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How I think about debt
281–290 of 445 posts
Re: How I think about debt
#282Earlier quoted context omitted.
> 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?
not necessarily. rent and market value are related, obviously, but they don't have to increase at the same rate. in some markets, property values can increase much faster than rent.
https://www.investopedia.com/terms/p/price-to-rent-ratio.asp
Re: How I think about debt
#283Earlier quoted context omitted.
You can buy better neighbors with a house, and less crime.
> You can buy better neighbors with a house, and less crime. I wish! I built a fancy house in a fancy neighborhood, and then a real a-hole bought the house next to me as his retirement home.
I feel this.
Unfortunately the only surefire way to avoid this situation is to be the bigger asshole.
Re: How I think about debt
#284I 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…
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.
The ongoing expenses of owning a house are still there, taxes, insurance, maintenance, electricity, garbage disposal, water, gas etc. if you can't cover these, you're not debt free.
As you get over retirement age medical expenses could dwarf all these. you need to be more than debt-free you need to be debt-free and a good cashflow and emergency funds you can call on.
Just as you get to the top of the hill there is always another one to climb.
Re: How I think about debt
#285Earlier 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.
California limits increases in property taxes to 2% for this reason. More generally, property owners vote at a high rate, so governments will usually be less aggressive in increasing property taxes. Of course, they still go up, but it's generally less of a risk.
Re: How I think about debt
#286Earlier 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.
Just a minor nit pick, but important: When comparing the costs of renting vs owning, you need to compare rent+fees to mortgage_interest+property_taxes+fees, minus any real estate tax deductions (if you itemize). The principal portion of your mortgage payment is not an expense, it turns into your own home equity so it's money coming out of one pocket and going into the other. The interest portion is generally federal tax deductible, and your property taxes as well (unless you hit the SALT cap which hopefully expires after 2025).
Re: How I think about debt
#287Earlier quoted context omitted.
you have to live someplace though. Over the 30 year life of that roof it is cheap enogh but that is a large one time cost if you only are there for 5 years.
Roofs are so expensive they factor heavily into what you can sell the house for. Asphalt shingle roofs are lucky to get 20 years, cedar shingles are even worse.
Too bad metal roofs don't look great on traditional houses... I would love to install that
Re: How I think about debt
#288The core (flawed) assumption is that a thousand year business is desirable. As a business owner and a worker I don’t want to work in my great, great grand pappy’s toothpick company. I want to have opportunities to create my own business, make profit, enjoy profit, hand modest generational wealth to my descendants and die without regrets. Thousand year business are not the way to achieve my goals and my goals are not…
So you're saying his assumption is incorrect because you want something else? You should read some of this guys other stuff - a point he's made many times is that most disagreements in financial advice come from "people with different experiences in life, different time horizons, different risk tolerances talking over each other". There's a lesson in there for you.
You don't want to work at your grandpa's company, fine. This advice may not be for you then. That doesn't make his premise any more flawed than your own.
And FWIW a thousand year old company does not require that it stay within the same family - which is from your (flawed) assumption. In your own example of "creating a business, making a profit, and handing down wealth to your family", one of the ways to make that profit is to sell your business to someone else, who may sell it to another (on and on for... a thousand years).
So not only are you claiming he's wrong based on an opinion you have, your opinion isn't even contradictory to the point he's making.
Re: How I think about debt
#289Earlier quoted context omitted.
> A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house. This is wild. In Canada not only do we all take interest rate risk every 5 years maximum as we can’t lock in for longer (which seems to make our whole society less robust), we can’t refinance early if rates drop without massive penalties eliminating any incentive to d…
> In Canada ... all of our mortgages are full recourse. Except in Saskatchewan and Alberta [1]. [1]: https://financialpost.com/personal-finance/mortgages-real-es...
Wow thanks for sharing. I had no idea.
Re: How I think about debt
#290Earlier quoted context omitted.
> 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.
California limits increases in property taxes to 2% for this reason. More generally, property owners vote at a high rate, so governments will usually be less aggressive in increasing property taxes. Of course, they still go up, but it's generally less of a risk.
California’s approach privileges people who have lived in California in the past over the affordability of housing for people working today. It’s got its own popularity issues.