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Young People Are Screwed: Here's How To Survive

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Re: Young People Are Screwed: Here's How To Survive

#141

Post by Mvandenbergh »

brudgers wrote: post #63
BenoitEssiambre wrote: post #24

Since the beginning of the financial crisis the media has constantly been repeating that the housing market was key to recovery and that the government had to do things to help prop up house prices. As someone who would like to own a house in the future, I find it quite unfair that the government is helping to maintain bubble prices. It is yet another way for current homeowners to to extract as much money as possible…

Why do you want to own a house? Is it as an impediment to relocating? For the risk of a highly leveraged investment? Or so that you can spend time and money fixing leaking pipes on Tuesday evening and patching the gypsum board on Saturday? Ever notice how most small businesses deal with real-estate? Hint: they don't negotiate a thirty year lock-in.

In many places in the US there are two issues:

-The max quality or size of rental properties is not that high, you may not be able to rent a nice freestanding house in some places because culturally speaking, people with more than $X usually buy.

-Landlord-tenant law may be very favourable to the landlord and not to the tenant. That motivates people to buy rather than rent and deal with shitty landlords.

In addition to that, people like being able to invest their time and money into improving their home to just the way they like it.

Having a long term place that is "home" is very important and comforting to many people. There is a reason that residences have all kinds of special legal protections and treatment that commercial real estate doesn't neccesarily have.

Re: Young People Are Screwed: Here's How To Survive

#142

Post by Mvandenbergh »

chii wrote: post #118
philwelch wrote: post #98

Earlier quoted context omitted.

I own a house. I can't wait to sell it. For me, the house is one more thing to worry about. On the other hand, my apartment lease gives me no worries. If I was rich, I might like to own a house, but only for the freedom of doing whatever I want with it.

I cannot understand why leasing (or renting) can be considered superior to owning your own place. Sure it does prevent you from just moving on a whim - something i don't think people should be doing anyhow - but the money paid as rent is like throwing it into the sea!

This is not true in every case, it's magical thinking.

You can make a rational calculation of what works out better using local rental rates vs property prices (sometimes one of them is grossly out of proportion to the other), applying a liquidity and mobility premium and your expectations of what the rental and property markets will do long term.

Re: Young People Are Screwed: Here's How To Survive

#143

Post by chii »

repsilat wrote: post #120
chii wrote: post #118

Earlier quoted context omitted.

I cannot understand why leasing (or renting) can be considered superior to owning your own place. Sure it does prevent you from just moving on a whim - something i don't think people should be doing anyhow - but the money paid as rent is like throwing it into the sea!

> the money paid as rent is like throwing it into the sea! The same can be said of mortgage interest. The fair comparison to the renter with no savings is the homeowner owing the full value of the house to the bank, and the fair comparison to a mortgage-less homeowner is a renter with investments and savings equal to the price of the house they're in. Better arguments for your position might be 1. Mortgage rates are…

> Mortgage rates are lower than rental prices in many places,

its unlikely that mortgage payments are lower than rent - otherwise, it'd be better to pay the mortgage than renting! You would buy a place, and rent out a room or two, and have the rent income plus your own money to pay the mortgage.

I m not against renting - but i just don't want people to think that a mortgage is some baggage that they are better off not having, and instead just pay rent. I want people to make the smartest choices, so that the only way rent rises is because costs to build houses rise, not because the landlord got greedy. To me, rent is like a tax on being alive.

Re: Young People Are Screwed: Here's How To Survive

#144

Post by Mvandenbergh »

Suncho wrote: post #68

While I think he's made some important observations and I agree with some of his advice, I don't agree with his conclusion that young people are screwed. Here's an important insight that I definitely agree with: "But won’t a college degree pay for itself? It probably won’t." It won't. You probably shouldn't get one if your goal is to make money. Here's some advice I disagree with: "My advice to young people is to fig…

>It's not reasonable to tell young people (or any people) that their goal should be to find a job so they can be self-sufficient and they can support themselves financially.

It's quite correct to tell any given young person or group of young people to do so! That doesn't mean that it works as a policy prescription.

To take your musical chairs model a bit further: I might like there to be more chairs, I'd like that quite a lot actually. It'd be great to get youth unemployment down. In the mean-time though, you bet I'll be working on my musical chairs strategy, and if anyone asks me for advice I'd tell them to do the same. Will that fix the lack of chairs? No, of course not. It will keep me comfortably housed and fed though, and while that is not the only thing I care about it is rather important to me.

Would a degree from Yale have value if everyone got in? Much less.

Would I advise an individual who got accepted to go? Yes of course I would.

Re: Young People Are Screwed: Here's How To Survive

#145

Post by vacri »

philwelch wrote: post #98
ChuckMcM wrote: post #95

Earlier quoted context omitted.

This is probably a contentious topic, but housing security is a useful thing. Owning a residence, and perhaps more saliently owning it without debt, provides a certain level of housing security that is quite precious when you are older. The other benefit of owning property is that you can use it to generate income when you're not using it. While being a landlord is a pain, if you're willing to give up some of the ret…

I own a house. I can't wait to sell it. For me, the house is one more thing to worry about. On the other hand, my apartment lease gives me no worries. If I was rich, I might like to own a house, but only for the freedom of doing whatever I want with it.

When I was backpacking through San Francisco I met a white-haired septugenarian in the hostel. He had a house in Connecticut that he rented out - and he'd spent the last 15 years of his life constantly travelling about the place on the proceeds. It wasn't opulence, but it was travel and he loved it.

Re: Young People Are Screwed: Here's How To Survive

#146

Post by philwelch »

chii wrote: post #143
repsilat wrote: post #120

Earlier quoted context omitted.

> the money paid as rent is like throwing it into the sea! The same can be said of mortgage interest. The fair comparison to the renter with no savings is the homeowner owing the full value of the house to the bank, and the fair comparison to a mortgage-less homeowner is a renter with investments and savings equal to the price of the house they're in. Better arguments for your position might be 1. Mortgage rates are…

> Mortgage rates are lower than rental prices in many places, its unlikely that mortgage payments are lower than rent - otherwise, it'd be better to pay the mortgage than renting! You would buy a place, and rent out a room or two, and have the rent income plus your own money to pay the mortgage. I m not against renting - but i just don't want people to think that a mortgage is some baggage that they are better off no…

Rent and interest are both taxes on not being rich. I don't really see any reason one is intrinsically better than the other, but rent entails a lot less risk.

Re: Young People Are Screwed: Here's How To Survive

#147

Post by philwelch »

russgray wrote: post #138
khuey wrote: post #119

Earlier quoted context omitted.

Rarely true if you account for a decent return on investment on the difference between a mortgage payment and rent for an identical place.

I never find this answer convincing. Firstly, most renters are unlikely to invest the difference - we are a nation of spenders. Secondly, that rent will creep up, whereas my mortgage payment stays the same - eventually that difference will disappear, or even open up in the other direction. Thirdly, I'll have paid off my mortgage in another 12 years or so, at which point I can invest my entire payment every month whil…

Didn't we just learn that "investing" in real estate isn't always the best idea, either? Buying a house to live in on credit is part spending, part leveraged speculation.

Re: Young People Are Screwed: Here's How To Survive

#148

Post by vacri »

shawnee_ wrote: post #43
BenoitEssiambre wrote: post #24

Since the beginning of the financial crisis the media has constantly been repeating that the housing market was key to recovery and that the government had to do things to help prop up house prices. As someone who would like to own a house in the future, I find it quite unfair that the government is helping to maintain bubble prices. It is yet another way for current homeowners to to extract as much money as possible…

the media has constantly been repeating that the housing market was key to recovery and that the government had to do things to help prop up house prices. It is interesting how many people are misinformed about this. The government hasn't and can't do anything to "prop up" house prices. It only sets the prime interest rate, which affects the ability of people to borrow money (specifically does it affect ARM mortgages…

The government ... can't do anything to "prop up" house prices

http://en.wikipedia.org/wiki/Negative_gearing_%28Australia%2...

Negative gearing is a preferential tax treatment that has caused the Australian housing market to become one of the most expensive in the world.

Re: Young People Are Screwed: Here's How To Survive

#149

Post by philwelch »

vacri wrote: post #145
philwelch wrote: post #98

Earlier quoted context omitted.

I own a house. I can't wait to sell it. For me, the house is one more thing to worry about. On the other hand, my apartment lease gives me no worries. If I was rich, I might like to own a house, but only for the freedom of doing whatever I want with it.

When I was backpacking through San Francisco I met a white-haired septugenarian in the hostel. He had a house in Connecticut that he rented out - and he'd spent the last 15 years of his life constantly travelling about the place on the proceeds. It wasn't opulence, but it was travel and he loved it.

I'm not against investing in real estate, but you have to be honest with yourself that that's what you're doing, and that it's not a risk-free investment, especially when you leverage it with debt.

The problem is that everyone casts it as an argument between renting and owning property fee simple. Actually, it's either an argument between renting housing and renting money, or it's an argument between having six to seven figures invested in residential real estate and having six to seven figures invested in anything else. Either way, it's not clear cut.

Re: Young People Are Screwed: Here's How To Survive

#150

Post by philwelch »

repsilat wrote: post #120
chii wrote: post #118

Earlier quoted context omitted.

I cannot understand why leasing (or renting) can be considered superior to owning your own place. Sure it does prevent you from just moving on a whim - something i don't think people should be doing anyhow - but the money paid as rent is like throwing it into the sea!

> the money paid as rent is like throwing it into the sea! The same can be said of mortgage interest. The fair comparison to the renter with no savings is the homeowner owing the full value of the house to the bank, and the fair comparison to a mortgage-less homeowner is a renter with investments and savings equal to the price of the house they're in. Better arguments for your position might be 1. Mortgage rates are…

> 1. Mortgage rates are lower than rental prices in many places

When this is true, this actually is a very convincing argument. Not only that, but you can effectively arbitrage yourself into a lot of wealth this way. You buy a house and move into it for awhile, but then you buy a new house, move into the new house, and rent out the old house. (You get better mortgage terms that way.) Rinse and repeat whenever you can afford to do so and you eventually end up with a large portfolio of profitable properties.

Of course, it's arbitrage--if enough people do it, it stops working. You can keep it going with more money, if you can make larger down payments, since at that point you're turning a one time lump sum into an ongoing cash flow. But eventually you have to have more money to make money, so not even this might be workable.

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