dmarc117 Posted June 22, 2008 Share Posted June 22, 2008 this is a question that many people were too stoopid and too greedy to answer Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted June 23, 2008 Share Posted June 23, 2008 The one major risk is as GTB discusses. Liquidity. To paint the extreme, if your house is paid for but you have no money you do not eat. PS - As an attorney friend of mine says, "We live in uncertain times." Pretty much anything can happen to anyone at any moment. Wait, once my house is paid off, I'll have nearly $1,200 a month to add to my liquidity. That'll buy a serious amount of alcoholic liquids. Quote Link to comment Share on other sites More sharing options...
polksalet Posted June 23, 2008 Share Posted June 23, 2008 Screw Lexington, I'm moving to Redwater, where gas, food, and energy are free and the government does not assess property taxes. Gas is cheap (Texas), property taxes are cheap, and there is no sales tax on food. Also because it is so rural there is lots of farmer's markets. I also have an ak and an sk and around 10,000 rounds under my bed if things get too bad. Quote Link to comment Share on other sites More sharing options...
detlef Posted June 23, 2008 Share Posted June 23, 2008 I think those who are taking the super conservative approach and thinking you need to buy a house with cash or pay it off in a hurry are failing to realize that there's another, very conservative approach that is far more realistic. That is, be satisfied with a nice house that you can really afford, put down the 20% and take on a 30 year with a mortgage payment that is super easy to maintain. Ours, is less than 10% of our gross. That gives us the flexibility to set up other retirement vehicles but not be bound by some really ambitious plan to pay the thing off. Waiting to buy until you can pay for it in cash? That's going to rule out a lot of places to live and you'll delay being able to take advantage of the great financial advantages of owning (that being, everything that doesn't go to principle is a tax write off and the rest you're basically paying to yourself in equity. Why not get on the train as soon as you can? Oh, and Polk, when we were buying our first home, I worked for a guy who was richer than god. His advice? Push that loan out as far as you can. Never, ever pay off your house. It's the cheapest money you'll ever get and if the economy gets bad enough, long enough that you can't do better in the long run than the 6% or so you're paying on that loan, we're all going to be screwed anyway. Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted June 23, 2008 Share Posted June 23, 2008 I think those who are taking the super conservative approach and thinking you need to buy a house with cash or pay it off in a hurry are failing to realize that there's another, very conservative approach that is far more realistic. That is, be satisfied with a nice house that you can really afford, put down the 20% and take on a 30 year with a mortgage payment that is super easy to maintain. Ours, is less than 10% of our gross. That gives us the flexibility to set up other retirement vehicles but not be bound by some really ambitious plan to pay the thing off. Waiting to buy until you can pay for it in cash? That's going to rule out a lot of places to live and you'll delay being able to take advantage of the great financial advantages of owning (that being, everything that doesn't go to principle is a tax write off and the rest you're basically paying to yourself in equity. Why not get on the train as soon as you can? Oh, and Polk, when we were buying our first home, I worked for a guy who was richer than god. His advice? Push that loan out as far as you can. Never, ever pay off your house. It's the cheapest money you'll ever get and if the economy gets bad enough, long enough that you can't do better in the long run than the 6% or so you're paying on that loan, we're all going to be screwed anyway. Aren't your first and third paragraphs at odds with each other? Quote Link to comment Share on other sites More sharing options...
Caveman_Nick Posted June 23, 2008 Share Posted June 23, 2008 Wait, once my house is paid off, I'll have nearly $1,200 a month to add to my liquidity. That'll buy a serious amount of alcoholic liquids. Not only that, but you also can take that nearly $1200 per month and invest that, without risking the large sum of cash that was necessary to pay off your house. I guess it depends on what's important to you. Quote Link to comment Share on other sites More sharing options...
polksalet Posted June 23, 2008 Share Posted June 23, 2008 Oh, and Polk, when we were buying our first home, I worked for a guy who was richer than god. His advice? Push that loan out as far as you can. Never, ever pay off your house. It's the cheapest money you'll ever get and if the economy gets bad enough, long enough that you can't do better in the long run than the 6% or so you're paying on that loan, we're all going to be screwed anyway. Was he richer than Sam Walton? I only met Sam once but that his philosphy. Was your boss richer than Sam? I'm just sayin. Oh yeah, step sis made several hundred grand for years and now bought a house from her cousin (owner financed) because no bank (she is a banker again) will make her a loan. Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted June 23, 2008 Share Posted June 23, 2008 it's not that paying off your mortgage is a bad thing. there are just a lot of other things that should be higher priorities. paying off any other kind of debt (higher rates and not tax deductible), retirement savings, rainy day fund, etc. if you get past all of that and still have a bunch of cash around, then sure, pay off your house too. Quote Link to comment Share on other sites More sharing options...
polksalet Posted June 23, 2008 Share Posted June 23, 2008 Waiting to buy until you can pay for it in cash? That's going to rule out a lot of places to live and you'll delay being able to take advantage of the great financial advantages of owning (that being, everything that doesn't go to principle is a tax write off and the rest you're basically paying to yourself in equity. Why not get on the train as soon as you can? The tax write off = giving the bank 10 dollars and gdub giving you bak three. Is that a good ror? Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted June 23, 2008 Share Posted June 23, 2008 Was he richer than Sam Walton? I only met Sam once but that his philosphy. Was your boss richer than Sam? I'm just sayin. Oh yeah, step sis made several hundred grand for years and now bought a house from her cousin (owner financed) because no bank (she is a banker again) will make her a loan. so sam walton thought that if you have a million kazillion dollars you shouldn't take out a mortgage, huh? boy, there's a shocking revelation. Quote Link to comment Share on other sites More sharing options...
geeteebee Posted June 23, 2008 Share Posted June 23, 2008 Not only that, but you also can take that nearly $1200 per month and invest that, without risking the large sum of cash that was necessary to pay off your house. I guess it depends on what's important to you. But you are failing to take into account the large sum of cash that is at risk sitting in a very illiquid piece of real estate. Whether that cash is sitting in a brokerage account somewhere or sitting in your house as equity, it is at risk. Being entirely debt free is a noble ambition and one that, even if it is financially ineffiecient, is important to a lot of people. However, a certain amount of leverage is, in my opinion, a prudent wealth building tool. Quote Link to comment Share on other sites More sharing options...
polksalet Posted June 23, 2008 Share Posted June 23, 2008 so sam walton thought that if you have a million kazillion dollars you shouldn't take out a mortgage, huh? boy, there's a shocking revelation. When Sam was young he over borrowed, went under, declared bankruptcy, and later started Wally. You should read a book sometime. Quote Link to comment Share on other sites More sharing options...
Caveman_Nick Posted June 23, 2008 Share Posted June 23, 2008 But you are failing to take into account the large sum of cash that is at risk sitting in a very illiquid piece of real estate. Whether that cash is sitting in a brokerage account somewhere or sitting in your house as equity, it is at risk. Being entirely debt free is a noble ambition and one that, even if it is financially ineffiecient, is important to a lot of people. However, a certain amount of leverage is, in my opinion, a prudent wealth building tool. It's cash in an asset. "Risk" in that situation is only definable if there is a need to sell/liquidate. Sure it's at risk there. Low risk. If your house is paid off you are immune to market tendencies until you are looking to sell. And if one's goal is to pay off the house they plan on living in for the next 30 years, it's not at risk, it's performing a function that is different than making money, unlike your brokerage account. It's making sure that the place to live will be there and it is freeing up the cash paid to the mortgage. What can I say...you feel free to leverage. If I did a good enough job with my money that I can pay off my house, then I am probably doing just fine my way, no? Quote Link to comment Share on other sites More sharing options...
bushwacked Posted June 23, 2008 Share Posted June 23, 2008 so sam walton thought that if you have a million kazillion dollars you shouldn't take out a mortgage, huh? boy, there's a shocking revelation. I think that a lot of the advice in this thread has to be taken with a huge grain of salt. Different situations and different markets kind of make some of the lock- hard rules shared in here make perfect sense in some situations, but not in all. Quote Link to comment Share on other sites More sharing options...
muck Posted June 23, 2008 Author Share Posted June 23, 2008 I am curious ... for the folks on a coast ... what multiple of salaries are people paying for their house? I'd bet that here in the midwest its 2x - 3x is pretty typical. I'd also bet that on the coast, seeing 4x - 6x is not unusual at all... Quote Link to comment Share on other sites More sharing options...
Puddy Posted June 23, 2008 Share Posted June 23, 2008 I am curious ... for the folks on a coast ... what multiple of salaries are people paying for their house? I'd bet that here in the midwest its 2x - 3x is pretty typical. I'd also bet that on the coast, seeing 4x - 6x is not unusual at all... I've never understood how people can pay their mortgage in that situation (unless they have a hugh down payment). A very rough estimate is that your monthly nut is 1% of your mortgage. So if you make 100k a year and buy a 250k house your payment will be somewhere around $2,500 per month. Your monthly net pay (assuming 25% withholding for Fed & State & Insurance & SS) $6,375. That leaves you $3,775 per month for all your other bills. Doable. But if you are paying 4x-6x your annual salary how do you make the monthly payment. A $500k house will run $4,500 - $5,000 per month. What gives? Quote Link to comment Share on other sites More sharing options...
CaP'N GRuNGe Posted June 23, 2008 Share Posted June 23, 2008 I've never understood how people can pay their mortgage in that situation (unless they have a hugh down payment). A very rough estimate is that your monthly nut is 1% of your mortgage. So if you make 100k a year and buy a 250k house your payment will be somewhere around $2,500 per month. Your monthly net pay (assuming 25% withholding for Fed & State & Insurance & SS) $6,375. That leaves you $3,775 per month for all your other bills. Doable. But if you are paying 4x-6x your annual salary how do you make the monthly payment. A $500k house will run $4,500 - $5,000 per month. What gives? I've always wondered this as well. I assume that's why they have 40 year mortgages. I also assume many in CA for example were lucky enough to trade up once or twice and carry forward appreciated equity into their current hugh mortgages. Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted June 23, 2008 Share Posted June 23, 2008 It's cash in an asset. "Risk" in that situation is only definable if there is a need to sell/liquidate. Sure it's at risk there. Low risk. If your house is paid off you are immune to market tendencies until you are looking to sell. And if one's goal is to pay off the house they plan on living in for the next 30 years, it's not at risk, it's performing a function that is different than making money, unlike your brokerage account. It's making sure that the place to live will be there and it is freeing up the cash paid to the mortgage. What can I say...you feel free to leverage. If I did a good enough job with my money that I can pay off my house, then I am probably doing just fine my way, no? Completely agree. Quote Link to comment Share on other sites More sharing options...
TDFFFreak Posted June 23, 2008 Share Posted June 23, 2008 I've always wondered this as well. I assume that's why they have 40 year mortgages. I also assume many in CA for example were lucky enough to trade up once or twice and carry forward appreciated equity into their current hugh mortgages. That's pretty much what I did with my current house in Los Angeles. We bought our first place about six years ago (about 2 years short of the low point) at a great price in a good area and then parlayed that into our current place which we bought a year ago. WIthout that first leap of faith, we'd be priced out of the LA home market now. Quote Link to comment Share on other sites More sharing options...
polksalet Posted June 23, 2008 Share Posted June 23, 2008 http://www.realtor.com/search/listingdetai...;srcnt=8#Detail Quote Link to comment Share on other sites More sharing options...
Riffraff Posted June 23, 2008 Share Posted June 23, 2008 (edited) I am curious ... for the folks on a coast ... what multiple of salaries are people paying for their house? I'd bet that here in the midwest its 2x - 3x is pretty typical. I'd also bet that on the coast, seeing 4x - 6x is not unusual at all... Median household income in Washington state is less than $60k. Cheapest decent housing is around $250k. If you use these settings in this link Minimum $0 Maximum $200,000 2 beds 2 bath 1,500 sq ft 1 garage acreage = any size new on market = all homes year built = any year single family only checked Make it so you zoom into the entire state of Washington (not just the coastal areas). With these meager expectations = 1,000+ houses statewide. change year built to "Less than 25 years old" = 400+ houses statewide. change acreage to "Half acre" = 100+ houses statewide. You get the picture. Houses cost 4 times the median household income for a crappy old house. Edited June 23, 2008 by Riffraff Quote Link to comment Share on other sites More sharing options...
detlef Posted June 23, 2008 Share Posted June 23, 2008 Aren't your first and third paragraphs at odds with each other? No, not in the slightest. I'm saying find a house that is inexpensive enough that you don't have to enter some weird mortgage and just make the payments without worrying about paying the thing off. How many of us actually plan to be in our home for 30 years? Was he richer than Sam Walton? I only met Sam once but that his philosphy. Was your boss richer than Sam? I'm just sayin. Oh yeah, step sis made several hundred grand for years and now bought a house from her cousin (owner financed) because no bank (she is a banker again) will make her a loan. Well, prolly not but at his level of wealth, I don't think it matters much. None the less, I'm mostly going on the fact that a very wealthy man gave me advice that also actually makes sense. I mean, think about how messed up the economy would be if, over 30 years, conservatively investing money couldn't yield better than 6% per year? Over any reasonable stretch, it's more like 10%, right? That's the trade off. You can either pay down your house and save 6% on that money or you can invest that same amount (ideally in one of the many tax protected vehicles), earn more than 6% and get to deduct all the interest you pay on your house from your taxes. Now, of course you need to take the appreciation into account, but I live in one of the few markets that's actually holding firm in this latest correction and my house has seen about 3% per year over the last 5. So, even with that, historically, I can do better and that's before you consider that I get to write off the interest. The tax write off = giving the bank 10 dollars and gdub giving you bak three. Is that a good ror? Well, I'm operating under the assumption that you have to live somewhere, so you're either paying rent or paying mortgage. If I understand you correctly, you're saying don't buy a house unless you can buy it outright or pay it off quick. I see two major, major flaws in your logic unless your family owns a chain of discount stores. #1) You need to be willing to buy a house that costs almost nothing which means you likely don't live anywhere near a place where you can make a decent salary or you need to commute 100 miles each way (gas?) or you need to be willing to live in a nearly condemned shack in the hood. #2) You need to delay your purchase until you have a ton of money saved up which means renting longer. This, is where my bit about the tax write-off comes in. Rents are, by nature, usually about the same as what mortgage payments are. I mean, at least, because who's going to rent a place for less than their monthly mortgage payment on the house? So, if you're renting, every penny of what you're paying goes away. If you're buying, then a small amount goes into the equity which is basically a savings account and the rest you get to write off. Then of course, you knew this. Now, if you'd rather not take advantage of the liquidity that a 30 year fixed with a low interest rate provides and double pay, that's fine. However, my bit about the tax advantage was aimed at your very unrealistic theory about waiting to buy a house until you can pay cash. Quote Link to comment Share on other sites More sharing options...
detlef Posted June 23, 2008 Share Posted June 23, 2008 I've never understood how people can pay their mortgage in that situation (unless they have a hugh down payment). A very rough estimate is that your monthly nut is 1% of your mortgage. So if you make 100k a year and buy a 250k house your payment will be somewhere around $2,500 per month. Your monthly net pay (assuming 25% withholding for Fed & State & Insurance & SS) $6,375. That leaves you $3,775 per month for all your other bills. Doable. But if you are paying 4x-6x your annual salary how do you make the monthly payment. A $500k house will run $4,500 - $5,000 per month. What gives? Assuming that you put 20% down and are not paying some insane interest rate, your mortgage will not be $2500 per month. Our house is worth about $250, our mortgage is about $200K and our monthly payment is about $1500. Quote Link to comment Share on other sites More sharing options...
detlef Posted June 23, 2008 Share Posted June 23, 2008 Was he richer than Sam Walton? I only met Sam once but that his philosphy. Was your boss richer than Sam? I'm just sayin. Oh yeah, step sis made several hundred grand for years and now bought a house from her cousin (owner financed) because no bank (she is a banker again) will make her a loan. One more thing. The advice I got from my previous employer was not gleaned through a brief conversation I had with him once. Rather, through numerous in-depth conversations I had with him over the course of about 2 years. He broke it down a bit more than "by low, sell high". Quote Link to comment Share on other sites More sharing options...
i_am_the_swammi Posted June 23, 2008 Share Posted June 23, 2008 Frasier: There's an old real estate maxim that says the three most important things when looking for a property are location, location, location.Woody: That's just one thing. Frasier: That's the point Woody. Woody: What, that real estate people are stupid? Frasier: No, that location is the one most important thing in real estate. Woody: Then why do they say that it's three things? Frasier: (Sigh) Because real estate people are stupid. Damn, I miss that show. Coach and Woody were alltime classic characters. Quote Link to comment Share on other sites More sharing options...
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