almost nothing but interest in those 5 years. All while having to pay taxes, insurance and the costs of maintaining the home and property. Yet people act like it's smart and savvy to keep buying, selling and moving on some ridiculous 5 year cycle. "Starter home" might be the biggest crock of shit marketing line on earth.

The problem wasn't people who couldn't afford to own, the problem was a systematic failure of conscience and good old fashioned greed. The people who found themselves underwater certainly aren't blameless but they were guided there without remorse by "industry professionals and experts" they should have been able to trust. People bought houses that they actually could afford if they had just taken a conventional loan, but were tricked into taking ARMs and suddenly found themselves in a mortgage that doubled in cost because of rising interest rates.

Owning a home certainly can and should be a better financial avenue than renting. If you plan on staying there for the life of the loan. This 5 and 10 year plan rhetoric is nonsense.

Sanrith Descartes · Jan 4, 2020

Khane said:
This is a very reductive view of what caused the problem. Did some people fall into the trap of buying more than they could afford? Sure. But mortgage lending has been a predatory practice for many years now (still is) and many mortgage brokers will purposely try to make people lead with their hearts instead of their heads. A lot of the lending programs and loan formats are designed to trap people. Things like 5/1 ARMs and 80/20 loans are proof positive. These things would not exist in a good faith business practice world.

A big problem that leads to people buying into bad mortgages is the idea that home ownership is a good investment. If you're buying a home you shouldn't think of it as an investment. It's a depreciating heap of wood, metal, and stone that requires a lot of upkeep. The land is the real asset but who actually buys homes this way? Instead people throw out arbitrary numbers to hand wave thought and reason as part of the biggest purchase almost anyone will make in their life. "If you're going to stay here for at least 5 years it's worth it!" Uhh... what? If you take a conventional 30 year loan you're going to be paying almost nothing but interest in those 5 years. All while having to pay taxes, insurance and the costs of maintaining the home and property. Yet people act like it's smart and savvy to keep buying, selling and moving on some ridiculous 5 year cycle. "Starter home" might be the biggest crock of shit marketing line on earth.

The problem wasn't people who couldn't afford to own, the problem was a systematic failure of conscience and good old fashioned greed. The people who found themselves underwater certainly aren't blameless but they were guided there without remorse by "industry professionals and experts" they should have been able to trust. People bought houses that they actually could afford if they had just taken a conventional loan, but were tricked into taking ARMs and suddenly found themselves in a mortgage that doubled in cost because of rising interest rates.

Owning a home certainly can and should be a better financial avenue than renting. If you plan on staying there for the life of the loan. This 5 and 10 year plan rhetoric is nonsense.

We both agree that the land is the real asset, not the house. It is why you see people buying large lots with small old houses and replacing them with modern grande casas.

I was clear that there was plenty of blame to go around for the housing collapse. Banks, mortgage lenders, and buyers all played their roles. I think if you dig deeper you will find more than just a few people bought houses they couldnt afford. Buying an arm with the intent to refi or to flip the house before the teaser rate expires and that adjusted payment is beyond your means to pay is buying a house you cant afford.

Our country has a woefully uneducated populace when it comes to even the most basic of financial knowledge. Interest is God when someone is paying it to you and the Devil when you are paying it to someone. Millions of kids with college degrees have zero understanding of why 5 years of payments after graduation their unsubsidized student loan is either what it started at or in many cases higher. Math for liberal arts majors ftw.

LachiusTZ · Jan 4, 2020

Falxy-US said:
I'm looking at purchasing a beach condo in Galveston, TX. I received some projected incomes based on bookings for this type of property from a property manager.

Purchase price: $129,000
10% down payment = $12,900 + closing costs
Estimated gross rental income: $28,995 annual, $2416.25 monthly (this is averaged over the year, it ranges from like $1000 in December to $5-6,000 during the summer.)

Monthly costs:
Principal and interest: $531
Property tax: $197
Homeowners insurance: $117
Mortgage insurance: $73
HOA dues: $433
Electricity & Internet/cable: $200
Total: $1551 per month

Vacasa (property management) fee is 30% of gross

So, monthly you could take in, on average, $2416.25, and after deducting the 30% gross PM fee, and the $1551 monthly expenses, you get $140.38. Yearly this is 1684.56

Cash on cash is 13%

The problem seems to be the fixed costs are so high with this rental property, being property tax ($197), homeowners insurance ($117), HOA ($433) and utilities ($200) = $947/month and the large property management fee (30%)

With a fully paid off mortgage, this property would generate $744.38 per month, which is a nice cash flow for sure. This is a one bedroom beach condo, and likely would not appreciate very much. The profit from here is really cash flow, not appreciation.

Would you do this?

No.

Khane · Jan 4, 2020

Sanrith Descartes said:
We both agree that the land is the real asset, not the house. It is why you see people buying large lots with small old houses and replacing them with modern grande casas.

I was clear that there was plenty of blame to go around for the housing collapse. Banks, mortgage lenders, and buyers all played their roles. I think if you dig deeper you will find more than just a few people bought houses they couldnt afford. Buying an arm with the intent to refi or to flip the house before the teaser rate expires and that adjusted payment is beyond your means to pay is buying a house you cant afford.

Our country has a woefully uneducated populace when it comes to even the most basic of financial knowledge. Interest is God when someone is paying it to you and the Devil when you are paying it to someone. Millions of kids with college degrees have zero understanding of why 5 years of payments after graduation their unsubsidized student loan is either what it started at or in many cases higher. Math for liberal arts majors ftw.

What 16 year old knows what they want to do, what they should do, and what the financial impact of that decision even means? Even if you try to educate them they aren't going to listen.

People weren't taking ARM loans with the intent to refi or flip, they were being sold ARM loans as if they were the best option for the financially savvy 100% of the time even when planning on staying in the house forever. People who flipped or refinanced were never going to get themselves in trouble because the mortgage was leveraged and then removed before the 5 year term for adjustment matured.

When you create a financial landscape that allows someone to sell new debt to any buyer and then repackage and resell that debt within weeks to someone else so they never even have to service it what the hell do you expect to happen?

This has nothing to do with liberal arts degrees. The private university debt problem is a completely different conversation. How does that even relate to this?

Debt is sexy in America, and everyone thinks they can leverage it to make more money elsewhere.

Borzak · Jan 4, 2020

I never offer investing advice. If I did don't take it. I normally only have invested in companies I understand how their market and how they make money works. Which really limits the number of things I can invest in.

A few times I have invested in some much smaller companies if I knew how their business worked and their plan to make money made sense, and how some more capital would be spent to make a return. Those days are pretty much over but it worked well in the past for me.

Captain Suave · Jan 4, 2020

Sanrith Descartes said:
There are situations where renting is the right call and i have been a renter numerous times in the past.

I'd say these situations are quite a bit more common than popular wisdom admits. Where I am in LA, for instance, the price of renting is 2/3 that of owning the same property. While it's true that if we were to buy a house with payments at our rental price point we would be financially ahead, we would not be able to buy the house in which we want to live at that price. The purchase/rental disconnect allows us to live in a much nicer area than we could otherwise buy into and lets us send our kids to a top-tier public school instead of paying through the nose for private education. Given that we can put the balance of avoided down payment, tuition, additional mortgage into the market, we're way ahead.

The NYT has a great calculator for this purpose.

Is It Better to Rent or Buy? A Financial Calculator.

Our calculator takes the most important costs associated with buying or renting and compares the two options.

www.nytimes.com

Sanrith Descartes · Jan 4, 2020

Khane said:
This has nothing to do with liberal arts degrees. The private university debt problem is a completely different conversation. How does that even relate to this?

It was a reference to college grads not understanding things like interest and the fact that Colleges allow liberal arts students to avoid algebra by taking math for liberal arts majors. It is something I disagree with.

Sanrith Descartes · Jan 4, 2020

Captain Suave said:
I'd say these situations are quite a bit more common than popular wisdom admits. Where I am in LA, for instance, the price of renting is 2/3 that of owning the same property. While it's true that if we were to buy a house with payments at our rental price point we would be financially ahead, we would not be able to buy the house in which we want to live at that price. The purchase/rental disconnect allows us to live in a much nicer area than we could otherwise buy into and lets us send our kids to a top-tier public school instead of paying through the nose for private education. Given that we can put the balance of avoided down payment, tuition, additional mortgage into the market, we're way ahead.

The NYT has a great calculator for this purpose.

Is It Better to Rent or Buy? A Financial Calculator.

Our calculator takes the most important costs associated with buying or renting and compares the two options.

www.nytimes.com

There is a time viewpoint aspect to the rent/own thing. I totally get renting is like leaving a car, you can "afford more". I always question what happens at retirement? The hope for homeowners would be their home is played off and cut out their second biggest retirement cost (after medical bills that come with age).

I wonder what will happen to those who never buy come old age. Will they be able to afford to keep paying rent in their 60s or 70s or older?

Khane · Jan 4, 2020

How many degrees do you think require continuing education in algebra past the high school level?

Sanrith Descartes · Jan 4, 2020

Khane said:
How many degrees do you think require continuing education in algebra past the high school level?

Where I went to school College Alegbra and 1 other math beyond it (or Stats) is a requirement for nearly all degrees. It's part of the IFP or AA equivalent.

Khane · Jan 4, 2020

Sanrith Descartes said:
There is a time viewpoint aspect to the rent/own thing. I totally get renting is like leaving a car, you can "afford more". I always question what happens at retirement? The hope for homeowners would be their home is played off and cut out their second biggest retirement cost (after medical bills that come with age).

I wonder what will happen to those who never buy come old age. Will they be able to afford to keep paying rent in their 60s or 70s or older?

Are you under the impression retirees are hoping to stay in the same area and home they've been living in during their employed career? And that retirement is only about entertainment income? If you never buy you must be poor and can't afford to retire? Jesus bud...

Captain Suave · Jan 4, 2020

Sanrith Descartes said:
There is a time viewpoint aspect to the rent/own thing. I totally get renting is like leaving a car, you can "afford more". I always question what happens at retirement? The hope for homeowners would be their home is played off and cut out their second biggest retirement cost (after medical bills that come with age).

I wonder what will happen to those who never buy come old age. Will they be able to afford to keep paying rent in their 60s or 70s or older?

IMO it just boils down to a question of total wealth. I end up with more wealth by renting at my current standard of living at my current geography than I would buying. Whether that wealth is in real estate or other investments doesn't matter since the exchange between the two is trivial. For retirement, the bigger principle is that either way I'm still living within my means. The "Where do I live in retirement?" answers itself if I understand that retirement still requires assets/income for living and budget accordingly. When the time comes I'll buy a house in cash (or borrow for it, depending on interest rates) in a place the overlaps between what I want and what I can afford. As Khane says, odds are slim I'd want to retire in a big house in a premium school district, so then it's just a question of relative asset appreciation and diversification.

Also remember the other side of the coin, where retired people have sunk all their wealth into their home and can no longer afford to maintain or pay taxes on a property that is far larger than they need. My neighbor just sold and moved for that reason.

Khane · Jan 4, 2020

Sanrith Descartes said:
Where I went to school College Alegbra and 1 other math beyond it (or Stats) is a requirement for nearly all degrees. It's part of the IFP or AA equivalent.

College Algebra? Are you being serious right now?

College Algebra, A.K.A Algebra... A.K.A You weren't really paying attention were you? We'll take your money!

If you want to talk about something like Applied Linear Algebra then fine but you were just bemoaning bad education and bullshit degrees and then talk about "College Algebra"...

Sanrith Descartes · Jan 4, 2020

Khane said:
Are you under the impression retirees are hoping to stay in the same area and home they've been living in during their employed career? And that retirement is only about entertainment income? If you never buy you must be poor and can't afford to retire? Jesus bud...

Or... that a home owned outright can be sold and the proceeds used to purchase a home elsewhere.

Captain Suave · Jan 4, 2020

Sanrith Descartes said:
can be sold and the proceeds used to purchase a home elsewhere.

Right, like any other asset. There's nothing unique about home equity. It's just a question of growing your assets enough to retire at your targeted lifestyle.

Sanrith Descartes · Jan 4, 2020

Khane said:
College Algebra? Are you being serious right now?

College Algebra, A.K.A Algebra... A.K.A You weren't really paying attention were you? We'll take your money!

If you want to talk about something like Applied Linear Algebra then fine but you were just bemoaning bad education and bullshit degrees and then talk about "College Algebra"...

You're kidding right? How many non-stem college students are you assuming take applied linear algebra? If you believe it is more than 0, you are probably mistaken.

Also, I never bemoaned bullshit degrees. I take issue with colleges allowing students to graduate taking no math above middle school.

Khane · Jan 4, 2020

Algebra is middle school math and your "College Algebra" is the same middle school math. Try to keep up.

Colleges shouldn't even be accepting students that need a "College Algebra" course in their freshman year. It is literally the basis of math.

x + 3 = 9. What's x?

Sanrith Descartes · Jan 4, 2020

For those of you thinking renting is better than owning, more power to you. Different strokes and all that.

Captain Suave · Jan 4, 2020

Sanrith Descartes said:
For those of you thinking renting is better than owning

It's more that the whole debate is badly framed by a cultural bias towards ownership. Financially, doesn't matter if you rent or buy as long as you're saving a responsible fraction of your income and getting the best returns you can.

Sanrith Descartes · Jan 4, 2020

Khane said:
Algebra is middle school math and your "College Algebra" is the same middle school math. Try to keep up.

Colleges shouldn't even be accepting students that need a "College Algebra" course in their freshman year. It is literally the basis of math.

1x + 3 = 9. What's x?

I am guessing you havent spent time on a college campus lately?

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