Is your Home an asset or a liability?
GoldTrader
Is your Home an asset or a liability?
xylord
>Assets put cash in your pocket- Liabilities take cash out of your pocket.
>
>Is your Home an asset or a liability?
When it goes up in price it is supposed
to be an increasing asset even though
any replacement would be dearer as well.
If it goes down in value and the interest
rate goes up and the mortgage costs
hurt it is called your problem.
When you go broke and the house value
don't repay the debt it is the mortgagee's
problem.
When the mortgagee's company goes
broke it is the bondholders problem.
This maybe you even if you did not
have a problem before. ;-(
regards Xylord
Phil Scott
"GoldTrader" <nom...@hotmail.com> wrote in message
news:9a1136ac.04012...@posting.google.com...
> Assets put cash in your pocket- Liabilities take cash out of your pocket.
>
> Is your Home an asset or a liability?
A home is all most people have and they must keep one more or less to live
in, so its an asset in that regard as they can sell it in late retirement if
they have to.
Otherwise real estate is not considered a good investment historically....
but try tellin that to a pearsons who's home has increased in value from 50K
to 500K over the last 20 years.
Fixer upper property if bought right and managed right is a killer
investment and one you can control yourself.
Phil Scott
dave stone
>
> Is your Home an asset or a liability?
Sounds like you just finished a Robert Kiyosaki book...
Tam
<phil...@philscott.net> wrote:
> Otherwise real estate is not considered a good investment historically....
> but try tellin that to a pearsons who's home has increased in value from 50K
> to 500K over the last 20 years.
And since he probably only put 10% or 15% down, his cash investment has
increased 100-fold. And he's had all those tax breaks.
xylord
When all around you sing
the praises of a certain type
of investment.......
DO what not obvious!
regards Xylord
Alan E
income stream, it just has to have some value. Therefore, your home is an
asset, even though it costs money to maintain (taxes, utilities, etc.).
Your mortgage is a liability. If your mortgage is less than the value of
the house, you have a NET asset, otherwise you have a NET liability.
GoldTrader <nom...@hotmail.com> wrote in message
news:9a1136ac.04012...@posting.google.com...
SSF
trying to buy as big a house as they can possibly afford. I see that in
some of the new construction near where I live-- some fairly large houses
are going up ~3500-4000sqft or so, but the builders are clearly cutting a
lot of corners to save cash wherever they can-- brick on front to make the
curb appeal look "stately" but crappy vinyl siding on the other 3 sides,
etc. using so much of the land for the house there is very little yard left,
etc. Maybe a new home that should cost $400-500k if it were done "right" is
going for $350k after all the shortcuts.
I think all too many people put very little down, and then mortgage to the
hilt so most of their income is going toward debt service, PMI insurance,
etc. Plenty of 4000+ sqft houses out there with empty rooms and lawn
furniture "decorating" them because the occupants stretched themselves to
the limit just to afford the house, and they can no longer afford anything
else. Low interest rates have suddenly made these larger homes more
"affordable" of late.
If they lose a job and have no war chest to survive on the loan could go
into default. Or if and when the housing market sours and if valuations
drop by 20% or so there will be a lot of mortgages with "negative equity"
where balance due is suddenly less than value of the house.
While equity in the house is indeed an asset in terms of its value minus
loan, I think it is too easy to forget the costs of
heating/cooling/maintenance/insurance+taxes/furnishing/decorating, etc. Too
much house and those expenses can get out of hand. While the owner may
still have net equity in the home, the cash flow to maintain it may be
eating them up and keeping cash flow from going into savings, etc. instead.
"GoldTrader" <nom...@hotmail.com> wrote in message
news:9a1136ac.04012...@posting.google.com...
GoldTrader
pocket.
Xylord <When it goes up in price it is supposed to be an increasing
asset>
That is what you are supposed to believe. The banks that lend you
money, the financial institutions that finance your schools. They
want you to think a titanium driver in the closet is an asset. The
truth is, it does not put any money in your pocket. It is not working
for you. Assets should be working for you. If you have to take cash
out of your pocket, it is a liability.
Phil Scott <A home is all most people have>
That may be true, it is still a liability. Unlike securities that do
not pay dividends, there is no ready market. You may be able to
liquidate, maybe not. When you do, you will have to pay taxes, this
lowers the value. There will be expenses etc. All you can do is
guess what it is worth, or when someone will take this liability off
your hands. Assets work for you so that you do not have to work.
Your home is not working for you.
Phil Scott <Fixer upper property>
The formula for fixer upper property includes converting property to
income-producing property. At this point it is an asset by any
definition i.e. it is no longer a "home."
Phil Scott > but try telling that to a persons who's home has
increased in value <
You talk like someone who has a gull wing up on blocks in the garage.
Look do you know what the interest costs were over the last twenty
years. Are you including all of the after tax expenses that were paid
in twenty years. Do you understand the opportunity costs of a deal
like that? How much did it earn? Nothing
What new assets did you buy with that income? Nothing
What assets did you buy with the income from that one? none
Are you starting to see what a liability costs?
Do you see how an asset creates wealth?
Tam < his cash investment has increased 100-fold. And he has had all
those tax breaks. >
What do you think he did, put his cash down, wait twenty years and
sell it at a profit? Now, add in all of the expenses and lost
opportunities. The thing produced no income. It was clearly a
liability.
Xylord <Do what not obvious! >
Agreed Xylord people need to think out side the box
Dave stone <Sounds like you just finished a Robert Kiyosaki book...>
I knew about the assets, give me a little help here.
Alan E (alane...@email.com) <I don't agree with your definitions.
>
That is really, what this comes down to. When you misunderstand what
an asset is you may end up buying liabilities that you think are
assets.
In every case, people who buy income-producing assets will become
wealthier than those who do not. They will both out distance people
who buy liabilities.
Alan E <An asset doesn't have to produce an income stream; it just has
to have some value. >
Sounds like you learned that in school. Elementary school. That is
what people who make a living off of you want you to believe. Think
outside the box. If it does not work for you, you will have to work
for it.
Alan E <even though it costs money to maintain (taxes, utilities,
etc.), your mortgage is a liability. <
All of these take money out of your pocket. An Asset puts cash in
your pocket.
From: Tam (tamsu...@yahoo.ca)
Tam < buying a house he was sacrificing more lucrative investment
possibilities. >
Yes, missed Opportunity Costs, look at the way the cash is flowing.
When it is flowing toward you, you can use it to buy anything that you
want.
Tam <leverage is greater in real estate>
Can be greater, don't forget Futures. Besides real estate can produce
income and become an asset, a home does not.
SSF < the occupants stretched themselves to the limit<
Po folks
SSF < it is too easy to forget the costs of (insurance)
heating/cooling/maintenance/insurance+taxes/furnishing/decorating,
etc.<
Clearly, it looks like cash is flowing away. The pure definition of a
liability.
Alan E
income. So why do you trade it?
ElfHunter
> Assets put cash in your pocket- Liabilities take cash out of your pocket.
>
eroded by inflation.
> Is your Home an asset or a liability?
So are you living on a park bench or your parents' basement? Think of
the the after tax income you save as the return on the investment into
your house.
darrell
when I sell my house it turns in to an asset.
"GoldTrader" <nom...@hotmail.com> wrote in message
news:9a1136ac.04012...@posting.google.com...
GoldTrader
assets and wealth have been instrumental in keeping people working to
cover liabilities instead of living a freer life.
Homes, are not self-generating assets because of the mortgage and
other after tax, carrying costs, lack of rental income, and the income
that would have compounded from it.
The concept that an asset must produce income that leads to
compounding. Is an idea that home-owners hesitate to accept. This
income is the heart and core of releasing the power of compounding.
-ooO-(GoldTrader)-Ooo-
Tam < Don't pick on me.<
Did not mean to pick on you at all Tam. In fact you turned your home
into an income producing asset when you "for 17 years, renting out the
place all that time." This is an asset by any definition. Every day
24x7 this put cash in your pocket. Congratulations.
Tam < >Except that we could borrow on it<
Very good, a step toward releasing the power of an income-earning
asset.
Tam < >And their places increased in value too.>
If their properties did not earn income, they were a liability until
they were sold. Cash was flowing from them into the property. Mostly
after tax income, I am supposing.>
Tam < >So: one's residence is part and parcel of one's wealth; <
Can be, that still does not stop it from being a liability if it is
sucking up cash.
Tam < >But the best investment of all is a successful small business.
>
People should know what there business is.
Tam < >It seems you have an agenda; <
Pretty much to raise peoples awareness. In this case to let people
see that, what they may have subconsciously suspected may actually be
true. That a non-income producing Home can be a liability, disguised
as an asset.
Tam >there must be opportunities for those who can see through the
smoke.<
Precisely, "see through the smoke."
>I have deleted .. because .. is frowned upon.<
I do not understand, are your actions motivated by how other people
think about you?
Alan E >Is gold an asset?>,
Let's see now. If you bought a hundred ounces 15 years ago for about
$400.00 an ounce would YOU call Gold an asset?
>It does not produce any income.<
Yes Alan, you are absolutely right. Gold is now and has always been a
liability. Gold owners have to pay for storage and insurance, and
interest on the funds used to purchase gold in inventory.
Did you see the Italian Job? The biggest liability is trying to move
Gold.
>So why do you trade it?<
-ooO-(GoldTrader trades futures, with the funds not tied up in assets,
"that are really liabilities." The income stream from trading futures
is the asset, not the bullion.
Don Zimmerman
"darrell" <darre...@juno.com> wrote in message
news:D2WRb.177241$na.286449@attbi_s04...
> I am replacing my roof today, so today my house is a liability, but I hope
> when I sell my house it turns in to an asset.
A few years ago various experts in the area where I live claimed that real
estate is a bad investment. Typically, the scenario went like this:
First came the assertion that times are changing and that real estate
profits are a thing of the past.
Second came the observation that the stock market has given superior
returns historically and that stocks are on the rise today. The future looks
great for stocks.
Third came the pitch: "I have just the investment for smart people--a couple
of superb mutual funds!" (with big front end loads)
BarefootTrader
land and later made good money on it. Assets are items which
add-to the positive side of your balance sheet, liabilities are
the negative side. The home itself is an asset, the mortgage on it
is the liability side.
The Michael
>Assets put cash in your pocket- Liabilities take cash out of your pocket.
Tell us the truth now - you were a former Arthur Anderson accountant on the Enron
account, weren't you.
>Is your Home an asset or a liability?
--
Mike
Don Zimmerman
"BarefootTrader" <easygu...@ccrtc.com> wrote in message
news:101n6ao...@corp.supernews.com...
> Who said assets have to generate cash?? I have owned lots of raw
> land and later made good money on it. Assets are items which
> add-to the positive side of your balance sheet, liabilities are
> the negative side. The home itself is an asset, the mortgage on it
> is the liability side.
When I cleaned out a family garage some years ago, things that seemed to be
just pure junk, like old clocks, signs advertising tobacco products, cherry
seeders, and old cash register, etc. were bringing several hundred dollars
apiece in an auction. I would call them assets. The only thing they
generated over the years in that garage was mouse droppings.
justtalkinghere
built with shoddy workmanship. You also have taxes which are not
decreasing in many areas due to the deficits of many local goverments.
Also maintainence and the fact that your neighbors may not feel
maintainence is important as you do.
Is it a liquid asset? What if everyone tries to sell their house at
once in a neighborhood that has become undesirable?
I guess it also depends on the amount of value minus the home equity
loans.
The Michael <mike...@ameritech.netSPAM> wrote in message news:<olnn10llpgh45a3p1...@4ax.com>...
xylord
wrote:
>I tend to think a house is a liability when you have a house that is
>built with shoddy workmanship.
Ok you may think it is a lousy asset to own but it will bring up some dough.
OK it may not bring up much but if you go
bankrupt it will be classed as an asset.
Assets don't have to make a profit to be assets!
Some do, some don't. People by now associate the word with profit.
The money in your wallet is an asset. Inflation will make it lose value.
Still remains an asset even while it is deteriorating in value.
"worth something to someone' maybe a better definition than the
loose use of the word asset that has often been used in this thread
and the wider world.
Especially through sales talk which try to make out every indulgence
is an asset. Supplies people with a ready excuse to buy.
Hence the 'devaluation' of the word asset. ;-)
>You also have taxes which are not
>decreasing in many areas due to the deficits of many local goverments.
>
>Also maintainence and the fact that your neighbors may not feel
>maintainence is important as you do.
OK the above may decrease the value of your asset but
as long as it is worth something it remains an asset.
>
>Is it a liquid asset? What if everyone tries to sell their house at
>once in a neighborhood that has become undesirable?
That will mean you have to drop the price to become liquid.
But as long as it has value it is an asset.
>
>I guess it also depends on the amount of value minus the home equity
>loans.
Right. The house is an asset, the loan a liability. Simple really. ;-)
regards Xylord
David Wilkinson
owning your own home after all this time. In the UK 99% want to own their
own home and either do so, are buying it on a mortgage or wish they could
afford it. No sensible person would consider paying rent, which is money
into a landlord's pocket and might as well be down the drain, when they
could be paying a mortgage instead, except as a temporary measure while they
are a student or are saving up for the deposit on a house. Even then most
young people prefer to continue living with their parents if their job
location permits while they save up.
It is the only investment that automatically increases with inflation and is
almost always bought on margin. The dream is to finally pay off the mortgage
and own your home outright. The combination of inflation and leverage is
enormous. To give an example of my own case I started with a deposit of
about £1,000, never had a mortgage of more than £30,000 and now own a house
worth perhaps £400,000 after successive moves. I paid off the mortgage 10
years ago and now live free for life except for local taxes, which you have
to pay if you rent anyway. If I had to pay rent for a large 5-bedroomed
detached house with a large garden and superb country views it would be very
expensive.
Of course most people in France, Germany and Europe generally seem content
to live in blocks of rented flats, but no one knows why. It is one of the
major cultural divides between the UK and the rest of Europe. Obviously your
home is a major asset, usually the largest you own, because it saves you so
much in rent over the years. If you really don't want that much space you
can always sell and buy a smaller house and pocket the difference in price.
"xylord" <xylord...@yahoo.com> wrote in message
news:6nnp10lhn2uirf5ks...@4ax.com...
xylord
<da...@quarksoft.freeserve.co.uk> wrote:
>It is difficult to believe you are still arguing about the benefits of
>owning your own home after all this time.
If you read the post properly I did not argue against benefits.
In the post I did not even argue against owning your own home. ;-)
I wanted to stress the careless use of the word asset as meaning
having something worthwhile in the general sense confusing it with
asset as having monetary value at present time. And also pointed
out that an asset, properly defined, does NOT mean it _necessarily_
makes a profit just by being an asset.
Having a $500.000 house does NOT mean necessarily that you will
make or save money with it. Ask some Japanese how they did with
their houses over the last 20 years.
I am NOT arguing against 'benefits' of owning you own home.
There are all sorts of social benefits.
Your statement:
>The combination of inflation and leverage is enormous.
happened in the past. Whether the past will replay itself and more specifically
in the near future can be debatable. Similar inflation is missing at present for
example.
The profit making aspect in your case is what _has_ happened in the past.
-- The past is another country--
regards Xylord
GoldTrader
>"David Wilkinson" <da...@quarksoft.freeserve.co.uk>
>No sensible person would consider paying rent, which is money
> into a landlord's pocket and might as well be down the drain, when they
> could be paying a mortgage instead,
Sounds like what a banker says to clients. Renting a house or renting
money, big difference. Without some tax benefit at the expense of the
public, the transaction does not hold up on it's own.
>I paid off the mortgage 10 years ago and now live free for life
except for local taxes, which you have to pay if you rent anyway. <
Does this mean you no longer have to work, because of this asset?
>Obviously your
> home is a major asset, usually the largest you own, because it saves you so
> much in rent over the years.
Largest liability don't you mean?
Now before you forget "How exactly are you using the power of
compounding in your favor?"
VikingTrader
You say it is a bad idea to pay rent, yet you say it is good idea to live at
home with parents as long as you can to save up enough money for down
payment on a house then the rest of your life pay tens of thousands of
dollars in interest on mortgage to some banker. Paying mortgage is NOT
neccessarily better than paying rent - case in point;
Thirty years ago, I was able to save up enough money (while renting) to pay
cash for a piece of land on which I placed a mobile home. I lived there a
couple of years until I found greener pastures in another state. I rented
the place out for a couple of years while I paid rent in my new location all
the while I continued saving money. I decided that I no longer wanted to be
a landlord, so I sold the property on contract for deed. With the down
payment that I received and the money that I had saved (while renting), I
decided to buy myself a condominium in the big city for which I paid cash.
I have lived in my condominium for nearly 15 years now, but with the
ridiculous run-up in real estate prices of late has come the increase in
property taxes and association dues as well. So now, I am considering
selling the condominium and renting once again. Not only is renting far
cheaper now than owning, but it will give me back the freedom I once enjoyed
to pack-up and relocate at a moments notice.
I learned at young age, the power and freedom that comes with having no debt
and I am glad I never had need for a mortgage a from some banker.
P.S.
It is the mountains of debt that create the inflation of which you speak and
it is the mountains of debt (including mortgage) that will ultimately
destroy a nation.
David Wilkinson
> How exactly are you using the power of compounding in your favor?
>
I am living rent-free in a house worth some £400,000 that is increasing by
10, 15 or 20% a year in value, say £40,000 plus p.a. capital appreciation
at the moment. A few more years and I shall be a property millionaire.
If I was paying rent for it then I would be paying the landlord's mortgage
plus profits. If the landlord borrowed £400,000 at 7% to buy the property
that would be £28,000 p.a. mortgage costs for interest alone plus any
profits and ground rent. Shall we say £33,000 a year to rent? And any
capital gain would be his. That would seem to leave me rather more than
£40,000 + £33,000 = £73,000 a year better off owning than renting.
> >"David Wilkinson" <da...@quarksoft.freeserve.co.uk>
> >No sensible person would consider paying rent, which is money
> > into a landlord's pocket and might as well be down the drain, when they
> > could be paying a mortgage instead,
>
> Sounds like what a banker says to clients. Renting a house or renting
> money, big difference. Without some tax benefit at the expense of the
> public, the transaction does not hold up on it's own.
>
See above.
> >I paid off the mortgage 10 years ago and now live free for life
> except for local taxes, which you have to pay if you rent anyway. <
>
> Does this mean you no longer have to work, because of this asset?
>
No. It is nothing to do with work. You have to live somewhere so providing a
house is an inevitable expense.
> >Obviously your
> > home is a major asset, usually the largest you own, because it saves you
so
> > much in rent over the years.
>
> Largest liability don't you mean?
>
No. See above. Which planet do you come from?
> Now before you forget "How exactly are you using the power of
> compounding in your favor?"
See above.
David Wilkinson
"VikingTrader" <viking...@mn.rr.com> wrote in message
news:DvsTb.11535$sd....@twister.rdc-kc.rr.com...
> No sensible person would NOT consider renting.
>
> You say it is a bad idea to pay rent, yet you say it is good idea to live
at
> home with parents as long as you can to save up enough money for down
> payment on a house then the rest of your life pay tens of thousands of
> dollars in interest on mortgage to some banker. Paying mortgage is NOT
> neccessarily better than paying rent - case in point;
>
landlord's mortgage plus profits as rent that goes up with inflation until
the day you die and you have nothing to show for it as you still own nothing
or b) Pay your own mortgage for 20 to 25 years and then live rent free for
life owning your own home which you can pass on to your heirs. No contest!
> Thirty years ago, I was able to save up enough money (while renting) to
pay
> cash for a piece of land on which I placed a mobile home. I lived there a
> couple of years until I found greener pastures in another state. I rented
> the place out for a couple of years while I paid rent in my new location
all
> the while I continued saving money. I decided that I no longer wanted to
be
> a landlord, so I sold the property on contract for deed. With the down
> payment that I received and the money that I had saved (while renting), I
> decided to buy myself a condominium in the big city for which I paid cash.
>
> I have lived in my condominium for nearly 15 years now, but with the
> ridiculous run-up in real estate prices of late has come the increase in
> property taxes and association dues as well. So now, I am considering
> selling the condominium and renting once again. Not only is renting far
> cheaper now than owning, but it will give me back the freedom I once
enjoyed
> to pack-up and relocate at a moments notice.
>
But you have benefitted from the "ridiculous run up in real estate prices of
late". If you had rented instead of buying 15 years ago and now wanted to
move from renting to buying that condominium all your 15 years of renting
would have been money down the drain and you might not be able to afford the
present "ridiculous" price of the condominium.
If you are a house owner, with or without a mortgage, and want to move
somewhere else then you sell the house and buy another one where you want to
move to. No problem.
Doug Freyburger
>
> OK "GoldTrader", tell me this. Is gold an asset? It doesn't produce any
> income. So why do you trade it?
Gold traded on the commodities market bounces around in value. Buy
low, sell high, realize an income, it was an asset. Buy high, sell
low, realize a loss, it was a liability. That makes gold either a
speculation or a gamble depending on your viewpoint or definition.
Doug Freyburger
>
> Who said assets have to generate cash?
Robert Kiyosaki's Rich Dad. It's an extremist stance. The question
is whether it leads in a good direction.
If you don't follow the advice, you might never see cash flow and
you'll have to use other methods. Other methods can work, but how
often DO they work?
If you follow the advice, you'll look at every expenditure and view
it in terms of its impact on your cash flow. That should average out
pretty good in the long run.
On the other hand if the only advice you ever follow is the cash flow
view, you're likely to end up with owned property that is unstable,
high risk.
So it looks like there's an implied compromise where you view cash
flow as the first priority until you can live off the cash flow, and
then view the stability of the portfolio and how to protect it once
your cash flow is enough, and then how to pass it on to your heirs.
Sure enough later chapters or books discuss this as the general
strategy.
In and of itself it appears true to me. If it is true, it has value.
Even though it skews the standard definitions. First look to cash
flow and ignore the storage-value of any owned item. Then once cash
flow is established build for stability in other words stored value.
Then work towards passing it on to heirs. At each stage define
"asset" to work for that stage: cash flow produced, stability produced,
wealth passed on.
It may seem obvious on the surface, but my family never taught it to
me. If it's new it has value.
VikingTrader
> You are going to pay a mortgage anyway. The
> options are a) Pay the landlord's mortgage plus
> profits as rent that goes up with inflation until
> the day you die and you have nothing to show for
> it as you still own nothing or b) Pay your own
> mortgage for 20 to 25 years and then live rent free
> for life owning your own home which you can pass
> on to your heirs. No contest!
You are "dead wrong" there. First, I am not talking
about renting a house since I don't have neither the
time or desire for the maintenance headaches or the
tax burdens. Second, a person can rent an apartment
for less tan what the "lucky homeowner" pays in taxes
alone.
> But you have benefited from the "ridiculous run
> up in real estate prices of late". If you had rented
> instead of buying 15 years ago and now wanted
> to move from renting to buying that condominium
> all your 15 years of renting would have been money
> down the drain and you might not be able to afford
> the present "ridiculous" price of the condominium.
You are "dead wrong" again. First, you forget that
it was the money that I saved while renting that
enabled me to pay cash for the condominiium initially.
Second, the run up in real estate prices still doesn't
hold a candle to the profits I could have turned with
that cash in the markets.
> If you are a house owner, with or without a mortgage,
> and want to move somewhere else then you sell the
> house and buy another one where you want to move
> to. No problem.
Good Luck !
darrell
investment they would be laughed out of town. :-)
"Don Zimmerman" <zimm...@look.ca> wrote in message
news:gWYRb.38469$oj2.29173@edtnps89...
GoldTrader
Newsgroups: misc.invest.real-estate, misc.invest.futures,
misc.invest.stocks, misc.invest.technical, misc.invest.misc
Doug Freyburger (dfre...@yahoo.com)>If you follow the advice, you'll
look at every expenditure and view it in terms of its impact on your
cash flow. <
Yes, I noticed that, but a closer look shows things that have a ready
marketable price also count as income. So not really cash flow, but
for sure income. Something that can off set your liabilities and is
available for other opportunities that may come along. The world is
always moving toward entropy. Extremes materialize and move toward
the norm. People looking, will see opportunities where if they have
the assets they will not be afraid to manage a little risk.
Doug Freyburger >On the other hand if the only advice you ever follow
is the cash flow view, you're likely to end up with owned property
that is unstable, high risk.<
How is that? You can buy all sorts of securities and contracts that
meet the test as true investments.
Doug Freyburger >" general strategy!" >
Doug Freyburger >" <So it looks like there's an implied compromise
where you view (income) as the first priority until you can live off
the (income),>
Doug Freyburger >" <and then view the stability of the portfolio and
how to protect it once your (income) is enough,>
Doug Freyburger >" <and then how to pass it on to your heirs.>
Yes, I will buy that.
Doug Freyburger >In and of itself it appears true to me. If it is
true, it has value. even though it skews the standard definitions.<
That is the point. The standard definition is misleading. It leads
people to value liabilities. Not to see them for what they are.
Doug Freyburger > First look to cash flow and ignore the storage-value
of any owned item. Then once cash flow is established build for
stability in other words stored value. Then work towards passing
(income) on to heirs.<
Doug Freyburger > At each stage define "asset" to work for that
stage: cash flow produced, stability produced, wealth passed on.<
Income produced, Steady Income produced, Steady Income passed on.
Over the life of any long-term investment even, a slight income will
exceed the value of the original Asset many times over.
>OK it may not bring up much but if you go bankrupt, it will be
classed as an asset. <
Most bankruptcies include real estate in some way. Do people
sometimes go bankrupt because they cannot cover their liabilities?
How can the thing be an asset if it helped cause the bankruptcy in the
first place?
>Assets don't have to make a profit to be assets! <
That is what the people financing your liabilities want you to think.
It's an asset to them but is it an asset to you?
<People by now associate the word with profit. <
What we want you to do, is associate it with income! IT is an asset
to you if it is working for you, not dragging you down.
>"worth something to someone' maybe,"< is liquidation value not an
asset to the owner.
>Especially through sales, talk which try to make out every indulgence
is an asset? <
>as long as it is worth something, it remains an asset. <
How about as long as it puts money in your pocket it is an asset. The
fact that it can be sold to buy something that can tap into the power
of compounding does not make it compound.
>The house is an asset, the loan a liability. Simple really. <
If the house were producing income in excess of all of its expenses,
it would be an asset. Otherwise, it is a liability. You have to come
up with cash to keep it. There are many other expenses in owning a
house.
David Wilkinson (da...@quarksoft.freeserve.co.uk) >It is difficult to
believe you are still arguing about the benefits of owning your own
home. <
David there may be benefits from owning things. That does not mean
they are not a liability. The one thing the wealthiest families all
have in common is they own assets that produce income. These could be
dividends, interest, rents, or things, and intellectual properties
with increasing marketable prices. Unique properties of which real
estate applies have no market price, until they are sold.
>No sensible person would consider paying rent, <
If it costs less to rent than to buy, rent and invest the difference.
If it costs less to buy, buy!
>It is the only investment that automatically increases with inflation
<
Inflation does not add any real value. Inflation does not increase
wealth. You always lose on inflation because your liability increases
with the inflated price.
An investment has four attributes.
1. Protection of Capital
2. Income
3. Chance at capital gain
4. Liquidity
Is your home an investment?
>The dream <
Your dream! I would think a higher evolution of that would be to
dream of financial independence. It takes assets that produce income
to do that. Without those, it is not going to be done. You can
always have your Assets buy you a home.
>pay off the mortgage and own your home outright. <
It would still be a liability. You will have to pay out to keep it.
You also have a lot of capital tied up that may be benefiting the
world better, if it was unleashed. What ever that value could be
earning, is what it costs you to be a householder.
>The combination of inflation and leverage is enormous. <
Xylord >The profit making aspect in your case is what _has_ happened
in the
past. -- The past is another country--<
Inflation is not profit. Inflation gains you nothing but a bigger
liability. Leverage is enormous trading futures to. Leverage is not
unique to a home purchase. High levels of debt are.
>I started with a deposit of about £1,000, <
I notice you left out your true costs. This is typical of people who
call liabilities assets. All the wear, and tear, and home
improvements, insurance and the like. Did you maintain the property?
The real overlooked wealth is the opportunities you may not have even
seen, because of the "cash flow drain," maintaining this liability for
so many years.
>worth perhaps £400,000 after successive moves<
Congratulations, if you indeed can capture that net. Are you
satisfied with the results, minus the fluff caused by inflation, and
deducting all of your total true costs?
>Of course, most people in France, Germany, and Europe generally seem
content to live in blocks of rented flats, but no one knows why. <
Maybe those countries do not favor the homeowner, at the expense of
everybody else like they do in America.
<your home is a major asset, <
It can be, if you sell it and buy something that covers its own
liabilities. As it is, a home is a liability. Many people have to
work to keep it. An Asset works for you. It reduces your need for
cash. It assists you meeting your liabilities.
<usually the largest you own, <
Larger than say, a half a dozen currency futures contracts?
Xylord > I wanted to stress the careless use of the word asset, as
meaning having something worthwhile, in the general sense confusing it
with asset as having monetary value at present time. And also pointed
out that an asset, properly defined, does NOT mean it
_necessarily_makes a profit just by being an asset.
As Xylord is pointing, out there are assets and there are assets.
There is a large group of professionals who make there living off the
public. They want you to believe that liabilities are assets, maybe
just because someday you believe they may be sold for more than there
carrying costs.
There is another group, who own Assets that produce income during
holding periods, and believe like the others that they can be sold for
more than there carrying costs. Is it really an asset at all, if it
is not helping you meet your liabilities during the duration of your
ownership?
Be sure it is an asset to you. We know it is an asset to everyone
involved selling it to you.
David Wilkinson
>
>
> David Wilkinson (da...@quarksoft.freeserve.co.uk) >It is difficult to
> believe you are still arguing about the benefits of owning your own
> home. <
>
> David there may be benefits from owning things. That does not mean
> they are not a liability. The one thing the wealthiest families all
> have in common is they own assets that produce income. These could be
> dividends, interest, rents, or things, and intellectual properties
> with increasing marketable prices. Unique properties of which real
> estate applies have no market price, until they are sold.
>
> >No sensible person would consider paying rent, <
>
> If it costs less to rent than to buy, rent and invest the difference.
> If it costs less to buy, buy!
>
To be charitable, things may be different in the USA. In the UK it is never
cheaper to rent than to buy. If you give it a few moments thought you will
see why this is. If I were to buy a property to let I would have to pay the
full market price for it, possibly with a mortgage. I would expect the rent
charged to cover the mortgage or loss of return on money invested, to
provide an adequate return as a profit, to cover the costs of maintenence
and a letting agent's fees if I used one and any property taxes levied on
the landlord rather than the tennant. In other words all the costs of owning
the property and maintaining it plus a profit on top of that. If I buy to
live there then I pay all the same costs but not the profit, and I keep the
capital gains.
> >It is the only investment that automatically increases with inflation
> <
>
> Inflation does not add any real value. Inflation does not increase
> wealth. You always lose on inflation because your liability increases
> with the inflated price.
>
Again you have missed the point. Probably you are too young to have lived
through inflationary times and it is just a concept to you rather than a
reality. In the UK when I started buying houses they cost about £4000 total.
If you could save up a deposit of £500 to £1000 and borrow the other £3000
or so as a mortgage you got on the property ladder. If you paid off the
mortgage you would pay about £7000 total with interest.
Many people who bought at this sort of price are now living in houses worth
£250,000 to £500,000, particularly in London, which they could not afford to
buy at present day prices on their present salaries or pensions. Those who
did not get on the property ladder when they might have done but rented
instead have missed the boat and will never be able to buy now. Young people
cannot afford to buy at these prices and cannot afford the associated rents,
which is money down the drain anyway, and are forced to leave and move to
cheaper areas. This is a major problem where lower paid public service
workers like teachers, nurses, policemen and others cannot afford to live
where they work so there is a growing shortage of these people.
No one said inflation was good or bad. It is just a fact of life, beyond the
control of the average man or woman trying to find somewhere to live. All
this academic talk of what is an asset is so much hot air. The fact is that
owning your own home is an almost priceless asset compared to paying
ever-increasing rent to the day you die, if you can afford to pay it.
Presumably, again, retirement is just a concept to you and you are convinced
that when it arrives you will have more than adequate funds and income to
keep you in luxury and pay any rent required. Try reading about the actual
prospects for the average American worker who is not saving nearly enough to
provide an adequate pension and will not have enough cash and income in
retirement to cover his costs.
> An investment has four attributes.
>
> 1. Protection of Capital
> 2. Income
> 3. Chance at capital gain
> 4. Liquidity
>
> Is your home an investment?
>
> >The dream <
>
> Your dream! I would think a higher evolution of that would be to
> dream of financial independence. It takes assets that produce income
> to do that. Without those, it is not going to be done. You can
> always have your Assets buy you a home.
>
Not if the price of houses has increased faster than your savings and
investements! You do not live in the real world of the average worker who
needs to buy and pay off his mortgage while at work as he will not be able
to afford either to buy or rent when he retires.
> >pay off the mortgage and own your home outright. <
>
> It would still be a liability. You will have to pay out to keep it.
> You also have a lot of capital tied up that may be benefiting the
> world better, if it was unleashed. What ever that value could be
> earning, is what it costs you to be a householder.
>
> >The combination of inflation and leverage is enormous. <
>
> Xylord >The profit making aspect in your case is what _has_ happened
> in the
> past. -- The past is another country--<
>
> Inflation is not profit. Inflation gains you nothing but a bigger
> liability. Leverage is enormous trading futures to. Leverage is not
> unique to a home purchase. High levels of debt are.
>
> >I started with a deposit of about £1,000, <
>
> I notice you left out your true costs. This is typical of people who
> call liabilities assets. All the wear, and tear, and home
> improvements, insurance and the like. Did you maintain the property?
> The real overlooked wealth is the opportunities you may not have even
> seen, because of the "cash flow drain," maintaining this liability for
> so many years.
>
My experience of buying and owning houses for decades is that the
maintenence costs are very low. Again I can only assume US experience may be
different. Houses in the UK are all built of brick and stone and last
indefinitely. Many people in London live in house built in Victorian times.
They need painting and the odd rewiring and replumbing from time to time. If
you buy a succession of new houses, as I have done, you miss all that.
Houses I have seen in the USA seem in many cases to be built of wood,
cardboard and roofing felt and on earthquake fault lines or in the paths of
mud slides, floods or tornados. Perhaps they are a lot more temporary and
require a lot more maintenance than UK houses. That is your choice, I
suppose.
> >worth perhaps £400,000 after successive moves<
>
> Congratulations, if you indeed can capture that net. Are you
> satisfied with the results, minus the fluff caused by inflation, and
> deducting all of your total true costs?
>
Extremely satisfied. Why not? I have probably paid about £50,000 total with
interest on loans to own something worth 8 times as much. Not a bad return!
And, it saves me from paying any rent at all as long as I live. Remind me
what you have against that! I can either sell and buy something smaller if I
want to realise some of the capital or I can leave it as part of my estate
to my heirs eventually.
> >Of course, most people in France, Germany, and Europe generally seem
> content to live in blocks of rented flats, but no one knows why. <
>
> Maybe those countries do not favor the homeowner, at the expense of
> everybody else like they do in America.
>
> <your home is a major asset, <
>
> It can be, if you sell it and buy something that covers its own
> liabilities. As it is, a home is a liability. Many people have to
> work to keep it. An Asset works for you. It reduces your need for
> cash. It assists you meeting your liabilities.
>
Of course not having to pay rent of £30,000 p.a. for a similar property does
not reduce my need for cash (sarcasm, in case you missed it).
> <usually the largest you own, <
>
> Larger than say, a half a dozen currency futures contracts?
>
Terrific! The average day trader loses all his funds in a few months. That
is how much your futures contracts are worth, a negative value because they
will bankrupt you. But of course it won't happen to you because you have a
charmed life. They all think that when they are ahead, but it does not last.
!
GoldTrader
David Wilkinson (da...@quarksoft.freeserve.co.uk)>. In the UK, it is
never cheaper to rent than to buy.
> If it costs less to rent than to buy, rent and invest the difference.
> If it costs less to buy, buy! >
>> Inflation does not increase wealth. <<
Inflation still does not increase wealth.
>and borrow the other £3000 or so as a mortgage, you got on the
property ladder. <
Debt, the property ladder, is this the "Rat Race?"
David Wilkinson (da...@quarksoft.freeserve.co.uk)> owning your own
home is an asset compared to paying ever-increasing rent.
Dave we do not compare investments against paying rent. We compare
opportunities against:
> 1. Protection of Capital
> 2. Income
> 3. Chance at capital gain
> 4. Liquidity
David Wilkinson (da...@quarksoft.freeserve.co.uk) >Not if the price of
houses has increased faster than your savings and investments! <
Tam would tell us it depends on whether or not they will increase
faster in the future that counts. Maybe it will, maybe it won't.
David Wilkinson (da...@quarksoft.freeserve.co.uk) >My experience of
buying and owning houses for decades is that the maintenance costs are
very low. <
We don't get that many title waves over here. Usually a person will
spend more money on a home they live in and own, than on one they
rent.
>Houses in the UK are all built of brick and stone. <
Been there, I thought it was to protect against Barbarians.
>Perhaps they are a lot more temporary and require a lot more
maintenance than UK houses.<
Yah we have to keep adding garages for SUV's and ATV's.
>Extremely satisfied. Why not? I have probably paid about £50,000
total with
interest on loans to own something worth 8 times as much. Not a bad
return! <
Interest, loans, inflation, taxes, expenses, wear and tear etc. Does
it provide you an income to cover other liabilities like
income-property will?
I guess the sub question is:
Is home equity as valuable as income-producing equity? Or even is
home equity, income-producing equity?
>Of course not having to pay rent for a similar property does not
reduce my need for cash
Here to, it is a reduction of liability that may be the real asset.
>Terrific! The average day trader loses all his funds in a few
months. <
I have never been and probably never will be a day trader. So, be
careful with the accusations. That is like accusing a person of being
mentally ill.
VikingTrader
"David Wilkinson" <da...@quarksoft.freeserve.co.uk> wrote
> Many people who bought at this sort of price are now living
> in houses worth £250,000 to £500,000, particularly in London,
> which they could not afford to buy at present day prices on
> their present salaries or pensions.
>
If not even the people who own these liabilities can afford them,
then it sounds to me like they are the "Greatest Fools"
David Wilkinson
>
> David Wilkinson (da...@quarksoft.freeserve.co.uk)>. In the UK, it is
> never cheaper to rent than to buy.
>
> > If it costs less to rent than to buy, rent and invest the difference.
> > If it costs less to buy, buy! >
>
> >> Inflation does not increase wealth. <<
>
> Inflation still does not increase wealth.
>
> >and borrow the other £3000 or so as a mortgage, you got on the
> property ladder. <
>
> Debt, the property ladder, is this the "Rat Race?"
>
rents forever and having absolutely nothing to show for it. Once you have
bought your house and paid for it you have won the race and can relax,
discuss how much its value keeps increasing and spend the rent money on
something more interesting like a BMW X5 to put in your garage.
> David Wilkinson (da...@quarksoft.freeserve.co.uk)> owning your own
> home is an asset compared to paying ever-increasing rent.
>
> Dave we do not compare investments against paying rent. We compare
> opportunities against:
>
> > 1. Protection of Capital
> > 2. Income
> > 3. Chance at capital gain
> > 4. Liquidity
>
We being whom?
Owned property gives you 1 and 3 in your list. Also 2 since not paying rent
gives you income from the rent you save. Liquidity is longer term but I have
sold all my previous houses in a couple of weeks, say two months after all
the legal things like conveyancing.
> David Wilkinson (da...@quarksoft.freeserve.co.uk) >Not if the price of
> houses has increased faster than your savings and investments! <
>
> Tam would tell us it depends on whether or not they will increase
> faster in the future that counts. Maybe it will, maybe it won't.
>
While the FTSE100 has dropped from just under 7000 in year 2000 to about
4400 now, by 37%, residential property has been rising by 10 to 15% a year,
depending on where you live. No one knows for sure what will happen in the
future but they are not making land anymore, there are more and more people
on this crowded little island and families are becoming more and more spread
out. Demand for houses shows no sign of abating.
> David Wilkinson (da...@quarksoft.freeserve.co.uk) >My experience of
> buying and owning houses for decades is that the maintenance costs are
> very low. <
>
> We don't get that many title waves over here. Usually a person will
> spend more money on a home they live in and own, than on one they
> rent.
>
Of course they do. It's theirs isn't it!
> >Houses in the UK are all built of brick and stone. <
>
> Been there, I thought it was to protect against Barbarians.
>
We have 1000 year old Norman churches and cathedrals and Elizabethan
thatched cottages and stately homes still in use. Most of the houses that
have ever been built are probably still there, but not all, of course. We
don't follow the US practice of knocking down anything more than 30 years
old.
> >Perhaps they are a lot more temporary and require a lot more
> maintenance than UK houses.<
>
> Yah we have to keep adding garages for SUV's and ATV's.
>
> >Extremely satisfied. Why not? I have probably paid about £50,000
> total with
> interest on loans to own something worth 8 times as much. Not a bad
> return! <
>
> Interest, loans, inflation, taxes, expenses, wear and tear etc. Does
> it provide you an income to cover other liabilities like
> income-property will?
>
> I guess the sub question is:
>
> Is home equity as valuable as income-producing equity? Or even is
> home equity, income-producing equity?
>
More to the point, does income-producing equity produce income, after
allowing for capital losses in the recent bear market?
> >Of course not having to pay rent for a similar property does not
> reduce my need for cash
>
> Here to, it is a reduction of liability that may be the real asset.
>
> >Terrific! The average day trader loses all his funds in a few
> months. <
>
> I have never been and probably never will be a day trader. So, be
> careful with the accusations. That is like accusing a person of being
> mentally ill.
Ok, but futures are high-risk in all the books I have read. I think Nick
Leeson of Barings was trading Nikkei futures and managed to lose £1 billion
and bring Barings to bankruptcy.
GoldTrader
> Good points all of them!
"Beamer," mid-engined sports cars handle better.
The rat race is about working. It refers to how people get income not
where they live. If you want to keep people under control. Get them
into debt. Get compounding working against them. It is difficult for
people to just take a few months off when compounding is pounding.
BBC More people 'opt out of rat race'
http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/1/hi/uk/2951625.stm
David Wilkinson >they are not making land anymore, <
Tell that to the Big Island. They ARE making land anymore.
<Demand for houses shows no sign of abating. < Here either!
David Wilkinson > the maintenance costs are very low. <
You admit, they are higher for a homeowner. So, all else being equal,
this is an increased liability, which a homeowner accepts that a
non-homeowner may not.
Please just a little more on this inflation thing. If your home
started out on an acre, and as the years go by it grew to an acre and
a half. You would have increased wealth. But if you start with "a
house on and acre," and ten years later you end up with "a house on
and acre." All you really have is an OLD house.
It may exchange for more pieces of paper, but if you trade the house,
for a house, you will probably not see any gain over what you would
have received if you had traded for a similar house ten years ago.
What you do have without dispute is increased liability brought on by
the inflationary increase in the number of pieces of paper the
property could now command.
>More to the point, does income-producing equity, produce income,
after allowing for capital losses in the recent bear market? <
Sure it does, anyone above the elementary level sells short. Bear
markets, like all others, spells opportunity!
>Ok, but futures are high-risk in all the books I have read. <
Risk management depends on the trader. If you read down another
level, you may find that many successful traders keep a "diversified
portfolio of Seasonal Futures Spreads." These can give very high
returns disproportionate to the risk.
<and bring Barings to bankruptcy. <
I counter "Baring's boy wonder," with George Soros (Futures Trader).
Soros, donates funds to many countries in excess of US foreign aid?
Remember there is risk of substantial gain trading "Seasonal Calendar
Futures Spreads."
Tim
> Please just a little more on this inflation thing. If your home
> started out on an acre, and as the years go by it grew to an acre and
> a half. You would have increased wealth. But if you start with "a
> house on and acre," and ten years later you end up with "a house on
> and acre." All you really have is an OLD house.
>
> It may exchange for more pieces of paper, but if you trade the house,
> for a house, you will probably not see any gain over what you would
> have received if you had traded for a similar house ten years ago.
Also - "if you trade [a gold bar], for [another gold bar], you will probably
not see any gain over what you would have received if you had traded for a
similar [gold bar] ten years ago..."
Of course, if you *sell* the gold bar (or the house!) then you *will* see
the gain!
David Wilkinson
> Subject: Re: Is your Home an asset or a liability?
>
> > Good points all of them!
>
> "Beamer," mid-engined sports cars handle better.
>
clubs. On the school run you want something big and intimidating like a 4X4.
On straight US roads with 55 mph speed limits anything will do.
> The rat race is about working. It refers to how people get income not
> where they live. If you want to keep people under control. Get them
> into debt. Get compounding working against them. It is difficult for
> people to just take a few months off when compounding is pounding.
>
Most people in the UK have a mortgage because they are buying the biggest
and most expensive house or houses they can just afford. This is the way to
make serious money as a leveraged investment with almost absolute security.
It gives no one control over them.
You don't seem to distinguish between good debt and bad debt. Debt is good
when you can make far more on it than the interest incurred because it is
invested in a leveraged asset like residential property. The more you borrow
the more you make. The government used to give tax relief on mortgage
interest at one time but gave this up when they realised it was not
necessary.
Bad debt is money borrowed for consumption, particularly on credit cards. Is
this not the curse of the American consumer?
> BBC More people 'opt out of rat race'
>
Especially the Chaiman and Chief Executive who are spending more time with
their families now! More seriously a few weirdos choose to give up being
city brokers or whatever and try to run a croft on an uninhabited island in
the Orkneys. These people need therapy but they are an insignificant
proportion of the workforce.
http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/1/hi/uk/2951625.stm
>
> David Wilkinson >they are not making land anymore, <
>
> Tell that to the Big Island. They ARE making land anymore.
>
Which is the Big Island?
> <Demand for houses shows no sign of abating. < Here either!
>
> David Wilkinson > the maintenance costs are very low. <
>
> You admit, they are higher for a homeowner. So, all else being equal,
> this is an increased liability, which a homeowner accepts that a
> non-homeowner may not.
>
For the same property the maintenance costs are exactly the same whether you
own it or rent it. If you think the landlord is going to pay them then you
must also believe in the Easter Bunny and the Tooth Fairy :-) He will
obviously pass them on to the tennent in the rent. So, there is no increased
liability from owning. You are going to pay them anyway.
> Please just a little more on this inflation thing. If your home
> started out on an acre, and as the years go by it grew to an acre and
> a half. You would have increased wealth. But if you start with "a
> house on and acre," and ten years later you end up with "a house on
> and acre." All you really have is an OLD house.
>
OLD houses are worth a lot of money. Do I have to spell this point out yet
again until you get it? House "A" costs £30,000 in 1970. You either pay
£3,000 p.a.rent or put £2,000 down and take out a £28,000 mortgage over 25
years paying £3,000 p.a. interest and capital off the mortgage (guessed
numbers but not far out).
Now it is 1995. The house value has risen to £200,000. You are either now
paying £20,000 p.a.rent, which will keep rising in perpetuity, and have paid
(3,000+20,000)/2*25 = £287,500 so far or you pay the final £3,000 off the
mortgage, making £77,000 in all, and stop paying for all time.
Now it is 2015, 20 years later. The house is worth £912,000 and the renter
is now paying £91,000 p.a. making 287,500 + (20,000+91,000)/2*20 =
£1,397,500 paid so far. The renter retires and has to move to a tiny
apartment which is all he can afford. He has few savings as all his money
has gone on rent over the years.
The owner is still paying nothing and has still paid only £77,000 for his
£912,000 house. He can sell up, buy a smaller house and use the £400,000
change to buy a Ferrari, a cruise round the world and that villa in France
he has always intended to have as a holiday home. The money he saved on rent
has been invested so he has a large pension and capital sum to live on
anyway.
Both die. The renter has nothing and goes to a paupers grave. The owner
leaves his million plus estate to his grateful heirs having enjoyed the best
of everything.
Some liability!
> It may exchange for more pieces of paper, but if you trade the house,
> for a house, you will probably not see any gain over what you would
> have received if you had traded for a similar house ten years ago.
>
> What you do have without dispute is increased liability brought on by
> the inflationary increase in the number of pieces of paper the
> property could now command.
>
> >More to the point, does income-producing equity, produce income,
> after allowing for capital losses in the recent bear market? <
>
> Sure it does, anyone above the elementary level sells short. Bear
> markets, like all others, spells opportunity!
>
I am still at the elementary level then, like most investors. Also, funnily
enough, I am never quite sure whether we are in a bull market, a bear market
or a trading market until after it has happened. Nick Leeson knew, but he
was wrong! Not many other people seem to know either.
> >Ok, but futures are high-risk in all the books I have read. <
>
> Risk management depends on the trader. If you read down another
> level, you may find that many successful traders keep a "diversified
> portfolio of Seasonal Futures Spreads." These can give very high
> returns disproportionate to the risk.
>
Why aren't all futures traders rich then, if it so easy?
Wizard of Ozz
> Assets put cash in your pocket- Liabilities take cash out of your pocket.
>
I tried to find some way to measure where the housing market stands, a
kind of PE ratio for it. A good measure is to check the value of
average houses historically, adjusted for inflation, and compare to
today. But what if the average house today is twice as big as the
average house 20 years ago? It distorts the comparison.
Finally, I came to a proper conclusion. The ideal way to measure how
the housing market stands from a historical perspective is to compare
the value of the average house with the income of the average family.
This ratio should do the trick. Note that I said the income of the
average "family", not "worker", since more people per family are
working today than 20 years ago, though we still have 1 family per
house. So if we compare house prices to workers' salaries, the ratio
would be distorted; compared to the total income of the family living
in the house, the ratio is correct.
If anyone knows where average family incomes can be found, please
direct me to said place. I would really appreciate it. I already have
average house prices back to 1975. If anyone has average house prices
prior to that, please enlighten us all.
VikingTrader
steady decline for decades.
VikingTrader
> It is difficult to believe you are still arguing about the
> benefits of owning your own home after all this time.
> In the UK 99% want to own their own home and
> either do so, are buying it on a mortgage or wish they
> could afford it.
>
"wish they could afford it"?...
The number of people declaring bankruptcy between October and December was
the highest since the record 10,942 bankruptcies seen in the first quarter
of 1993. That was when Britain was just emerging from the slump that left
millions of households trapped in negative equity after house prices
collapsed.
http://news.independent.co.uk/business/news/story.jsp?story=488753
Pretty much sums it up !
David Wilkinson
prices are booming, and in 1993 when they had slumped?
Is this what is called a non-sequitur?
Negative equity just meant that the house was currently worth less than the
mortgage owed on it. It does not mean anyone's mortgage payments increased
or anyone was less able to pay them. Most people just ignored it and got on
with their lives and in a year or so house prices rose again and have never
looked back since.
It is a bit like people buying stocks or funds in 2000 and then complaining
in 2003 that they were worth less than they paid for them, the dreaded
negative equity. It is true but stocks, like houses, are long term
investments and they will rise again. It does not mean no one should ever
buy stocks or houses again!
Ben Sharvy
> I don't agree with your definitions. An asset doesn't have to produce an
> income stream, it just has to have some value.
Naturally you have to include the value of rent-avoided in your
calculations. And, perhpas, the intabgible values (positive and
negative) of ownership. If it means a lot to you to have a garden, a
dog or three, greater stability, then there is a lot of extra value in
owning. If those factors are unimportant, the extra value is reduced.
This question is almost as silly as asking "Is an investment an asset
or a liability?" Obviously, it depends on the investment. There is no
sweeping answer.
us...@127.0.0.1
<da...@quarksoft.freeserve.co.uk> wrote:
>It is true but stocks, like houses, are long term
>investments and they will rise again. It does not mean no one should ever
>buy stocks or houses again!
wanna buy some Enron Stock?
Andy Pandy
"David Wilkinson" <da...@quarksoft.freeserve.co.uk> wrote in message
news:c03k33$up5$1...@news7.svr.pol.co.uk...
> Most people in the UK have a mortgage because they are buying the biggest
> and most expensive house or houses they can just afford. This is the way to
> make serious money as a leveraged investment with almost absolute security.
> It gives no one control over them.
Historically over the long term, mortgage interest rates tend to be higher than
house price inflation (I did provide evidence for this a while ago in
uk.finance). If you are paying more in interest than your property is increasing
in value, then you are *losing* money. Of course you also lose money when
renting, usually more, but it is complete bullshit to suggest that you will
always make money by buying the most expensive house possible. Historical
evidence shows you are more likely to lose money than make it if you buy a more
expensive house than you need, particularly if you buy with borrowed money.
--
Andy
Andy Pandy
"Tim" <m...@home.com> wrote in message news:c03i52$5bm$1...@sparta.btinternet.com...
> "GoldTrader" wrote
> > It may exchange for more pieces of paper, but if you trade the house,
> > for a house, you will probably not see any gain over what you would
> > have received if you had traded for a similar house ten years ago.
>
> Also - "if you trade [a gold bar], for [another gold bar], you will probably
> not see any gain over what you would have received if you had traded for a
> similar [gold bar] ten years ago..."
>
> Of course, if you *sell* the gold bar (or the house!) then you *will* see
> the gain!
But you don't need a gold bar to live in. You can sell it without then having to
buy another one, rent one, or live in a cardboard box.
The point about house price inflation is that at the same time as your asset
increasing in value, the accomodation part of your cost of living is increasing
at exactly the same rate. Of course you might realise some of it if your
accomodation requirements go down (children move out, you move to a cheaper part
of the country/world)...
--
Andy
Jane
money instead of paying off the house and all that crap, but the bottome
line is. . .
if you get sick and can't work, and you own your house, and if you can pay
the taxes, (here in NY we have a 10 year tax-abatement and our real-estate
taxes are less than 1,000 per year at this point. . .) you'll never wind up
on the street.
People tend to lose sight of what money is FOR. Your home is the biggest
asset you have, if you own it outright. You'll always be able to survive.
That's what it's about. Survival.
Jane
--
"Andy Pandy" <spamspamspamspam...@wonderful.spam> wrote in
message news:uTyVb.1441$h44.2...@stones.force9.net...
Doug Ramage
"Jane" <rgs...@verizon.net> wrote in message
news:BlzVb.19889$IF1....@nwrdny03.gnilink.net...
<snip>
> People tend to lose sight of what money is FOR. Your home is the biggest
> asset you have, if you own it outright. You'll always be able to survive.
> That's what it's about. Survival.
>
> Jane
>
> --
Not necessarily. I have quite a few clients whose pension fund is worth more
than their house(s).
--
Doug Ramage
Tim
> Historically over the long term, mortgage interest rates tend to be higher
than
> house price inflation (I did provide evidence for this a while ago in
> uk.finance)
Have you looked at *any* periods which do NOT include the early 1980's or
the early 1990's?
It looks like your conclusion above is generally applicable to the early
1980's and early 1990's. But outside those periods, it looks like
**mortgage interest rates have tended to be LOWer than house price
inflation** !
So, for instance, it turns out that anyone now owning a property having
bought it since about 1991, has probably seen a higher average house price
inflation than the average mortgage interest rate paid over that period ...
Andy Pandy
IIRC I looked at the average rates in the 30 years 1973 - 2003.
--
Andy
GoldTrader
> > for a house, you will probably not see any gain over what you would
> > have received if you had traded for a similar house ten years ago.
>
> Also - "if you trade [a gold bar], for [another gold bar], you will probably
> not see any gain over what you would have received if you had traded for a
> similar [gold bar] ten years ago..."
>
> Of course, if you *sell* the gold bar (or the house!) then you *will* see
> the gain!
Only in pieces of paper. You still have the same amount of gold. In
addition, the increased numbers of paper bring new and increased
liabilities.
GoldTrader
anything will do. <
Contrary to popular belief, the majority does not obey our 70mph speed
limits. We also have winding mountain roads that will rival anything
in Europe with nowhere near the amount of traffic.
David Wilkinson >>You don't seem to distinguish between good debt and
bad debt. <
Would you agree that GOOD debt is that, which earns income, bad debt
is a liability.
David Wilkinson ><The government used to give tax relief on mortgage
interest at one time but business gave this up when they realized it
was not necessary. <
Our government gives relief to homeowners on interest to benefit the
banks. But I suppose anyone dealing is real estate as a business can
deduct all expenses and pay their loans with pre-taxed funds including
interest.
David Wilkinson >Bad debt is money borrowed for consumption,
particularly on credit cards. <
You can use credit card debt to by property. The thing is weather the
funds are flowing toward you as in Asset, or away from you as in
Liability.
David Wilkinson >they are not making land anymore, <
The Big Island is the southern most island in the Hawaiian chain. The
constant flow of lava to the sea is said to have added 540 acres of
new land in recent times.
David Wilkinson (da...@quarksoft.freeserve.co.uk) >My experience of
buying and owning houses for decades is that the maintenance costs are
very low. <
> Usually a person will spend more money on a home they live in and own, than on one they rent. <
David Wilkinson >Of course they do. It's theirs isn't it!
You admit, they are higher for a homeowner. So, all else being equal,
this is an increased liability, which a homeowner accepts that a
non-homeowner may not.
David Wilkinson > For the same property the maintenance costs are
exactly the same whether you own it or rent it.
When you buy appliances for renters, cost is a major component. When
you buy for your own home, you will always consider Deluxe. You buy
more extravagantly for yourself. Also, you pay after tax (over here
in the colonies at least), for your home and pre tax for renters.
This also adds, what another 30%?
So, in no way are out of the pocket costs as you suggest "exactly the
same."
David Wilkinson >Why aren't all futures traders rich then, if it so
easy? <
Simple one basic rule is to cut losses short and let profits run. For
one futures trader to make $100,000.00 you need 100 people to lose
$1,000.00 each. So, the number of losers will always out number of
winners.
Jane (rgs...@verizon.net) > If you own your house outright, it's an
asset. <
Try to keep an open mind. It was a liability before you paid it off.
Tim
>
"GoldTrader" wrote
> ... You still have the same amount of gold.
Eh??! :-(
Magic gold that comes back after you sell it? I want some! :-))
Tim
> > Have you looked at *any* periods which do NOT include the early 1980's
or
> > the early 1990's?
> >
> > It looks like your conclusion above is generally applicable to the early
> > 1980's and early 1990's. But outside those periods, it looks like
> > **mortgage interest rates have tended to be LOWer than house price
> > inflation** !
>
"Andy Pandy" wrote
> IIRC I looked at the average rates in the 30 years 1973 - 2003.
Aha! - which covers *both* periods in early 1980's and the early 1990's. No
wonder!
Try looking at some smaller periods within that 30-year range ...
Maren Purves
> "GoldTrader" <nom...@hotmail.com> wrote in message
> news:9a1136ac.04020...@posting.google.com...
>
>>From: David Wilkinson (da...@quarksoft.freeserve.co.uk)
>>Subject: Re: Is your Home an asset or a liability?
>>
>>
>>Tell that to the Big Island. They ARE making land anymore.
>
> Which is the Big Island?
the one named (or nick-named) "the Big Island". I happen to
live on it. It is aka the Island of Hawaii (not to be mistaken
for Oahu, Maui or Kauai).
Not sure anybody would want that land right now though, parts of
it are still red-hot. Kinda very long term investment, longer
than I expect to be around.
Maren, in Hilo, HI (USA)
Andy Pandy
"Tim" <m...@home.com> wrote in message news:c08tlq$8gq$1...@sparta.btinternet.com...
> > IIRC I looked at the average rates in the 30 years 1973 - 2003.
>
> Aha! - which covers *both* periods in early 1980's and the early 1990's. No
> wonder!
So? If you go round excluding periods which don't suit your case you can prove
whatever you want.
I've included periods such as the early 80's when prices only rose slightly and
interest rates were high, and early 90's when prices fell, and I've also
included periods such as the late 80's and the last 4 years where prices rose
massively. Overall, over the last 30 years, the average mortgage rate is greater
than the average house price inflation.
> Try looking at some smaller periods within that 30-year range ...
In the last 6 years, 1986-1989, and 1978-1980 - house price inflation was higher
than the mortgage rate. Outside those periods, other than the odd year, the
average mortgage rate has been higher than average house price inflation.
--
Andy
GoldTrader
anything will do. <
Contrary to popular belief, the majority does not obey our 70mph speed
limits. We also have winding mountain roads that will rival anything
in Europe with nowhere near the amount of traffic.
David Wilkinson >>You don't seem to distinguish between good debt and
bad debt. <
Would you agree that GOOD debt is that, which earns income, bad debt
is a liability.
David Wilkinson ><The government used to give tax relief on mortgage
interest at one time but business gave this up when they realized it
was not necessary. <
Our government gives relief to homeowners on interest to benefit the
banks. But I suppose anyone dealing is real estate as a business can
deduct all expenses and pay their loans with pre-taxed funds including
interest.
David Wilkinson >Bad debt is money borrowed for consumption,
particularly on credit cards. <
You can use credit card debt to by property. The thing is weather the
funds are flowing toward you as in Asset, or away from you as in
Liability.
David Wilkinson >they are not making land anymore, <
The Big Island is the southern most island in the Hawaiian chain. The
constant flow of lava to the sea is said to have added 540 acres of
new land in recent times.
David Wilkinson (da...@quarksoft.freeserve.co.uk) >My experience of
buying and owning houses for decades is that the maintenance costs are
very low. <
<Usually a person will spend more money on a home they live in and
own, than on one they rent. <
David Wilkinson >Of course they do. It's theirs isn't it!
You admit, they are higher for a homeowner. So, all else being equal,
this is an increased liability, which a homeowner accepts that a
non-homeowner may not.
David Wilkinson > For the same property the maintenance costs are
exactly the same whether you own it or rent it.
When you buy appliances for renters, cost is a major component. When
you buy for your own home, you will always consider Deluxe. You buy
more extravagantly for yourself. Also, you pay after tax (over here
in the colonies at least), for your home and pre tax for renters.
This also adds, what another 30%?
So, in no way are out of the pocket costs as you suggest "exactly the
same."
David Wilkinson >Why aren't all futures traders rich then, if it so
easy? <
Simple one basic rule is to cut losses short and let profits run. For
Nebulous
"Doug Ramage" <namx...@hotmail.com> wrote in message
news:c07d3j$13eok8$1...@ID-34015.news.uni-berlin.de...
manager at a charity, but I have a local authority final salary pension
scheme with some years transferred in from the NHS scheme.
Neb
David Wilkinson
Wales, 12.6% in the North of England and less than 8% in the London area.
Inflation was about 2% and mortgage interest rates were about 4.5 to 5%
The rate of increase in population, partly due to almost unrestricted
immigration, is such that far fewer new houses and flats are being built
than are needed. The average house will have to last 1,200 years at this
rate.
Unsurprisingly house prices are following the law of supply and demand and
are rising because demand exceeds supply. Not only is there no sign of this
changing but it is likely to accelerate. 10 more countries are joining the
EU shortly, all of which are of lower prosperity than the established EU
countries like Britain, France and Germany. Most of the other EU countries
have put restrictions on immigration from these countries but not the UK.
Our barmy politicians seem happy for millions of economic migrants to flood
in to this overcrowded island. They all have to live somewhere.
"GoldTrader" <nom...@hotmail.com> wrote in message
news:9a1136ac.04020...@posting.google.com...
Tim
> So? If you go round excluding periods which don't
> suit your case you can prove whatever you want.
Yes, but if you include unusual results into an aggregate which is very
close to borderline, then your conclusion is disproportionally affected by
those unusual results.
"Andy Pandy" wrote
> Overall, over the last 30 years, the average mortgage
> rate is greater than the average house price inflation.
Yes - but only very slightly!
"Andy Pandy" wrote
> In the last 6 years, 1986-1989, and 1978-1980 - house price
> inflation was higher than the mortgage rate. Outside those periods,
> other than the odd year, the average mortgage rate has been
> higher than average house price inflation.
So (from your figures) - roughly half of the individual years had average
mortgage rate *higher* than average house price inflation, and the other
half had average mortgage rate *lower* than average house price inflation.
Overall, the averages were very close.
Hence you can't really say, just from historical data, that in future the
comparison will be one way or the other.
------------
"Andy Pandy" wrote in message
news:uTyVb.1441$h44.2...@stones.force9.net...
Andy Pandy
"Tim" <m...@home.com> wrote in message news:c0ac9c$59k$1...@titan.btinternet.com...
> "Andy Pandy" wrote
> > So? If you go round excluding periods which don't
> > suit your case you can prove whatever you want.
>
> Yes, but if you include unusual results into an aggregate which is very
> close to borderline, then your conclusion is disproportionally affected by
> those unusual results.
Why are these periods unusual? The mid 70's saw similar real terms house price
falls (disguised by high inflation) as the early 80's & early 90's. Those
periods are no more unusual than the last 4 years, or the late 80's. Perhaps I
should have excluded those?
> "Andy Pandy" wrote
> > Overall, over the last 30 years, the average mortgage
> > rate is greater than the average house price inflation.
>
> Yes - but only very slightly!
Yes, it's a pretty close call.
> "Andy Pandy" wrote
> > In the last 6 years, 1986-1989, and 1978-1980 - house price
> > inflation was higher than the mortgage rate. Outside those periods,
> > other than the odd year, the average mortgage rate has been
> > higher than average house price inflation.
>
> So (from your figures) - roughly half of the individual years had average
> mortgage rate *higher* than average house price inflation, and the other
> half had average mortgage rate *lower* than average house price inflation.
> Overall, the averages were very close.
Yes.
> Hence you can't really say, just from historical data, that in future the
> comparison will be one way or the other.
Indeed not, and that was really my point - I was responding to the idea that
buying the most expensive house you can afford, rather than a cheaper one which
meets your accomodation needs, is a "way to make serious money" like it's a no
lose gamble.
But it *is* a gamble, and one you are more likely to lose than win based on the
evidence from the last 30 years. Especially when you factor in the additional
costs involved in owning a more expensive house, like higher council tax, higher
stamp duty, probably higher maintenance, insurance, heating costs etc.
--
Andy
Tim
> ... no more unusual than the last 4 years, or the late 80's.
> Perhaps I should have excluded those?
Of course! - that is my point!
> > "Andy Pandy" wrote
> > > Overall, over the last 30 years, the average mortgage
> > > rate is greater than the average house price inflation.
> >
> "Tim" wrote
> > Yes - but only very slightly!
>
"Andy Pandy" wrote
> Yes, it's a pretty close call.
Exactly!
> "Tim" wrote
> > So (from your figures) - roughly half of the individual years had
average
> > mortgage rate *higher* than average house price inflation, and the other
> > half had average mortgage rate *lower* than average house price
inflation.
> > Overall, the averages were very close.
>
"Andy Pandy" wrote
> Yes.
Agreed.
> "Tim" wrote
> > Hence you can't really say, just from historical data, that in future
the
> > comparison will be one way or the other.
>
"Andy Pandy" wrote
> Indeed not, and that was really my point - I was responding to the idea
that
> buying the most expensive house you can afford, rather than a cheaper one
which
> meets your accomodation needs, is a "way to make serious money" like it's
a no
> lose gamble.
I suppose really it's just that owning a larger house has effectively "paid
for itself" over the past 30 years - and the owner has, as well as being
pretty much cost-neutral, been able to enjoy the benefits of a large house
instead of the smaller one - effectively "for free"!
For instance, for every £10,000 extra paid for a (larger) house - part as
deposit and part extra mortgage loan - the house will have appreciated (more
than the smaller house) by roughly the amount required to pay the extra
interest on the mortgage, plus provide a return on the extra deposit at a
rate equivalent to mortgage interest rates ...
"Andy Pandy" wrote
> But it *is* a gamble, and one you are more likely to lose
> than win based on the evidence from the last 30 years.
I thought we'd agreed that the historical data can't really predict either
way - so why do you say "you are more likely ... based on the evidence"?!
:-(
"Andy Pandy" wrote
> Especially when you factor in the additional
> costs involved in owning a more expensive house, like higher council tax,
higher
> stamp duty, probably higher maintenance, insurance, heating costs etc.
In the "grand scheme of things", most of those examples are pretty
negligible compared to the other sums involved - except perhaps stamp duty,
but this only really becomes relevant if you move house often.
Andy Pandy
"Tim" <m...@home.com> wrote in message news:c0d8c2$6g8$1...@sparta.btinternet.com...
> > ... no more unusual than the last 4 years, or the late 80's.
> > Perhaps I should have excluded those?
>
> Of course! - that is my point!
Then you end up excluding about half the years in the sample!
> > Indeed not, and that was really my point - I was responding to the idea
> that
> > buying the most expensive house you can afford, rather than a cheaper one
> which
> > meets your accomodation needs, is a "way to make serious money" like it's
> a no
> > lose gamble.
>
> I suppose really it's just that owning a larger house has effectively "paid
> for itself" over the past 30 years - and the owner has, as well as being
> pretty much cost-neutral, been able to enjoy the benefits of a large house
> instead of the smaller one - effectively "for free"!
No, see below.
> For instance, for every £10,000 extra paid for a (larger) house - part as
> deposit and part extra mortgage loan - the house will have appreciated (more
> than the smaller house) by roughly the amount required to pay the extra
> interest on the mortgage, plus provide a return on the extra deposit at a
> rate equivalent to mortgage interest rates ...
If you owned the smaller house, you could use the "extra deposit" to pay down
your mortgage, effectively getting a return at the mortgage rate.
> "Andy Pandy" wrote
> > But it *is* a gamble, and one you are more likely to lose
> > than win based on the evidence from the last 30 years.
>
> I thought we'd agreed that the historical data can't really predict either
> way - so why do you say "you are more likely ... based on the evidence"?!
> :-(
I agreed that it was a close call, too close to use to make any reliable
prediction about the future. But, that doesn't alter the fact that based on the
last 30 years, mortgage interest rates are (admittedly slightly) more likely to
be higher than house price inflation.
> > Especially when you factor in the additional
> > costs involved in owning a more expensive house, like higher council tax,
> higher
> > stamp duty, probably higher maintenance, insurance, heating costs etc.
>
> In the "grand scheme of things", most of those examples are pretty
> negligible compared to the other sums involved - except perhaps stamp duty,
> but this only really becomes relevant if you move house often.
Not really. I've seen figures estimating annual maintenance costs to be around
3% of the property value, although this seems a bit high to me, I'd accept
around 2%.
When I moved house my new house was about £70k more than my old house, and the
council tax is about £500 more. My insurance costs went from around £250 to
£450, my gas bill went from about £300 to £500, my water bill went up as well
but can't remember how much, probably about £100. Making £1000 more in total,
over 1% of the extra value.
Add to that transaction costs (stamp duty, estate agent's fees etc) spread
across the ownership period, and you're looking at a total around 4% as a
reasonable estimate as to the extra costs incurred in owning a more expensive
property than you need, *excluding* mortgage interest.
So if you assume the mortgage interest rate is going to be about the same as
house price inflation, then a more expensive house, far from making you money,
is *costing* you about 4% of the extra value. Of course, you may consider this a
price worth paying for a bigger/better house - but it's not "for free" and it's
certainly not making you money.
If you want to invest in property, then it's almost certainly far more sensible
to buy a second house to let, rather than buy a bigger house than you need to
live in yourself.
--
Andy
GoldTrader
100 at that age. That is thirty years when people will learn the
difference between an asset and a liability. If you do not have real
assets producing enough income to cover the cost of owning your own
home, they will probably come and take it away from you.
VikingTrader
> If you do not have real assets producing enough
> income to cover the cost of owning your own
> home, they will probably come and take it away
> from you.
>
You bring up a good point. Most Americans
are under the false impression that they actually
own the property when in reality all they have
is a right to hang their hat on the wall until they
miss their payments or taxes, then they lose
that right and they must vacate the premises.
Tim
> If you owned the smaller house, you could use the "extra deposit" to pay
down
> your mortgage, effectively getting a return at the mortgage rate.
If you use the money as deposit instead, the extra equity in the house would
also "effectively [give] a return at the mortgage rate" - because we are
assuming house price inflation roughly the same as the mortgage rate.
Either way (whether you have a £60K mortgage on a £100K house, or a £160K
mortgage on a £200K house - being £40K equity overall in both scenarios) the
money you have "invested" in the house is getting a return of the mortgage
rate.
"Andy Pandy" wrote
> I agreed that it was a close call, too close to use to make any reliable
> prediction about the future. But, that doesn't alter the fact that based
on the
> last 30 years, mortgage interest rates are (admittedly slightly) more
likely to
> be higher than house price inflation.
So ... if I toss a coin 31 times and get 15 heads and 16 tails, then would
you think that "based on the last 31 tosses, the coin is (admittedly
slightly) more likely to be tails than heads" ? !!
Tim
> People are put out to pasture at about 70 with a life
Where did you get that data from?
In the UK at least (using a standard mortality table constructed by the UK
Continuous Mortality Investigation Bureau), the life expectancy at age 70 is
only about another 10 or 11 years ...
In fact, less than 0.4% (ie less than 1 in 250) of people aged 70 survive to
age 100.
Tim
> People are put out to pasture at about 70 with a life
Simon Bishop
RPS
> Take a look and judge for yourself!
>
> http://www.it-pa.com/microp/index.php?pr=158
Thanx, the check is in the mail :) More seriously I wish this group was
moderated and I was the moderator.
Tim
> > So ... if I toss a coin 31 times and get 15 heads and 16 tails,
> > then would you think that "based on the last 31 tosses, the coin
> > is (admittedly slightly) more likely to be tails than heads" ? !!
>
> Yes. The clue is "based on the last 31 tosses",
> rather than based on any other sort of reasoning.
>
> However, with a coin, assuming it is "unbiased", like with lottery
> numbers, there are far better and more reliable ways to work out
> the odds than to look to past performance. I don't know of an
> equally reliable way to work out the odds of house price inflation
> being greater than or less than mortgage rates. Unlike a coin,
> there is no intrinsic reason why the odds should be 50:50.
We know that the probability that "mortgage rates will be greater than or
less than house price inflation" must follow some probability distribution.
We know that this is close to 50:50, although we don't really know which
way.
The point of my example was that, *if* the (true) probabilities were 50:50,
*then* we could very easily get an empirical set of data as we have seen for
mortgage rates / house inflation in the last 30 years. We could just as
easily have seen those past 30 years results if the probabilities were 49:51
or 51:49. The likeihood of either of these probability distributions
actually being "correct" is really roughly the same - based on the last 30
years' data.
In other words, just from looking at the past 30 years empirical data for
mortgage rates / house price inflation, you **cannot infer** (statistically)
that the likelihood of mortgage rates exceeding house inflation is *greater*
(or even less) than the likelihood of house inflation exceeding mortgage
rates. You just don't have enough data, because the results are too close!!
bob11
Conservative est.---$500/mo rent would purchase minimum $50,000 home-15 years ago Would now be worth $100,000 and no more rent
Forget the BS about mortgage int. tax breaks, they aren't that great.
And heaven forbid the idea of paying off early, that would make too much sense to most people because of the wonderful tax advantages.
I'll spend $1000 to cut my taxes by $300 is not that great of a deal!
Not knocking your plan, just trying to point out the alternative.
You were obviously lucky enough to make money over the last 15 years with your investments, but remember, a lot of folks lost their ass at the same time and if they were using the same theory as you, they would have no house of their own and no money to pay cash for one if they wanted too.
Posted via ProphetTalk
Home of Intelligent Investor Discussion
http://www.prophet.net/prophettalk
Rick Ratchford
Suppose you pay $800 for Rent. With today's low interest rates you can buy
with 20% down and get a mortgage around $800 in some parts of the country.
In case you are looking at a higher mortgage where you are, consider that
you are also getting a more expensive house. It all pans out. You aren't
losing the money you are investing into the property (unless you are the
type that likes to pay too much for something...shop wisely).
Now opposed to rent where you get no tax break (minor renters
credit..whoopie) and are paying the mortgage for your landlord, you can
write off all the interest which is most of the monthly payment for the
first few years. So this can effectively result in your paying only $500 a
month, much better than your $800 renting.
In addition, your home will likely appreciate year after year. It isn't a
stretch to see property worth $100K one year be worth at least $105K the
next. Many parts of the country see much better than that. But worse case,
say 5% as the example above. So if your propery goes up just $5000 in a
year, divided by 12 you have $417 a month in appreciation. So instead of
paying $800 or $500, you are paying say $83 a month. And that is very slow,
slow appreciation.
One house I purchased in 1999 appreciated 71% by the time I sold it in 2002.
A house I bought in 2002 appreciated 37% by the time I sold it last December
2003. These were exceptional markets (near San Diego), but the point is that
you all the monies I paid into the homes were paid back with plenty left
over. This is not free rent. It is free rent that pays you.
Some talk about paying off their home. I ask 'why'? If you have tons of
equity in your home, you are not maximizing the power of the asset you have.
Use that money to put down payments on other homes and rent them out. Yes,
have someone pay your mortgage for you. 20% down is all you really want to
put down. Why?
Less than 20% and you pay PMI. That is Property Morgage Insurance. You don't
want it but will have to pay a pretty penny for it if you do not have at
least 20% in equity.
No more than 20% to maximize the power of your dollar. Example:
Say the home in question is $100,000.
Buyer 1 buys the home in full, $100,000. You rent it for $850 a month.
Buyer 2 puts down $20,000 (20%) and finances the other $80,000. He rents it
out and has someone pay his mortgage for him. Mortgage is $450 and rent is
$850. Without counting insurance and taxes, you get $400 a month from this
house.
A year later the house is worth $120,000, let's say.
Now, do the math.
Buyer 1 has made $20,000 plus 12 x $850 ($10,200) = $30,200.
Buyer 2 has made $20,000 plus 12 x $400 ($4,800) = $24,800.
Now, you might be saying to yourself "See, the one who owned his house
outright made more money at the end of the year." Yes..and no.
You see, Buyer 1 invested $100,000 to make $30,200. That means he made 30.2%
profit on his investment. Not bad.
Buyer 2 invested $20,000 to make $24,800. That means he made 124% profit on
his investment. Excellent!
So then, if Buyer 2 were to invest his $100,000 on 5 properties at $20,000
each, and all things being equal as to our example above, Buyer 2 turns his
$100,000 into $124,000 rather than just $30,200 as is the case with Buyer 1.
Real-Estate is an asset. Use it wisely and it is also the best path to
wealth.
Good health and profits to you all.
--
Rick J. Ratchford
ProfitMax Trading Inc.
http://ProfitMaxTrading.com
"bob11" <b...@no.com> wrote in message
news:prophetC...@ptalk.prophet.net...
GoldTrader
definitely an Asset. <>
There is no doubt you are an expert on real estate and the illusionary
appearance of values caused by inflation.
No one can effectively dispute that "Real Estate," cannot be an asset.
Or that "Real Estate," cannot create real wealth. However, a popular
author puts forth a case that a "Home," is not income-producing, and
as such can be a liability.
He also puts forth the suggestion, that if an asset takes more money
to maintain than it brings in. That is if it takes money out of your
pocket. To the extent it does, for whatever reason it is a liability.
The way people in schools "funded by real estate," are taught is not
the way the Wealthy appear to behave.
The Wealthy own homes, they list them as assets to borrow from banks.
Indeed your Home is an asset to a bank. But the Wealthy are aware
that a Home is not necessarily an asset to them.
As long as you have real assets earning enough income from any other
source, it does not matter how many "liabilities," you have disguised
as assets called Homes.
The Wealthy may have a narrow view, but they all act like anything
that does not put money in their pocket today is a liability.
Your example of "income producing property," is an Asset anyway,
anyone, looks at it.
bob11
> Re: Is your Home an asset or a liability?
>
>
> news:prophetC...@ptalk.prophet.net...
> > Your point is understood, but, you rented for 15 years, if you would have
> purchased 15 years ago, your home could be payed for and most probably
> doubled in value. Sure you would have had to cut your own grass and such,
> but it really isn't that hard.
> > Conservative est.---$500/mo rent would purchase minimum $50,000 home-15
> years ago Would now be worth $100,000 and no more rent
> > Forget the BS about mortgage int. tax breaks, they aren't that great.
> > And heaven forbid the idea of paying off early, that would make too much
> sense to most people because of the wonderful tax advantages.
> > I'll spend $1000 to cut my taxes by $300 is not that great of a deal!
> > Not knocking your plan, just trying to point out the alternative.
> > You were obviously lucky enough to make money over the last 15 years with
> your investments, but remember, a lot of folks lost their ass at the same
> time and if they were using the same theory as you, they would have no house
> of their own and no money to pay cash for one if they wanted too.
> >
> > Posted via ProphetTalk
> > Home of Intelligent Investor Discussion
> > http://www.prophet.net/prophettalk
>
>
>
Rick Ratchford
the most out of your money. Your money (equity) is not working hard for
you...it is hardly working.
As my example demonstrated, irregardless of the fact that you have to pay
interest on your home, you using OPM (other people's money) to maximize
(leverage) your purchases. Yes, you are buying 'time' with the interest, and
that IS a liability.
But if you have lots of equity in your home, it can work harder for you if
taken out (refinanced) and applied into additional appreciative assets (like
rentals).
I'm all too familiar with bad renter syndrome. Yet I've learned to minimize
this risk by using some simple approaches:
1. Do mess with low rent investments. Only buy properties that appeal to the
middle-class. You may have it empty for as long as 2 months, but that really
isn't that bad considering. You get more rental and less busted screen
doors.
2. Lease with the provision that you will want to inspect for replacement
the air filters in the house every 30 days. This puts the renter on notice
that you will be coming by on a regular basis to 'replace' the air filter. A
service that allows you to inspect your property regularly on the inside.
3. Use a property manager to handle all this. It runs about 10% of the rent
each month and is worth it. They'll do all the credit checking, advertising
and handle getting your money. They will also inform you when things need
fixing and will handle it by your instructions.
Back to the original topic. Yes, having a loan is a liability. You owe
money...bottom line. But the way I see it, that 'oweing' is leverage to me
and leverage is an asset.
--
Rick J. Ratchford
ProfitMax Trading Inc.
http://ProfitMaxTrading.com
"bob11" <b...@no.com> wrote in message
news:prophetJ...@ptalk.prophet.net...
bob11
> Re: Is your Home an asset or a liability?
>
> "bob11" wrote in message
Rick Ratchford
use cheap money to get better returns. Supposing you have a 6% loan on your
current property, each dollar you put towards your balance is like making 6%
on your money. Not bad compared to savings accounts, etc. But if you can
make more than 6% by using your money to buy appreciative assets like
real-estate, you're better off using the money to do that rather than settle
for that 6% by paying down your mortgage early.
For example: Suppose you have $25,000 in cash on hand. You have a 6%
mortgage on your home. You are also aware of an investment that can make you
16%. Would you pay down your mortgage with the money or invest it for 16%?
A friend of mine with a hugh credit card debt once told me over lunch that
he was taking $1000 a month and dividing it evenly among his 3 credit cards
so as to pay them off quickly. His rates were something like this
(approximate and rounded):
Card 1 - 13%
Card 2 - 15%
Card 3 - 10%
Because of these differing rates, I informed him that he was not fully
utilizing the power of his dollar. To do so effectively, I suggested he do
the following:
1. Pay just the minimum due on all the lowest interest cards he had. That
would be the 10% and 13% card.
2. Pay the difference of $1000 minus the minimum paid on the other cards on
the highest interest card he has.
The reason here is that for each $1 he pays down on the 15% card is like
making 15%. This is higher than making 13% or 10%. This is maximizing the
power of his money. He will quickly pay off the highest interest card (15%).
Once done, he then will do the same with the 13% card next, and so on.
Change that scenario to real-estate and you have basically the same
situation.
Cheers!
--
Rick J. Ratchford
ProfitMax Trading Inc.
http://ProfitMaxTrading.com
"bob11" <b...@no.com> wrote in message
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