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How I think about debt

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Re: How I think about debt

#271

Post by triceratops »

mym1990 wrote: post #81
triceratops wrote: post #31

Earlier quoted context omitted.

Debt to income or debt to asset is the only way of evaluating if someone's debt is high or low. I thought it was obvious that's what GP meant.

I did not get that assumption from "The more debt you have, the less financially resilient you are". Debt is an absolute value, and debt-to-asset ratio is...not. You can also evaluate debt loads by debt-to-income ratio, which is not to be overlooked as most homeowners buy homes based on their income, rather than their savings. As others have said, debt-to-asset is also not a golden ratio, because if your assets are n…

> You can also evaluate debt loads by debt-to-income ratio, which is not to be overlooked

Debt to income is literally the first thing I wrote in my comment. I didn't overlook it.

The absolute value of a debt is a meaningless number so "more debt" should always be evaluated in that context. And that's how I took the comment I originally responded to. Some extremely obvious things are being rehashed for no apparent reason in this thread.

When evaluating relative debt load, asset values should have a multiplier to reflect both liquidity and volatility.

Re: How I think about debt

#272

Post by spatley »

Dylan16807 wrote: post #232
dheera wrote: post #204

Earlier quoted context omitted.

I never understood buying things that I can't afford. I always thought you earn money and when you earn enough money to buy something you can buy that something. That is always how I have lived life. For that reason I also find it ridiculous that it's the social norm to take debt to buy a roof to put over your head. A (simple, clean, functional) house is a basic need, not a luxury item. I always assumed that if I don…

I agree that house prices should come down. But given that you need a home, what's the difference between $1000 in rent+fees and $1000 in mortgage+taxes+fees? Normally the biggest difference between renting and buying with debt is that you can stop renting. But you're not going to stop having a home.

My view has always been that buying gives me price stability. $1000 in mortgage + taxes + fees is only going to change by a hike in taxes but rent changes at the whim of the market. Here in my west coast city, the mortgage on a 4 bedroom house purchased 10 years ago is the same as a 2 bedroom apartment today.

Re: How I think about debt

#273

Post by prawn »

dheera wrote: post #211
sokoloff wrote: post #207

Earlier quoted context omitted.

It's fine to expect some people to buy a house with cash. I don't think that precludes saving for many years to do so (meaning the median income doesn't need to be $1M/yr).

Unfortunately housing prices are rising so fast that saving for years doesn't necessarily get you there, unless median income is close to ~1M by my back-of-envelope calculations, which include: - taxes (1M is close to 500K after taxes) - money that you need to cut out and put into retirement to sustain yourself from age 65-100 - living expenses and rent until you buy - real estate prices rising the whole time

Which is why taking on debt to buy property is often a good option - you lock in prices, then they rise. Where I live, house prices double in value every ten years, quite reliably. Recently, it's been faster. In ten years, you're paying rent on a $2m property while someone else is paying down a $500-800k loan (using your example figure).

Re: How I think about debt

#274

Post by Dylan16807 »

rcxdude wrote: post #261
Dylan16807 wrote: post #232

Earlier quoted context omitted.

I agree that house prices should come down. But given that you need a home, what's the difference between $1000 in rent+fees and $1000 in mortgage+taxes+fees? Normally the biggest difference between renting and buying with debt is that you can stop renting. But you're not going to stop having a home.

Sadly the case in a lot of places is the difference is control over your environment, or simply stability. In a lot of places your rights as a renter are so bad you can basically do nothing to improve the place you live, and even if you were allowed you would be foolish to do so because then your landlord could just kick you out or hike up the rent (and might just do that anyway). (where I live even multi-year tenant…

Right, I was talking about the financial aspect, not the quality of life.

Re: How I think about debt

#275

Post by nyokodo »

toomuchtodo wrote: post #257
beryilma wrote: post #243

Earlier quoted context omitted.

Owning a house does not mean not owing anyone a cent. You still owe multiple types of taxes to the government. You still need to get insurance. You still need to make repairs. I actually find piece of mind in renting. I can always say screw it and move to the cheapest part of the country as I am getting closer to retirement age.

Rent can increase faster than your income. Owning, even with higher carrying costs, derisks housing both from an expense and sourcing perspective.

> Owning… derisks housing both from an expense and sourcing perspective

Except if property taxes increase beyond affordability as they have for many folks in some states recently.

Re: How I think about debt

#276

Post by chiefalchemist »

toomuchtodo wrote: post #257
beryilma wrote: post #243

Earlier quoted context omitted.

Owning a house does not mean not owing anyone a cent. You still owe multiple types of taxes to the government. You still need to get insurance. You still need to make repairs. I actually find piece of mind in renting. I can always say screw it and move to the cheapest part of the country as I am getting closer to retirement age.

Rent can increase faster than your income. Owning, even with higher carrying costs, derisks housing both from an expense and sourcing perspective.

Rent can do that. But in renting you can more easily move to a better paying job.

I'm not sure you're derisking as owning is also subject to local taxes of whatever sort. Those too can increase faster than income.

Re: How I think about debt

#277

Post by sgerenser »

rcxdude wrote: post #261
Dylan16807 wrote: post #232

Earlier quoted context omitted.

I agree that house prices should come down. But given that you need a home, what's the difference between $1000 in rent+fees and $1000 in mortgage+taxes+fees? Normally the biggest difference between renting and buying with debt is that you can stop renting. But you're not going to stop having a home.

Sadly the case in a lot of places is the difference is control over your environment, or simply stability. In a lot of places your rights as a renter are so bad you can basically do nothing to improve the place you live, and even if you were allowed you would be foolish to do so because then your landlord could just kick you out or hike up the rent (and might just do that anyway). (where I live even multi-year tenant…

Where is anyone forbidden from putting up pictures on the walls? 99.9% of residential rental contracts just state that the dwelling has to be returned in the condition rented. Go ahead and paint and put holes in the walls, just be sure it’s repainted and patched when you move out.

Re: How I think about debt

#278

Post by VelesDude »

lr4444lr wrote: post #263
TexanFeller wrote: post #200

I have a paid off house and zero debt. Sure I might be ahead if I had used some of the cash to buy stocks instead of paying down the house early, but I’m completely happy with my decision. There is no peace of mind like not owing anyone a cent and keeping your living expenses low. Having debt was incredibly stressful and no longer worrying about making payments is the best thing that’s ever happened to my mental heal…

To each his own, but I get more peace of mind with a larger retirement account due to the low fixed rates we had in the US from 2009 to around 2022. I can't liquidate my house piecemeal when I need money like I can my brokerage assets.

This is one of those areas the Australian government has done ok in. Mandatory superannuation retirement funds. 11% (?) of all pay goes into this fund to be invested. Thus you can pay off the house and have an investment fund at the same time.

You can withdraw from your fund if you have a hardship but it is generally considered best to not touch it.

Re: How I think about debt

#279

Post by Loocid »

nyokodo wrote: post #275
toomuchtodo wrote: post #257

Earlier quoted context omitted.

Rent can increase faster than your income. Owning, even with higher carrying costs, derisks housing both from an expense and sourcing perspective.

> Owning… derisks housing both from an expense and sourcing perspective Except if property taxes increase beyond affordability as they have for many folks in some states recently.

Wouldn't their rent go up at a similar rate since the home owner would be copping those tax hikes anyway?
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