Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

10 Things Millionaires Won't Tell You

smartmoney.com

Post reply on HN
Print view View original

21–30 of 99 posts

Re: 10 Things Millionaires Won't Tell You

#21

Post by dmv »

nazgulnarsil wrote: post #12
paul wrote: post #10

Earlier quoted context omitted.

Because real estate always goes up? The "houses are the greatest investment ever" myth is amazingly persistent.

putting money into a house that maintains its value or even drops slightly is better than paying rent. rent money is gone forever. a mortgage is building equity that you can draw on. plus I don't get how people don't realize that renting out a house to pay its mortgage is basically free money. Someone else is building equity in a house for you and all you have to do is pay the down payment and manage tenants. My pers…

Duplexes sell fairly frequently. For mine, the rent of each unit is greater than the mortgage...

As a note, though, home ownership (esp. rental ownership) is more expensive than just the mortgage (and taxes, and utilities). Like any business, there is time and attention required. Like any other depreciating asset, there is also ongoing maintenance costs. And they are not smooth like the income stream. If your rent is $1000 and your monthly payment (mortgage + escrow) is $800, you may be netting $200/mo. Great! But then you have to scramble to find the $10k to replace the roof. Or it takes two months to replace the tenants (there goes 8 months' profits). In the long term, it should work out. Your mortgage + tax payments should increase slower than the monthly rent payment. But renting out a house is not free money.

Re: 10 Things Millionaires Won't Tell You

#22

Post by timr »

IsaacSchlueter wrote: post #5

You may think I'm rich, but I don't. How very very true that is. I have friends that make less than half what I do. Once upon a time, I would have thought that my current income would mean I'd "made it". But somehow, here I am, still occasionally concerned about being overdrawn, still trying to be frugal, still feeling like I don't make enough to do all the things I want to do. By world standards, I was fantastically…

I thought that was a fairly inane point. While I have no doubt that Joe Millionaire feels like he's not rich if he can't buy a new Lotus without blinking, that's pretty much irrelevant to any practical discussion of wealth.

When your income places you well into the top 1% of earners and you're still hurting for cash, that's your problem. Learn to live within your means.

Re: 10 Things Millionaires Won't Tell You

#23

Post by mattmaroon »

paul wrote: post #10
nazgulnarsil wrote: post #4

it's impossible to be happy if you're always comparing yourself to others. there will always be someone smarter, better looking, richer, and with a bigger ____ than you :p True happiness is contentment, contentment comes from financial security. I laugh at those millionaires who, as the article said, are squeaking by on 400k a year. The biggest key to financial security isn't making more money. It's reducing your liv…

Because real estate always goes up? The "houses are the greatest investment ever" myth is amazingly persistent.

He said mortgages were a good investment, not houses. In terms of EV they're pretty high up the list, especially compared to the alternatives (buying the house outright or renting).

Nothing always goes up, but over time real estate does pretty well. Plus the tax deduction on the interest rate, and the fact that the APR is lower than what you could get with the money if invested well in other stuff make mortgages so well-worth it that even people who could buy outright almost always take them.

Re: 10 Things Millionaires Won't Tell You

#24

Post by dkokelley »

nazgulnarsil wrote: post #4

it's impossible to be happy if you're always comparing yourself to others. there will always be someone smarter, better looking, richer, and with a bigger ____ than you :p True happiness is contentment, contentment comes from financial security. I laugh at those millionaires who, as the article said, are squeaking by on 400k a year. The biggest key to financial security isn't making more money. It's reducing your liv…

plus it's tax advantaged

I've never really liked that reasoning. Let's assume that someone is in the 30% tax bracket (paying 30% on all qualified income). Let's say this person makes $100,000/yr. They pay $30,000/yr in taxes.

Let's say they also have a $100,000 mortgage at 5% APY. They're paying $5,000/yr in interest. That interest is deducted from their income of $100,000 leaving $95,000 taxable income. Assuming they didn't move down a bracket, they're paying $28,500/yr instead of $30,000/yr, saving them $1500/yr in taxes. Remember though that they're paying $5,000 in interest. It doesn't make financial sense in that respect.

They are paying $3500 more per year than if they paid off their mortgage.

It's seems like a way for people to live in nicer houses (or have more of them) and get a "deal" or "discount" on taxes, though in the end they are paying more.

This doesn't take into account housing prices, cash flow issues, or alternative investments. The rational I've seen in people who could pay off their houses but decide not to is either:

A: I can use this as leverage and sell later when the price is higher, making me money (risky, if the market drops)

B: I can use the money that I could use to pay off my mortgage to invest in other things (also risky, given the nature of any investments)

or C: It's a tax deduction (which from my math doesn't make sense. Maybe someone can show me a situation where the math works out better by keeping the mortgage)

Re: 10 Things Millionaires Won't Tell You

#25

Post by mattmaroon »

dmv wrote: post #19
paul wrote: post #10

Earlier quoted context omitted.

Because real estate always goes up? The "houses are the greatest investment ever" myth is amazingly persistent.

Because mortgages remain a great leverage instrument. Find a bank who will lend you 4X your initial deposit with a low fixed (or not...) interest rate, without margin calls, in any other investment vehicles?

If you find one that will loan it out below what I can get from a CD and somehow make the interest tax deductible, please call me.

Re: 10 Things Millionaires Won't Tell You

#26

Post by mattmaroon »

johnrob wrote: post #17
paul wrote: post #10

Earlier quoted context omitted.

Because real estate always goes up? The "houses are the greatest investment ever" myth is amazingly persistent.

I am also skeptical of the conventional wisdom of home ownership. I think a mortgage is simply a way to force yourself to save money. If people save with the same commitment as mortgage payments, even while paying rent, they should end up doing just fine.

That's not even remotely true. The interest rate for a mortgage right now is a few % points below what the stock market has returned, on average, over the last 50 years. That's not even counting the tax deduction for the interest.

A mortgage is basically borrowing money with which to make more money. Your mortgage payment on a place is generally not much more than your rent payment would be, and it's tax deductible and, over time, builds equity.

You can't save with the same commitment while paying rent because you have to pay rent.

Re: 10 Things Millionaires Won't Tell You

#27

Post by mattmaroon »

dkokelley wrote: post #24
nazgulnarsil wrote: post #4

it's impossible to be happy if you're always comparing yourself to others. there will always be someone smarter, better looking, richer, and with a bigger ____ than you :p True happiness is contentment, contentment comes from financial security. I laugh at those millionaires who, as the article said, are squeaking by on 400k a year. The biggest key to financial security isn't making more money. It's reducing your liv…

plus it's tax advantaged I've never really liked that reasoning. Let's assume that someone is in the 30% tax bracket (paying 30% on all qualified income). Let's say this person makes $100,000/yr. They pay $30,000/yr in taxes. Let's say they also have a $100,000 mortgage at 5% APY. They're paying $5,000/yr in interest. That interest is deducted from their income of $100,000 leaving $95,000 taxable income. Assuming the…

I'll show you the situation. If your mortgage is at 6% (I think mine is just below that) and you're in the 30% bracket (I am around there) you're effectively saving 1.8% in deductions (30% of the 6%) and therefore paying 4.2% interest right? A C.D. now pays over 5.25%.

So to clarify the math, you borrow $200k, pay $12k in interest, but get to deduct it and therefore save $3.6k, thus really paying $8.4k in interest (or 4.2% of the $200k).

Therefore if you mortgage the house (as opposed to buying it outright) and buy into a CD at 5.25% you're effectively gaining 1.05% interest for free. You're making about $2k a year. Also you're increasing your credit score, which saves you a lot of money in the long run.

In your above scenario the guy was saving 30% of 5% (1.5%, or 1500) which would put him at 3.5%. He'd be borderline retarded to pay for the house outright.

Much more intelligent (especially for someone my age, who has a good 30 years to worry about retirement, thus reducing the volatility) is to put that $200k into the market, which will probably average somewhere between 7-10% in that time. Suddenly that $200k mortgage turns into a shit ton of money in my retirement account.

Also, there's the fact that the mortgage costs only slightly more than renting a similar place (if homes as nice as mine were available for rent, which they generally aren't here) yet in 30 years I have a free and clear home I can sell.

In summation, mortgages FTW. That's why very wealthy people who could afford not to still damn near always get them.

Re: 10 Things Millionaires Won't Tell You

#28

Post by tristian »

johnrob wrote: post #17
paul wrote: post #10

Earlier quoted context omitted.

Because real estate always goes up? The "houses are the greatest investment ever" myth is amazingly persistent.

I am also skeptical of the conventional wisdom of home ownership. I think a mortgage is simply a way to force yourself to save money. If people save with the same commitment as mortgage payments, even while paying rent, they should end up doing just fine.

If it's an investment property the tax advantages are very nice. Deductions for interest, depreciation, insurance and maintenance can seriously add up. Add rent to that and the yearly cost compared to the medium-long term capital gains turns out to be quite nice.

Of course it depends on the state of the market, but if it's a long term investment, and you don't buy out in hicksville, that shouldn't be to much of an issue.

As for owning and occupying a home you're paying a mortgage on... well that's more of a lifestyle choice. I would agree that it's not really the best investment.

Note that I live in Australia, so much of this may not apply to other regions.

Re: 10 Things Millionaires Won't Tell You

#29

Post by netcan »

timr wrote: post #22
IsaacSchlueter wrote: post #5

You may think I'm rich, but I don't. How very very true that is. I have friends that make less than half what I do. Once upon a time, I would have thought that my current income would mean I'd "made it". But somehow, here I am, still occasionally concerned about being overdrawn, still trying to be frugal, still feeling like I don't make enough to do all the things I want to do. By world standards, I was fantastically…

I thought that was a fairly inane point. While I have no doubt that Joe Millionaire feels like he's not rich if he can't buy a new Lotus without blinking, that's pretty much irrelevant to any practical discussion of wealth. When your income places you well into the top 1% of earners and you're still hurting for cash, that's your problem. Learn to live within your means.

Well that goes to the definition of rich. I'd say it is (or should be) at least partially to do with the psychology.
Post reply on HN