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How I think about debt

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Re: How I think about debt

#361

Post by ehmmmmmmmm »

throwaway2037 wrote: post #352
dheera wrote: post #211

Earlier quoted context omitted.

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

> Unfortunately housing prices are rising so fast that saving for years doesn't necessarily get you there Where? In many, many highly developed countries this isn't true. > 1M is close to 500K after taxes Woah. Where do you live where effective income tax rates are 50% for 1M+? Please don't confuse marginal ("headline") vs effective ("actual") tax rates.

In San Francisco if you make $1M as a W-2 employee your marginal tax rate is ~53% and your effective tax rate is ~47%.

If you make $1M on your own the rates are even higher.

(That's not including the 10% sales tax you pay on almost everything you buy with the money you have left, property taxes on property you thought you owned, property taxes landlords financially pass onto you as a renter, etc.)

Re: How I think about debt

#362

Post by seanmcdirmid »

ehmmmmmmmm wrote: post #361
throwaway2037 wrote: post #352

Earlier quoted context omitted.

> Unfortunately housing prices are rising so fast that saving for years doesn't necessarily get you there Where? In many, many highly developed countries this isn't true. > 1M is close to 500K after taxes Woah. Where do you live where effective income tax rates are 50% for 1M+? Please don't confuse marginal ("headline") vs effective ("actual") tax rates.

In San Francisco if you make $1M as a W-2 employee your marginal tax rate is ~53% and your effective tax rate is ~47%. If you make $1M on your own the rates are even higher. (That's not including the 10% sales tax you pay on almost everything you buy with the money you have left, property taxes on property you thought you owned, property taxes landlords financially pass onto you as a renter, etc.)

Property taxes are the only thing in California that are pretty mellow given prop 13. Well, unless the property was just turned over.

Re: How I think about debt

#363

Post by t0bia_s »

dheera wrote: post #204
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…

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. I think current economical "norm" of having debt is made for purpose by states and banks. Because when you have debt, you will be more obedient citizen, always voting in favor of system that gives "benefits" of using money that you don't own. With price of loosing our freedom with every new regulations.

Re: How I think about debt

#364

Post by [deleted] »

dmoy wrote: post #206
tsimionescu wrote: post #195

Earlier quoted context omitted.

If your house is still worth enough to cover the debt. If the sale of your house is not enough to cover it (which can happen if you bought during a bubble that burst), will your whole debt at least be forgiven?

It's not forgiven, even in a non-recourse mortgage. So it can still e.g. hurt your credit score. They just legally can't pursue you for it. With a recourse mortgage, they can go through normal debt channels (including wage garnishment, etc).

[deleted]

Re: How I think about debt

#367

Post by jjav »

dheera wrote: post #204
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…

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 never understood buying things that I can't afford.

For most things, that's a wise philosophy. Going into debt for something that depreciates like cars or furniture or electronics, is not wise.

Housing is different though for several reasons. One is that you must live somewhere. So (unless being homeless in an option) you have to pay for housing one way or the other. So you either buy (build equity) or rent (a pure expense). Another reason is that a house may (often does) appreciate in value so you're leveraging that debt to make money. Even if it depreciates, it hardly ever depreciates faster than paying rent. Another reason is that rents always go up, a mortgage locks in your cost for the next 30 years.

Re: How I think about debt

#368

Post by jjav »

brailsafe wrote: post #337
synergy20 wrote: post #246

Earlier quoted context omitted.

my landlord friend told me, many of her tenants earn decent salary, definitely more than her income, they can even spend $8000 or more to remodel a car or things like that, but can never save up to the 20% down payment ever.

This truth has come up quite a lot lately in conversations. It's not just the down payment though, it's like ok first I get together $120k for the down payment, then I'm on the hook for potentially double the already obscene amount the same place would cost to rent for the mortgage payment, then utils, then repairs, taxes (almost like one would need to be a landlord to afford it). Like, pass, ~$4k+ a month is more th…

> then utils, then repairs, taxes

Remember you're paying for all these costs (+ landlord profit) when you rent.

Re: How I think about debt

#369

Post by sokoloff »

dehrmann wrote: post #344
sokoloff wrote: post #78

Earlier quoted context omitted.

When that one customer is "your family", it's a little bit different, though. PS: From context, I suspect you meant to say "illiquid asset".

> When that one customer is "your family", it's a little bit different, though. I think it makes it worse.

How so? You control the customer’s buying decision and the product on offer is “living indoors”, something that you’re not going to easily decide to cut from your budget.

Re: How I think about debt

#370

Post by tsimionescu »

throwaway2037 wrote: post #354
tsimionescu wrote: post #195

Earlier quoted context omitted.

If your house is still worth enough to cover the debt. If the sale of your house is not enough to cover it (which can happen if you bought during a bubble that burst), will your whole debt at least be forgiven?

In short: yes. Imagine you bought a home using a mortgage in the year 2000 in Silicon Valley. Then you go bankrupt in 2007. Your home will probably have appreciated 100-200% during this crazy period. It is very possible you will receive money back from the bank after they sell your home.

My question was specifically about the opposite case, so I'm not sure what your point is.

Specifically, I'm asking if the mortgage deals the poster above was discussing would help if the house is now worth less than the mortgage.

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