Why Your First House Is A Liability • Hacker News Board

Re: Why Your First House Is A Liability

#41

Post by cko » Sat, Sep 05, 2020, 3:00 PM UTC

thrwn_frthr_awy wrote: post #35

jlj wrote: post #22

Earlier quoted context omitted.

> A mortgage payment is always less than rent for an equivalent property, anyway. Not always, though they often track closely to reach other, they can also diverge. If rent is high and home prices are low that could be a good signal to buy. And you also have to consider what you equity would be doing if it was invested in something other than your house.

> > A mortgage payment is always less than rent for an equivalent property, anyway Yeah, I don’t understand these statements. It is clear that people making them do not have experience is real estate or only have experience in specific markets. There are absolutely many real estate markets where the rent is more than the mortgage, and anyone with enough real estate knowledge to give advice would know this.

If that were true then no landlord would be cash flowing if they bought the property with a mortgage.

Re: Why Your First House Is A Liability

#42

Post by throwaway98797 » Sat, Sep 05, 2020, 3:03 PM UTC

dawg- wrote: post #13

I bought my first house at 24 which is apparently rare nowadays. I sold it and made some money. If I had taken my down payment and invested it in a bunch of AMD stock or something I would have made triple the money. But I don’t regret it - there is something so satisfying about owning the place you live. It’s like a sense of self-efficacy and control over your life that is not the same when you rent. I would recommen…

People who bought houses in different time periods had different experience. See folks who bought in 2005-2006.

Also, for a young person who knows where they are going to be for next 5+ years home ownership may turn out okay. If you have to move for an opportunity the house can become quite the tight noose around your neck.

Re: Why Your First House Is A Liability

#43

Post by thrwn_frthr_awy » Sat, Sep 05, 2020, 3:04 PM UTC

Barrin92 wrote: post #9

mellosouls wrote: post #2

Seems to be written from the perspective of somebody who cannot see the difference between an investment and a home . Even if you look at it in mostly financial terms there are positives and negatives; the essay here is far too black and white. Sure, by chasing every dollar you can sacrifice quality of life for a few years to maximise your bank account at a later date, but in the meantime some of us prefer to live a…

you can turn that argument on its head though. Caring about quality of life is why I rent rather than buy a home. No debt, no fixed costs (people typically say 1% of the value of the house per year, quite a lot of cash), no repairs I have to worry about, moving out is simple etc.. Here in Germany most people rent by the way, so I never understood the obsession with homeownership. Just look at the covid mess. If you'r…

For Americans with children, owning a home ensures your kids will attend the same school each year and a known school in the future. May be different in Germany, but in a place like Los Angles, the public schools can vary _greatly_ a small geographical area. If I showed you pictures of two public schools 20 minutes from each other, you’d be blown away. Renting makes securing a “good” school much more challenging.

Re: Why Your First House Is A Liability

#44

Post by b203 » Sat, Sep 05, 2020, 3:04 PM UTC

The author's advice is country dependent. My assumption is that he is writing from the perspective of buying in India.

1) In India, rents are very low compared to mortgage payments. 2) Home value appreciation is low given the rate of inflation. 3) financial instruments like home equity line of credit are not available.

So yes, it probably is not a good decision to buy a house in a big city in India. Elsewhere? Do your own calculation.

Re: Why Your First House Is A Liability

#45

Post by epx » Sat, Sep 05, 2020, 3:05 PM UTC

Purchases are irrational. I bought the car I bought because I like the engine noise, and I bought a house because I don’t want to have to ask permission to the landlord to hang a frame in the wall.

It makes sense not to buy a house if you just know you are moving in the foreseeable future.

Re: Why Your First House Is A Liability

#46

Post by game_the0ry » Sat, Sep 05, 2020, 3:06 PM UTC

bluedevil2k wrote: post #4

Lots of bad financial advice here. “You can’t unlock a house’s appreciation” - wrong, they have home equity lines of credit, refinances with cash out. “You could do so many better things with the money” - you have to live somewhere, wouldn’t you rather live in a nice house with the potential for appreciation than rent with no chance at all? Also, there’s tax advantages to mortgages here in the US. Renting out a house…

Mostly agree, except:

> house IS AN ASSET.

Yes, if you own your house. No, if you have a mortgage, the bank owns it.

When the market was 'normal,' this would have been less of a risky issue. Take out that 15-30 year loan with the confidence that the home's value would all but be guaranteed to appreciate.

The market has been abnormal since early 2000's. Since, the housing market has become more of a speculative and volatile market, driving prices up to levels that the market cannot sustain without liquidity from the federal reserve, which has monetized an equivalent to 34% of US GDP. Not just housing - stocks and bonds as well.[0][1]

I think we should re-think what an "asset" is, starting with the question - is an asset an asset if can not maintain its market value without with out a central bank?

Economic policy makers were so exasperated with the housing crisis, they even suggested buying down and burning homes so the prices would stop dropping.[2] And that is key - to keep the prices from dropping. Does that sound like healthy market?

[0] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

[1] https://www.zerohedge.com/markets/central-bank-balance-sheet...

[2] https://www.fool.com/investing/general/2011/10/06/creative-d...

Re: Why Your First House Is A Liability

#47

Post by rtkwe » Sat, Sep 05, 2020, 3:07 PM UTC

jccalhoun wrote: post #37

This really varied from place to place. I live in a small city in the midwest. My mortgage payment is barely more than my rent was and I went from 1 bedroom to 3. I also went from hearing neighbors all the time to rarely hearing them and having a fenced in yard where I can do whatever I want. Those luxuries are more than worth it to me. I could make more in a large city but real estate would be way more too.

Roughly the same for me here on the east coast even. My basic mortgage payment was less than I was paying for rent to hear a kid have night terrors most nights. Definitely miss maintenance being someone else’s problem but I think it’s very much worth it.

Re: Why Your First House Is A Liability

#48

Post by thrwn_frthr_awy » Sat, Sep 05, 2020, 3:08 PM UTC

bonzini wrote: post #39

thrwn_frthr_awy wrote: post #35

Earlier quoted context omitted.

> > A mortgage payment is always less than rent for an equivalent property, anyway Yeah, I don’t understand these statements. It is clear that people making them do not have experience is real estate or only have experience in specific markets. There are absolutely many real estate markets where the rent is more than the mortgage, and anyone with enough real estate knowledge to give advice would know this.

> There are absolutely many real estate markets where the rent is more than the mortgage That's what the quote is saying.

Ahh you are correct! My point is there are many markets where rent is cheaper and there are many markets where mortgage is cheaper. Anyone saying that is only one of those is going to cause me concern.

Re: Why Your First House Is A Liability

#49

Post by leetcrew » Sat, Sep 05, 2020, 3:09 PM UTC

cko wrote: post #41

thrwn_frthr_awy wrote: post #35

Earlier quoted context omitted.

> > A mortgage payment is always less than rent for an equivalent property, anyway Yeah, I don’t understand these statements. It is clear that people making them do not have experience is real estate or only have experience in specific markets. There are absolutely many real estate markets where the rent is more than the mortgage, and anyone with enough real estate knowledge to give advice would know this.

If that were true then no landlord would be cash flowing if they bought the property with a mortgage.

nothing nonsensical about this. would just mean that most landlords would have to rent out properties they own outright. in such a market a sufficiently large entity could potentially get better loan terms that allow them to build/buy a building and still achieve positive cashflow. or it might be okay with having negative cashflow while building equity over time (to break even in the long run, rent only has to exceed the interest + maintenance). this could even be a mechanism by which rent < typical mortgage payment in the first place.

Re: Why Your First House Is A Liability

#50

Post by axegon_ » Sat, Sep 05, 2020, 3:09 PM UTC

> It is safe to assume, you are probably buying your first house for yourself — not for renting it out. In this scenario — your first house will take money out of your pocket, you can’t convert it into cash for at least first few years otherwise where will you live? Hence I believe it is a LIABILITY.

Yeah... Of course. But let's look at the alternative - most young adults don't have a roof over their head sorted out. Statistically few people have the opportunity to live with their parents - lack of space, job opportunities, social circles and so on. So it's either buying or renting. And here is where you need to look at both options:

1. Renting - you have a fixed rent + bills to pay. If something breaks down on it's own, your landlord has to fix it(ideally but far not always the case). Depending on your landlord there may or may not be furniture, so you may need to invest in furniture, appliances, etc.

2. Buying - same as rent, but you have to take care of maintenance on your own in all cases. However, the big difference is that in this scenario, your mortgage payment does add something to your name, that is, your money isn't fully gone at the end of the month, as opposed to renting. Renting will guarantee a roof over your head until the end of the month and that's it. Mortgage does mean you have an asset(even if it is partially). You still have the ability to sell it, should you need to.

I'm not talking about the people born with silver spoons in their mouths - for the vast majority of people(myself included), those are the two options we have in front of us. They are both liabilities, they both are a weight on your shoulder and while mortgages come with more strings attached, I still believe it's the lesser evil of the two.