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Guest Post: The Fallacy Of Homeownership

Tyler Durden's picture




 

Originally posted at Liberta blog,

Many people have a weird obsession with homeownership.

When it comes to buying a house, they are willing to overlook, or even completely throw out, a bunch of financial values and principles they claim to hold dear.

The unfortunate truth is, for many middle-class folks, buying a house is often a very silly financial decision, especially if they are young (in their 20s or early 30s), or have a low net worth.

A well diversified portfolio

The most mind-boggling thing I’ve come across is that most people who punt the importance and wisdom of home ownership, will also tell you they believe you should have a well diversified investment portfolio.

You know…

“Spread your investments over many asset classes.”

“Don’t put all your eggs in one basket.”

And so on.

Well, for the average middle-class-30-year-old Joe, buying a house is akin to gathering up all his eggs, borrowing another 9 times as many, and putting them all together into one basket.

Not only is the the average middle-class-30-year-old-home-owner Joe way over-invested in exactly one asset class (residential property), he is also completely undiversified within that asset class, since he owns exactly one property, in exactly one area, based in exactly one town, located in exactly one country.

In short, it’s just about the most undiversified investment portfolio a person could dream up and manage to get himself into.

Leverage

Leverage basically comes down to borrowing money to invest in something.

If you invest R1,000,000 in something, but you borrow R900,000 and only use R100,000 of your own money, then you have an investment in which you are leveraged 10:1.

That 10:1 is called the leverage ratio of your investment. And it is 10:1, since the thing you’re investing in is worth 10 times as much as the cash you put in.

Leverage is great if the thing you invested in grows a lot in value over a short period of time, because it allows you to make a lot of money by investing only a small portion of your own cash!

Unfortunately, the reverse is also true.

If the thing you invested in loses value, then it is very easy for you to lose a lot of money – even more than the initial amount you put in!

While Warren Buffet’s ethics may be a stinker, I do agree with his views on employing leverage:

If you’re smart, you don’t need leverage. If you’re dumb, you have no business using it.

Warren Buffet

Even though, over the long-term, returns made on equities outperformed returns made on property, by far, almost no sane person will leverage themselves 10:1 to invest in equities (i.e. shares).

For most people, this is way too nerve wrecking to even consider. If you suggest such a thing, you might be labelled a gambler, or worse, a madman.

And yet, everyday, average middle-class-30-year-old Joes all around me are buying properties in which they are leveraged 10:1 (and even more), without a second thought.

After spending many months thinking about this phenomenon I can only put it down to the fact that the truth doesn’t matter.

It’s just another asset class

In case you think I have a deluded and deep seated mistrust of property that most likely stems from a childhood nightmare of being swallowed by a house, let me just make my position official:

I have zero issues with investing in residential property.

Residential property is just another asset class.

I don’t currently, but I have in the past allocated a portion of my investment portfolio to residential property (both locally and abroad), by buying shares in publicly listed companies whose business it is to buy and rent out houses and flats.

I just don’t view residential property as a magic-unicorn-galloping-over-a-rainbow-of-profits type of investment with which “you can never go wrong”.

I’ve spent a significant portion of my adult life looking for investments like those, but unfortunately I haven’t found one yet.

Liability and Liquidity

If you are still adamant that you want to invest in residential property, then I have a great suggestion for you:

Why don’t you just buy some shares in publicly listed companies whose business it is to buy and rent out residential properties?

If you do some research and choose a good one, chances are that they are better than you at spotting and buying well-priced properties and collecting rent, because that is what the people who work for those companies do for a living.

There are also some other advantages about investing in residential property by buying shares in publicly listed companies.

You can have a more diversified investment portfolio: By only buying a few shares you are able to limit your exposure to residential property to a reasonable percentage of your net worth.

 

You have limited liability: If the company goes bust, you will not be liable for any losses. Comparatively, if you buy a property using debt and, for whatever reason, become bankrupt and can’t afford to make the bond payments, then you most likely have quite a few years of hell to look forward to.

 

Shares in publicly listed companies are liquid: If you ever need to do so in a hurry, it will only take you about 5 minutes and a few key-strokes to sell all the shares you hold in almost any publicly listed company. Selling a house, on the other hand, is a ludicrously expensive multi-month administrative nightmare.

Interest rates and timing your property purchase

Residential property is an asset class that is very directly influenced by the cost of borrowing money.

In our society, it is considered a perfectly normal and responsible thing for a person to finance the purchase of a house by getting a 20-year loan from a bank.

In fact, it is considered such a normal thing for the average middle-class-30-year-old Joe to be a debt slave for most of his life, that if you had to suggest to him that he should save up for a house and only purchase it once he had saved up enough money to buy it outright, using cash, he will probably think that you are crazy to even suggest such a thing.

But, I digress.

My point is, the vast majority of residential properties are paid for using borrowed money.

Because of this, when interest rates go up, so do monthly bond payments. When bond payments go up, some people can’t afford to make their bond payments and they are forced to sell their homes, or default on their bond. A few actually do default, resulting in a seizure and forced sale of their properties by the bank.

To summarize: When interest rates go up, property prices fall (or increase very slowly, usually at a rate lower than inflation), because the available supply of residential properties increases, while at the same time the demand for residential properties decreases. Conversely, when interest rates go down, residential property prices usually go up quickly, because more people can afford to take out bigger loans!

The first rule of business is: buy low, sell high.

This is such an obvious concept and yet, in practice, it is very difficult to do, because it usually means doing the exact opposite to what everyone around you is doing.

If you are going to buy a property, for whatever reason, then at least buy it at the best possible time.

And when would that be?

Well, of course, a few months after interest rates hit their peak after having risen quickly for two or three years in a row.

Take a look at the graph below, which shows the [10Y Treasury rate in the US] over the last few decades.

...with interest rates near record lows and just entering an upward cycle.

In my opinion, the present is just about the worst possible time for anyone to be invested in residential property.

You will know it is the right time to buy your dream home by looking for a few of these signs:

  • Interest rates are starting to stabilize at a high rate, after rising steadily for two or three years in a row.
  • Many people are trying to sell their properties, some in a real panic, because they are struggling to make their monthly bond payments.
  • You hear many tales of properties being foreclosed on, also in neighbourhoods where people are considered to be wealthy.
  • People around you are generally feeling quite negative about owning property.

When the blood is in the streets, my friends, that is the ideal time to buy your dream home.

Paying rent is simply throwing away money every month

I often hear people making this argument. I’m sorry, but that is just a silly thing to say.

Upon purchasing the average middle-class-suburbia home, you’re not only paying a massive amount of TAX to the government, you’re also forking over a significant amount in fees for bond registration, deeds and a bunch of other stupid banalities. Never mind the commission that goes to the estate agent.

Property tax, commission and other fees can easily add up to over 15% of the purchase price of a house. This makes residential property one of the most expensive asset classes to invest in, at least as far as up-front costs are concerned.

Then, once your bond is registered and you are the proud owner of your new home, you’ll be paying interest to a bank, every month, until your bond is paid off.

And don’t forget about maintenance! You know… paint starts peeling, roof start leaking, toilet stops flushing, that type of thing.

Lastly, you’ll also be forking out on a monthly basis for rates & taxes. Which, as property owners in Greece found out just recently, can easily go up by sevenfold in two years, if your government is anything like most governments are.

Safe-haven investment my ass.

Except for squatting on someone else’s land, there’s no such thing as living for free.

So are you saying no one should ever own a house?

No, of course not.

I’m saying people should save up for their family homes and buy them cash.

The saving part should be done by building a well diversified investment porfolio and the home buying part should be treated as an expense, rather than the purchase of an asset.

I know… in the world we live in I’m very much on my own in suggesting such a boring and outdated thing.

But I’ve looked at the facts, and even though I’m well aware that the truth doesn’t matter, I also know that nothing matters to anybody until it matters to everybody – and by then it’s too late.

 

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Mon, 03/24/2014 - 18:48 | 4587717 Duc888
Duc888's picture

 

 

 

You never "own" your home.

 

Stop paying property taxes, then find out who the real owners are.

Mon, 03/24/2014 - 18:51 | 4587725 James_Cole
James_Cole's picture

Home ownership is one of the few 'no brainers' out there and shouldn't be thought of as an 'asset class.' Yes, buying at the top of any market isn't a great thing to do, but that's a totally separate point.

All that said,

http://av.r.ftdata.co.uk/files/2009/01/3792.jpg

Mon, 03/24/2014 - 19:02 | 4587771 icanhasbailout
icanhasbailout's picture

Try adjusting for real inflation, bud.

Mon, 03/24/2014 - 19:13 | 4587809 RafterManFMJ
RafterManFMJ's picture

A house is NEVER an investment, it is a consumable good you get to live in.

You're buying hoping to flip to a greater fool in 2 years - well a fool and his money are something something.

My first home was a triplex - live in one and rent out 2. And now that building pays for itself as well as my current single family home.

Point: if you 'buy' make sure your home provides outsize returns in rental income, gas rights income, free gas, vegetable garden, distance from the Golden Horde, or some other benifit.

You'll never truly own a fucking thing in this Bankster Republic, so don't commit to a property unless it returns some unorthodox benifit.

Mon, 03/24/2014 - 19:14 | 4587812 negative rates
negative rates's picture

Too late indeed.

Mon, 03/24/2014 - 20:49 | 4588188 eurogold
eurogold's picture

If it can roll, fly, float or fuck.......you are better off renting it !

Tue, 03/25/2014 - 07:41 | 4589313 N2OJoe
N2OJoe's picture

Anything that the avg Joe can borrow 97% LTV on, will bubble like a motherfucker.

The price of a home after the credit sys collapes will be the price of a "traditional" downpayment.

Tue, 03/25/2014 - 14:53 | 4591181 daveO
daveO's picture

Exactly. I read, a few years back, that houses will find their 'market price' at the time that 2/3rd's of houses are bought in cash. Now that Wall Street has stopped buying them, that mark should be hit within a few years. I've known people to borrow their down payment from family and then lie on the mortgage application!  

Tue, 03/25/2014 - 00:08 | 4588857 NihilistZero
NihilistZero's picture

You're over simplifying a bit.  Assuming the country you reside in gives you decent property rights protection, a SFH is a great investment for the lower classes.  If you save alarge down payment and buy at or near the trough you will be saving $ each month vis a vis rent and get a tax deduction that could easily net you more per month than other conservative investments. These serial housing bubbles have obscured the advantages to property ownership, especially among the lower income brackets.  If you're thinking legacy it's also a death tax protected hand me down.  SIreland the typical home debtor doesn't do it the way I deceived but I know plenty of people with 50-75% equity that are doing better than their renter neighbors.  Surely they were lucky in timing, but they also weren't stupid with their equity either.

 

 

Tue, 03/25/2014 - 10:11 | 4589799 NidStyles
NidStyles's picture

You can't even legally own your car in this country. Think you own it? Try getting the allodial title rather than the certificate of creation for the title. 

Mon, 03/24/2014 - 19:14 | 4587815 babylon15
babylon15's picture

http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/

 

house prices haven't really gone up in over 100 years after adjusting for inflation

Mon, 03/24/2014 - 19:24 | 4587854 James_Cole
James_Cole's picture

house prices haven't really gone up in over 100 years after adjusting for inflation

Let's say for sake of argument that's true, relative to income for the majority in reality everthing has gone up (particularly rent). If you bought a house 20 yrs ago and paid it off you wouldn't be buying a top or a bottom in the market, but consider your situation vs. paying to rent now even if the price has been flat. 

Show of hands, how many people out there saying thank gawd I didn't buy a home 20 yrs ago and stuck with renting?

I don't think the broad index is a very good indication anyway, but that's a separate argument. 

Mon, 03/24/2014 - 19:32 | 4587879 LetThemEatRand
LetThemEatRand's picture

I think you're right if the premise is to buy and live in it for a very long time and feel comfortable that you will not need to sell.  In that case, you don't really care what prices do over the next 10 or 20 years.  That is not the story for the large majority of people these days who would be better off waiting for the bubble to pop before they buy.

Mon, 03/24/2014 - 19:38 | 4587913 James_Cole
James_Cole's picture

There's a number of factors to consider but past a certain age people don't tend to move around a whole lot. And yes, buying what is very likely a bubble doesn't make a lot of sense either. 

But overall aiming to home ownership is smart to my mind, again as distinguished from a speculative investment. Not to mention home equity is one of the few places people have managed to amass some savings (banks have clever schemes to steal that away too of course). 

Mon, 03/24/2014 - 20:36 | 4588152 Big Brother
Big Brother's picture

home equity is one of the few places people have managed to amass some savings

There's at least two good reasons for that:

  • A homeowner gets the tax preference that the interest paid each year is deducted from one's gross earning prior to taxes being calculated up to when AMT becomes a factor.  A renter losses the renter tax credit rather quickly (income > $57,000 = no tax credit in my state).
  • Generally, over the long-term, one pays less in mortgages, taxes, and repairs than one does in rent for a comprable domicile (e.g. where I live, houses sell for $70,000, but to rent the same house would cost $1500-$1750 per month).
Tue, 03/25/2014 - 10:01 | 4589726 safe as milk
safe as milk's picture

i don't think either of these points is correct

"A homeowner gets the tax preference" - this is a commonly held falacy in the u.s.. in order to get the interest deduction, you have to itemize. by itemizing, you can't take the standard deduction which is often in excess of $10k.

"Generally, over the long-term, one pays less in mortgages, taxes, and repairs than one does in rent for a comprable domicile" - that's really a function of location. where i live,manhattan, you would have to stay in an apartment for well over ten years before your overhead would be less than comparabe rent on the same space. the main reason people buy here is stability. at least when you buy, you can budget well into the future. since rents fluctuate so much, it forces renters to move more often. the other reason people buy here is to park foreign money but that's another topic.

Mon, 03/24/2014 - 20:14 | 4588064 Big Brother
Big Brother's picture

Real Estate is really local.  So a bubble may or may not exist depending on where you live.  In my cold area of the midwest, I've found it to be slightly over-valued.  In a former career I was a mortgage broker.  The metric I used determine whether a loan would be beneficial to the borrower:

Home_price(Ave) = 3*Ave_Per_Capita_Income

As has been quoted in this thread already, this is the approximate ratio (slope) over the long-term (linear-regression, best-fit to see for yourself).  In the past 35 years it's oscillated from Home_price(Ave) = 1*Ave_Per_Capita_Income to OMG*Ave_Per_Capita_Income (on the coasts and nevada).

Additionally, a conforming purchase would include 20% down such that if there was a forclosure, the bank could sell the house below market-value; the borrower would have skin in the game and be much less likely to walk away from the loan.  Coincidentally, I think it was 1983 that the first 30-yr mortgages came into use.  First time home buyer gimmicks arose around 1997 after it was permitted that the first $200,000 was tax free on a primary home sale after living there for 2-years. I suspect these two market driving forces were the greatest contributors to the bubble.

Ergo, for the housing bubble to burst, a return to the lending standards prior would need to be reinstituted.

For me there's not a enough utility in home ownership to take on which is essentially a guaranteed (large) loss (because as was first experimented exhaustively by Sir Francis Galton, all distributive phenomna regress to a mean overtime).

 

 

Mon, 03/24/2014 - 21:54 | 4588445 JeffB
JeffB's picture

"For me there's not a enough utility in home ownership to take on which is essentially a guaranteed (large) loss (because as was first experimented exhaustively by Sir Francis Galton, all distributive phenomna regress to a mean overtime)."

You could very well be right, but there are other variables in play as well. For instance, we're playing on the shifting sands of a fiat monetary system, which makes it very hard to evaluate probable future outcomes.

Then there's also the very high probability that virtually all asset classes are now in bubble territory.

Housing might be relatively attractive compared to assets with respect to how they would act in a high inflation economic situation. Of course it could be adversely affected in multiple ways, but could easily beat out bonds or even stocks in many scenarios.

The bottom line, as has been stated here on more than one occasion is that no assets really look all that attractive at the moment as an investment buying opportunity.

 

Tue, 03/25/2014 - 08:52 | 4589512 cro_maat
cro_maat's picture

JeffB - Good point that there is "the very high probability that virtually all asset classes are now in bubble territory". Unfortunately we have been conditioned (dumb downed) by our education system, media, culture, corporate propaganda, etc. to not think critically or creatively in these situations. If you step back and look at what is being sold in the typical SFH real estate deal you realize that you are being sold a house that cost too much to build, has too much profit for the builder in it, was made with inferior materials, is not energy efficient and sits on 1/4 acre to 1/2 an acre which does not give you much to work with if you ever need to be self-sufficient for food. The "Own Your Own Home" dream is the same "Diamonds are a Girl's Best Friend" propaganda that is designed to enrich the Rentier Class and enslave the masses.

Here is an option that can optimize your investment (though it does require some work, planning and capital). Buy 20 acres of forest (nice tax shelter here). Make a deal with the local sawmill to cut 2 acres. Negotiate a certain amount of the cut trees as payment for the processing of the rest. Design a passive solar home. Build the home with family and friends  from the harvested lumber and recycled materials. If planned properly and executed well using some creativity you can have a home with 20 acres of land for under $100k or even $50k if you really put your mind to it.

Pay cash or in kind and Fuck Jamie Diamond!

Sun, 03/30/2014 - 23:26 | 4609450 JeffB
JeffB's picture

Hey, we're thinking along the same lines, cro_maat.

I read a friend's book on passive solar homes some years back and have tried talking my wife into it for years now, but no go so far. Unfortunately family and friends all think it's a nutty idea too.

But some of the homes that have been built don't cost much more than a typical home of similar size and have virtually no heating or cooling costs even in very harsh environments.

But the home I'm thinking of would more likely be built of concrete or stone and be mostly underground other than a lot of south facing windows. Some of those homes varied no more than a degree or two from summer to winter and the temps could be adjusted gradually up or down by the owners to suit their needs.

The 20 acres or more would certainly be nice, but I've seen a number of people who think you could get by on significantly less with some of the new high efficiency methods, such as aquaponics.

Of course, if our economy crashes and burns, it would probably be good to be away from the crowds anyway, even if you had a decent self-sustaining food system going.

 

Mon, 03/24/2014 - 22:01 | 4588478 neidermeyer
neidermeyer's picture

I agree with the numbers in the index ,, but it doesn't account for the better quality and larger size of todays median house. I see ownership as a way of tying a large portion of your future nest egg to inflation. I was a good idea for most of our history ,, but in the last 20 years or so (even if you ignore the bubble up and down) we've seen home prices NOT maintaining their historic parity with inflation... when you factor REAL inflation and not the reported numbers.. 

Tue, 03/25/2014 - 01:50 | 4589004 kareninca
kareninca's picture

Better quality of today's median house???? Are you crazy?????  The only house I would buy would be one built pre-WW!!, when they weren't building with plastic foam and offgassing particleboard and Chinese drywall and other wierd toxic crud.  You can remove asbestos shingles and lead from an old place, but in modern houses, the nasty modern toxins are built in.  Even leavng aside the chemicals, I have heard and read innumerable stories re the terrible quality of modern building materials, and the terrible quality of modern craftsmanship.  An old house has stood the test of time.

Tue, 03/25/2014 - 15:06 | 4591240 daveO
daveO's picture

Yep, house quailty has been declining steadily since the 60's which coincides with the end of the Gold Standard. When I see a house with a simple brick facade on the front only, I picture the developer laughing all the way to the bank.

Mon, 03/24/2014 - 19:17 | 4587826 kaiserhoff
kaiserhoff's picture

I’m saying people should save up for their family homes and buy them cash.

The saving part should be done by building a well diversified investment porfolio and the home buying part should be treated as an expense, rather than the purchase of an asset.

In my area, a decent modern house will run 350-500,000.  Unless you work for the University or the Hospital, wages are in the 8-10.00/hour range, and often part time.  So in order for your savings...

Wait, savings???

Tue, 03/25/2014 - 08:33 | 4589436 Agstacker
Agstacker's picture

My thoughts EXACTLY!

Mon, 03/24/2014 - 19:06 | 4587790 Deathrips
Deathrips's picture

So with your magic crystal ball...will you please tell me what property taxes are going to be next year?

Then we can ask some Greeks if they agree with the inflation yield curve?

 

Unless you have allodial title...you have nothing.

 

RIPS

Mon, 03/24/2014 - 19:12 | 4587807 SilverRhino
SilverRhino's picture

Allodial title : Does this actually exist ANYWHERE at this point?   



Mon, 03/24/2014 - 19:16 | 4587824 McMolotov
McMolotov's picture

I think allodial title was last seen in Kim Jong-un's unicorn lair.

Mon, 03/24/2014 - 19:20 | 4587830 Deathrips
Deathrips's picture

I hear this is possible in Nevada....I hear. So dont quote me.

 

Look into "allodial title via land patent"

 

RIPS

Mon, 03/24/2014 - 20:45 | 4588179 post turtle saver
post turtle saver's picture

nope... NV prohibited applications for allodial title after June 13 2005... it didn't matter anyway, it was limited title and still subject to eminent domain & police power (basically, 5th and 10th amendments)

Mon, 03/24/2014 - 21:00 | 4588233 johnQpublic
johnQpublic's picture

alloidal title via .308

 

but you will be waiting a couple more years for that option to kick in

Mon, 03/24/2014 - 19:28 | 4587875 Ariadne
Ariadne's picture

Yes

Tue, 03/25/2014 - 02:35 | 4589054 MeelionDollerBogus
MeelionDollerBogus's picture

It does, just in Asia. The math is obvious: only a sucker rents while pretending it's ownership and if that's all there is in Murrika then only a sucker stays in Murrika.

Tue, 03/25/2014 - 05:07 | 4589158 August
August's picture

>>It does, just in Asia.

And a savvy land purchaser in Pakistan gets the bondservants thrown in for free.

Mon, 03/24/2014 - 19:11 | 4587797 Cacete de Ouro
Cacete de Ouro's picture

Home ownership can be a great and profitable thing. So I disagree with the article. If you get lucky and have the initial deposit in a low interest rate environment, and a booming market, you can make a packet. This is due to leverage. Then leverage it up again and buy some investment properties. I know people who became multimillionaires from nothing using this approach. Most of them bombed out admittedly but they were riding high for a while.

Anyway, a mortgage is an investment in your pension fund, or mid life crisis fund. Paying rent to a landlord is for numbskulls.

Lessons: don't get greedy, learn about the interest rate environment. Become friends with bank loan officers

Mon, 03/24/2014 - 19:12 | 4587804 i_call_you_my_base
i_call_you_my_base's picture

"If you get lucky"

Yes, sound investment strategy.

Mon, 03/24/2014 - 19:20 | 4587843 Stuck on Zero
Stuck on Zero's picture

Here's a better investment.  A friend just bought a duplex with zero down and a 3.5% mortgage.  She rents out half and lives in the other half.  The rent pays the mortgage and property tax.  She has had to pay for some repairs but all-in-all she has a roof over her head for nearly free.  If the value of the property goes down she can walk away.  If it goes up she's a winner.

 

Tue, 03/25/2014 - 02:33 | 4589053 MeelionDollerBogus
MeelionDollerBogus's picture

"Anyway, a mortgage is an investment in your pension fund, or mid life crisis fund. Paying rent to a landlord is for numbskulls"

No, you're the numb skull: a mortgage is a payment into JAMIE DIMON'S BONUS FUND, you'll never see that money ever again. That is why he's richer than you are.

Tue, 03/25/2014 - 15:14 | 4591270 daveO
daveO's picture

Many folks rent because they're slaves to the Corporations that employ them. I used to rent houses to them. One guy had to fly down to Mexico every month. Another had to drive 200 miles r/t every day. In most cases, getting a low paid 'local' job would be better. By the time they figure it out, they are up to their eyeballs in debt and can't afford to leave the 'Corporate' plantation. That's usually when divorce hits them. Thomas Jefferson warned Central Banking. Cheap debt=slavery.

Mon, 03/24/2014 - 19:30 | 4587850 chemystical
chemystical's picture

Article begins with a flawed premise and the proceeds to build a case around it: the presumption is that Joe buys his home solely as an investment - as opposed to, oh, I don't know...living in it?

"Well, for the average middle-class-30-year-old Joe, buying a house is akin to gathering up all his eggs, borrowing another 9 times as many, and putting them all together into one basket."

Really?  What about Joe buying an automobile?  Why not diversify into a bike and a motorcycle and a horse?  What's Joe to do without a train or subway or bus? Take taxis everywhere?  Oh, I see.  The car has utilitarian value.  And wtf does the house do?

Joe needs to live somewhere.  Should he rent?  Different argument.

"Lastly, you’ll also be forking out on a monthly basis for rates & taxes. Which, as property owners in Greece found out just recently, can easily go up by sevenfold in two years, if your government is anything like most governments are."

And if those same property taxes rise, the author thinks the landlord will eat that and continue charging the same rent?  Another false implication, and if the author is aware of that then why mention it?  How to escape that?  Perhaps the author is suggesting that Joe move out of the tax jurisdiction????

The entire article is written from the false perspective thast Joe buys a house solely as an investment.  Heads up to the author: neither my salad nor my shoes were an investment.  Is that ok with you?

Who wrote this?  Someone with large holdings in rental property? 

P.S. Landlords only transfer costs to the renters; they have no interest in ROI.  MAJOR FUCKING SARCASM.

Mon, 03/24/2014 - 19:51 | 4587965 chemystical
chemystical's picture

A better model would at least propose that Joe is renting from his self, and propose all of the implications that proceed from that.

Mon, 03/24/2014 - 20:26 | 4588119 Big Brother
Big Brother's picture

Agreed,

Regardless of a homeowner paying tribute to the king,

  • Your name is on the title, and can pretty much do as you please on your property so long as it doesn't have negative/detrimental affects on your neighbor.
  • A homeowner can't be evicted by a private party (you could be eminent domained, that's extremely unlikely)
  • A homeowner retains the principle paid for the house, which over the long-term keeps with inflation/only slightly losses.
  • Only the owner and whoever the owner permits may enter without warrant.
  • It's way harder to foreclose on an owner than it is to evict a tennant.

So to channel the author's and posters' views, a house is both an asset and a liability; but probably more a liability than an asset.

 

Mon, 03/24/2014 - 21:01 | 4588237 post turtle saver
post turtle saver's picture

can't speak for other locations, but where I live owning a home means mortgage interest and property taxes can be deducted from federal income tax also (or possibly state income tax as well, if you're unfortunate to live somewhere that has such a thing, God Bless Texas for not being one of them and for having a homestead exemption)

if you buy a home to live in it, you do it if you're certain you're not going to be moving around a lot... put down a big chunk up front, constantly keep an eye on rates and terms to pick a time where refi is to your advantage, don't treat it like an ATM, and best of all pay off extra in principal every month... as things go, I can think of worse things than home ownership... if you play it right you can save a considerable chunk on taxes every year while using the cash you didn't put all-in to invest in other things that will (hopefully) outpace inflation _and_ taxes

it's all about living within your means, ultimately... paying cash up front is one approach, but why not take advantage of the leverage especially if you can afford to do so?

Tue, 03/25/2014 - 11:26 | 4590117 marathonman
marathonman's picture

Besides the fixed rate mortgage is one of the best tools you have for playing the inflation game.  The value of your fixed payment goes down over time as the fiat erodes the value of the currency.  Think of it as your own personal hedge fund. 

danielamerman.com

Tue, 03/25/2014 - 15:17 | 4591285 daveO
daveO's picture

Not since housing bubble popped. Houses were way too extended beyond market price. Until they find their cash price, they will not hedge inflation.

Tue, 03/25/2014 - 02:32 | 4589051 MeelionDollerBogus
MeelionDollerBogus's picture

"A homeowner can't be evicted by a private party (you could be eminent domained, that's extremely unlikely)"

wrong.

Ever heard of Linda Green? She can get the job done.

 

Tue, 03/25/2014 - 14:47 | 4591152 daveO
daveO's picture

Credit Bubble Inflating=No Brainer

Credit Bubble Deflating=Expense.

Same goes for all other 'Debt Priced' items, like cars and College Degrees.

Mon, 03/24/2014 - 18:52 | 4587736 prymythirdeye
prymythirdeye's picture

So true Duc.  Why do people have such a hard time understanding this?

Mon, 03/24/2014 - 18:53 | 4587738 waterhorse
waterhorse's picture

The same could be said for stop paying rent and see what happens.

Mon, 03/24/2014 - 18:56 | 4587750 prymythirdeye
prymythirdeye's picture

Apples to oranges knucklehead.  Try to keep up

Mon, 03/24/2014 - 19:04 | 4587780 James_Cole
James_Cole's picture

Yeah but the op point is inane, true 'ownership' doesn't exist. We're all temporary custodians at best and each of us will always be paying in some way to some thing for that privilege. 

Mon, 03/24/2014 - 19:13 | 4587810 McMolotov
McMolotov's picture

UNLESS YOU'RE LIVING IN A VAN DOWN BY THE RIVER.

Mon, 03/24/2014 - 19:20 | 4587845 Stanley Lord
Stanley Lord's picture

HA

Mon, 03/24/2014 - 19:26 | 4587867 RafterManFMJ
RafterManFMJ's picture

Frankly, I'd put my van up on a mountainside where I'd have an awesome view.

And yes, I've thought about it.

Mon, 03/24/2014 - 19:45 | 4587940 McMolotov
McMolotov's picture

I've joked on here several times about getting a camper and heading for the woods, but I was only half-joking. If the whole world intends to go batshit insane — which seems likely — I'd prefer to be as far away from most of it as I can.

Mon, 03/24/2014 - 21:24 | 4588316 RaceToTheBottom
RaceToTheBottom's picture

VW Vanagon 4 X 4 modified with a diesel and upgraded interior.

Mon, 03/24/2014 - 21:24 | 4588320 A Nanny Moose
A Nanny Moose's picture

You and I both, Rafterman. Maybe in the mountains, on a River. I can think of a few choice spots.

Mon, 03/24/2014 - 19:02 | 4587774 garypaul
garypaul's picture

waterhorse, the renters aren't claiming that they are owners, so they expect to be kicked out. You've just defeated your own argument by equating home-owners with the renters (draw a diagram to help you understand).

Mon, 03/24/2014 - 19:05 | 4587784 waterhorse
waterhorse's picture

The point I got was regardless of tax sale or eviction for nonpayment of rent, you are screwed EITHER way.  So maybe you better draw yourself a diagram and not worry about my understanding.

Mon, 03/24/2014 - 19:15 | 4587816 ebworthen
ebworthen's picture

The advantage of renting is you don't lie awake at night worrying about the roof, the water heater, the air conditioner, temites, an earthquake, liability, insurance bills, or cutting the grass/shoveling the snow, painting, etc.

Mon, 03/24/2014 - 19:35 | 4587899 Creepy Lurker
Creepy Lurker's picture

The disadvantage of renting is that you've got some asshole living above you with lead feet while while the asshole living to your right has a hearing problem and turns his stereo or TV up to 120 db at all times and the asshole to your left has a great dane in an efficiency apartment that barks and leaves huge piles of shit everywhere. Of course, the real joy is when you go down to the parking lot and find new dings all over your car every day.

Mon, 03/24/2014 - 21:35 | 4588358 Graph
Graph's picture

Imagine that is your neighbor right next to your loving home that you are stucked with and can not sell... like nowdays.

Tue, 03/25/2014 - 01:38 | 4588987 Ward no. 6
Ward no. 6's picture

i used to rent and wanted a house so bad to get away from all the things u mentioned....

Now that i have a house i dream about going back to renting due to the fact that I don't have to worry about fixing anything, don't have to worry about property taxes, don't have to worry about shoveling snow...etc. There are plenty of places to rent and I actually think it is cheaper to rent... At least where I live in my area one can get an apt for as cheap as 500 a month. No heating bills, no water bills. Sounds good to me. Thinking of selling and going back to an apt. Different situations for different ppl. As for the ppl who can be annoying in an apt, well neighbors can be a real nightmare too. Yuck I have a neighbor right next to me that I dread to see.... A no win situation!!! BTW I got my car banged up right in my driveway. Can happen anywhere.

Tue, 03/25/2014 - 02:29 | 4589050 MeelionDollerBogus
MeelionDollerBogus's picture

see for some of us that has zero worry.

I don't care if I hear thumping all day all night, or silence. It's equal to me. If it isn't to you then I guess too bad for you.

I refuse to own a car so I don't have to worry about that either. I don't rent one, I don't use cars.

Mon, 03/24/2014 - 19:38 | 4587901 chemystical
chemystical's picture

"The advantage of renting is you don't lie awake at night worrying about the roof, the water heater, the air conditioner, temites, an earthquake, liability, insurance bills, or cutting the grass/shoveling the snow, painting, etc."

That's complete bullshit.  The renter PAYS someone ELSE to worry about those things.  Or do you and the landlord believe in the roof and insurance fairy?

Or do you live in fictitious world where landlords have no interest in ROI and don't worry about cash flow and don't roll up those same costs into the rent???

Property tax goes up?   'Oh no, gosh, don't own a home!  Better to rent because the landlord would 'never' pass those costs on to you."

 

Mon, 03/24/2014 - 19:39 | 4587920 ebworthen
ebworthen's picture

Well sure, but as long as I pay the rent it's not my worry.

Mon, 03/24/2014 - 20:01 | 4588012 chemystical
chemystical's picture

"Well sure, but as long as I pay the rent it's not my worry."

Sorry, but that's more bullshit.  You're saying that because you pay rent you don't pay for those things.  If you're not saying that, then you're saying that you outsource your "worry". 

If you're so fabulously wealthy that it's not worth your time to worry and it's more cost-productive to pay someone else to either swing a hammer or to phone someone who can, then your fabulous wealth is likely paying rent for a fabulous abode, and the fabulous landlord likely has a fabulous staff and both of them have commensurate incomes.

Mon, 03/24/2014 - 21:28 | 4588333 A Nanny Moose
A Nanny Moose's picture

You need to work on that reading comprehension thing there Chief. He simply said that rent includes paying someone else to worry about those things.

Tue, 03/25/2014 - 08:40 | 4589459 Agstacker
Agstacker's picture

You like the word 'fabulous', don't you?

Mon, 03/24/2014 - 19:50 | 4587963 Blankenstein
Blankenstein's picture

It's a great time to buy - have at it.

Mon, 03/24/2014 - 20:04 | 4588019 chemystical
chemystical's picture

Strawman I'd like you to meet Blankenstein.  Oh, you've already met.

Mon, 03/24/2014 - 20:23 | 4588110 Blankenstein
Blankenstein's picture

Where's the strawman?  Housing bubble 2.0 is getting ready to pop and you're promoting home buying over renting - the same propaganda being spewed by the NAR (National Association of Racketeers).

Mon, 03/24/2014 - 21:08 | 4588259 chemystical
chemystical's picture

"Where's the strawman?"

The strawman is that you're implying that i'm saying it's a great time to buy.

I did not say that, but I'll play along: What you're saying is that it's a great time to rent.

And rent forever? ...or until home prices collapse - IF they do?   Then what?  Buy a home?  AS opposed to remaining in the rental.  I rented an apt for a while 20 yrs ago.  When lease renewal time came up I pointed out the 15% empty apts and negotiated the rent DOWN.   Seems that anything above his fixed costs was better than nothing.

AGAIN, you're arguing as if there's a disconnect between the market for rentals vs ownership.  As if there's a disconnect between the price of a Big Mac and a Quarter Pounder, etc.  They are all functionally substitutable alternates. 

Tue, 03/25/2014 - 02:28 | 4589048 MeelionDollerBogus
MeelionDollerBogus's picture

But they're not.

One meal is fish, the other is chicken.

Sometimes it's good to switch up and it's never, ever a great time to be a renter and a buyer simultaneously. One does favour the other & it is cyclic.

Tue, 03/25/2014 - 02:27 | 4589046 MeelionDollerBogus
MeelionDollerBogus's picture

It's not bullshit. I worry about none of those things & I'm ready to go as I need to carry everything with zero warning that has any real value.

My landlord can see this and realizes what it is. Freedom. My landlord actually said to me it would be nice to have that freedom and not be a home owner anymore.

"Property tax goes up?   'Oh no, gosh, don't own a home!  Better to rent because the landlord would 'never' pass those costs on to you."

By law, where I live, they can not. Literally a court will take any excess and hand it back to the rent plus damages.

Tue, 03/25/2014 - 10:52 | 4589959 Almost Solvent
Almost Solvent's picture

So, when your lease is up, the landlord can't raise the rent?

 

What rent controlled city do you live in? NYC????

Wed, 03/26/2014 - 00:36 | 4592872 MeelionDollerBogus
MeelionDollerBogus's picture

By law, no.

I'm not American. I'm in Canada.

I don't even have a lease. Rent can't be raised more than a set rate something around 2%.

If property upkeep as it pertains to my dwelling is required the rent can be raised temperarily to cover it and the rent must be reduced back once it's covered.

Mon, 03/24/2014 - 21:07 | 4588254 post turtle saver
post turtle saver's picture

I replaced all you mentioned with a single phrase, "hidden rental costs", and then re-read what you wrote in that context... at which point I laughed

Tue, 03/25/2014 - 02:25 | 4589045 MeelionDollerBogus
MeelionDollerBogus's picture

maybe not termites but goldmanites, those fuckin' things can eat gold bars.

Tue, 03/25/2014 - 23:33 | 4592793 garypaul
garypaul's picture

Keep it to yourself then! Who asked you to post?

Mon, 03/24/2014 - 19:03 | 4587777 icanhasbailout
icanhasbailout's picture

The fact that the outcomes are the same shows that "ownership" is simply an exclusive privilege to rent a property from the government.

Mon, 03/24/2014 - 19:06 | 4587789 waterhorse
waterhorse's picture

Exactly!

Mon, 03/24/2014 - 19:46 | 4587946 chemystical
chemystical's picture

"The fact that the outcomes are the same shows that "ownership" is simply an exclusive privilege to rent a property from the government."

While I can appreciate what you wrote, you do gloss over some of the other distinctions.  For example, Uncle Sam didn't object to my knocking down a wall in my home.  Your landlord?  Probably would be a wee bit upset.  Uncle Sam also doesn't object to us running a business out of one of them. 

Your landlord has a lengthy list of what you can and can't do with your rental.  Certainly, Uncle requires some permits regarding certain modifications and usage, but rental comes with those and many many more.

Mon, 03/24/2014 - 19:53 | 4587979 icanhasbailout
icanhasbailout's picture

Uncle Sam may not have been interested, but your local government sure is. If your permits are not in order, they'll fine the hell out of you and make you pay to undo your own work.

 

You don't rent from Uncle Sam, anyway - property taxes are local taxes, not federal ones.

Mon, 03/24/2014 - 20:10 | 4588054 chemystical
chemystical's picture

"Uncle Sam may not have been interested, but your local government sure is."

Um, yeah, I mentioned that.  You're arguing a point that doesn't exist. 

 

Mon, 03/24/2014 - 20:20 | 4588099 icanhasbailout
icanhasbailout's picture

The point is that if someone else has an a priori claim over what you believe you own, you don't own it - they do. The very definition of property ownership is being able to dispose of it as you will. The moment you need to ask someone else permission, they become the de facto owner, not you.

Mon, 03/24/2014 - 21:24 | 4588294 chemystical
chemystical's picture

"The point is that if someone else has an a priori claim over what you believe you own, you don't own it - they do"

We're in agreement on that, and nowhere did I suggest or state otherwise.

What I DID write about was what you CAN do with the home that you putatively own....as opposed to the rental where your options are much more limited to, for example, keeping your stuff there until you move somewhere else.  Some of us are not interested in and do not value that distinction, but it does not mean that it does not exist.

Rentals offer their own value, and I do not deny that you can, for example, walk away after (or during) a lease far more easily than you can sell or rent your home on short notice (at least without selling for less than you'd like to).

Neither option is for everyone, but to deny that ownership can offer no advantages is silly - and I'm not saying that you've stated that, but reading through this thread there are many who deny that ownership could possibly have an advantage.

Holy shit, I've seen less contention on the AGW threads :)

Mon, 03/24/2014 - 19:55 | 4587991 Blankenstein
Blankenstein's picture

In Illinois, you can fork over $8,000 + per year in property taxes for a mediocre home in a safe area.  Sounds like freedom to me.

Mon, 03/24/2014 - 20:08 | 4588045 chemystical
chemystical's picture

More bullshit.  I noticed that you failed to mention the rent for a mediocre home/condo/apt in those same safe areas. 

AGAIN, do you think your landlord is 1) eating those same costs or 2) passing them on to you?

If you think # 1 is the answer, then my advice is to not own rental property.  If you think there are #'s 3, 4, .. to choose from, then please do expound.

Mon, 03/24/2014 - 21:57 | 4588465 Blankenstein
Blankenstein's picture

I guess you can pay $300,000 for a small shithole if you want, but I prefer renting until prices realign with fundamentals.  The market is overrun with investors, both institutional and small time, the Fed continues with its unprecedented policies of QE3 and ZIRP  and the banks still are manipulating the output of foreclosures onto the market.  When the investors unload (which they are starting to do) the Fannie/Freddie/FHA limits are lowered (which they already are) and the interests rates rise, you will hear the pop of housing bubble 2.0.

Tue, 03/25/2014 - 02:23 | 4589043 MeelionDollerBogus
MeelionDollerBogus's picture

Actually if you are changing wiring or structure without a permit uncle sam or derivatives like municipal government very much will care and will fine you, add it to your taxes if you don't pay and sell your house against your will if you don't pay that, so no, you are incorrect.

Everything from wiring, walls, pipes, all needs permits so you are begging permission to do stuff to "your" property. Paying and begging.

You still fell for it.

Trick a slave into being a wilful slave: tell him/her that collar is "ownership" make them pay for the collar, pay the slave master for it, and let them walk around chest pushed out like a proud, proud "owner" of his/her slave collar.

Ya.... that's so SMRT.

Fucking idjits.

No wonder you guys are falling all over yourselves losing money to the "rigged" market.

Ya it's rigged so don't fucking throw your money at the beast and wonder why it's still staring you down with teeth showing & slobbering with hunger. You keep fuckin' feeding it.

Tue, 03/25/2014 - 08:41 | 4589464 Agstacker
Agstacker's picture

fabulous reply.

Mon, 03/24/2014 - 19:38 | 4587917 Rukeysers Ghost
Rukeysers Ghost's picture

This article was written by an idiot. I am a landlord and guess what? My tenants DO pay all the taxes that this dude uses to argue against home ownership. It is all added into the monthly rent along with upkeep and some profit for me. Also at the end of 30 years, I can sell my house and recoup some of money I spent over the years for housing and blow it on hookers and blow. At the end of 30 years of renting, the dopey tenant has jack shit even though they shelled out as much as I did per month for a roof and a toilet.

Mon, 03/24/2014 - 19:58 | 4588007 Blankenstein
Blankenstein's picture

When interests rates rise and house prices tank, you get to take the loss.  

Mon, 03/24/2014 - 20:16 | 4588082 chemystical
chemystical's picture

Supply & Demand?  Meet Blankenstein. 

This time he's apparently oblivious to market forces.  If the owner amortized his/her debt with variable rate interest, then yeah you have an argument...until the leases expire.  Then guess what happens?  (I'll tell you because it's clear you're oblivious).  You raise the rent!  And guess what else?  (Again I'll tell you and for the same reason).  Your tenants didn't all sign leases on the same day. 

Ooooh, and last 'guess what else'?  >>>> interest rates apply to homes too!  And guess what the alternative to renting is?  Aw, c'mon, you can figure out that one all by your big self. 

Supply & Demand for a place to live.

Mon, 03/24/2014 - 20:34 | 4588143 Blankenstein
Blankenstein's picture

You don't even understand my point.  Home prices will drop when the interest rate rises.  People are already stretched to the max and won't be able to afford a higher monthly mortgage payment.  For that reason, home prices will have to drop to keep the monthly nut the same.  If buyers could easily afford higher rates THE FED WOULDN'T BE PULLING OUT ALL THE STOPS TO KEEP RATES LOW. 

Tue, 03/25/2014 - 08:41 | 4589468 Agstacker
Agstacker's picture

yet another fabulous reply.

Mon, 03/24/2014 - 20:29 | 4588133 icanhasbailout
icanhasbailout's picture

30 years ago and the past decade are totally different animals. You simply couldn't profitably rent any place that was bought at or near the top of the housing bubble. My last rental, I was paying 50% below the "owner"'s mortgage bill alone - with upkeep, taxes, condo fees, etc. all extra that they paid, not me.

 

Had I bought that place instead, I would be a quarter-million under water even today, AND have laid out another $100k over what I actually did.

Tue, 03/25/2014 - 02:19 | 4589040 MeelionDollerBogus
MeelionDollerBogus's picture

You're an idiot.

You bear all the risks, all the sunk equity. The market could crash leaving you with 20% of the property value. Taxes could go up leaving you with triple the tax bill.

You're instantly fucked and you can not force anyone to rent from you. They can up and leave and you are fucked in the ass. You can't up and leave because you can't carry the value, or former value of t he house, with you and they renters have no sunk equity so they get to run and love life while you sit in poverty.

"Also at the end of 30 years, I can sell my house and recoup some of money I spent over the years for housing and blow it on hookers and blow. "

Says who? You could end up selling the house for 2% of the price adjusted for real inflation for all you know and that might, in 30 years, be a great price compared to the rest of the market.

 

Tue, 03/25/2014 - 08:43 | 4589475 Agstacker
Agstacker's picture

There's a hell of a lot more rental places out there, if you raise the rent too much folks will simply move and find a new place to rent that they can afford.

Mon, 03/24/2014 - 19:51 | 4587972 Seasmoke
Seasmoke's picture

Keep paying rent to your Landlord, who doesn't pay property taxes to the government. And see how that works out.  

Mon, 03/24/2014 - 20:17 | 4588086 W.M. Worry
W.M. Worry's picture

Bullshit, You will pay the same property taxes (indirectly) if you rent a home, They won't however be tax deductible.

Mon, 03/24/2014 - 21:10 | 4588269 post turtle saver
post turtle saver's picture

BINGO

Wed, 03/26/2014 - 00:32 | 4589039 MeelionDollerBogus
MeelionDollerBogus's picture

#1 in Canada the rent is definitely tax deductible

#2 regardless if you rent you down have sunk equity so no one can sell it out from under you by law, because you're not the owner, yet the owner bears this risk, which means he/she isn't the real owner. Whoever has the real legal power to sell at will is the real owner, the real renter knows he/she is a real renter, it's only the fake-owner who pays rent to the government & the bank who thinks they are an owner but is still actually acting just like a renter, just with more sunk equity, as opposed to the real & smart-n-savvy renter who has zero sunk equity.

You want to be super smart-n-savvy just rent 3 places: sublet 2 of them and use the profits to pay rent on the 1st. Like the mortgage-to-rent mode of profit but zero sunk equity.

Tue, 03/25/2014 - 00:29 | 4588899 Robot Traders Mom
Robot Traders Mom's picture

Excellent point. Even in apartments, property tax is factored into your rent. There is literally no way to live in the US without paying taxes. Yet, renouncing your citizenship is both timely and relatively expensive. 

 

There is no way out. We truly are slaves to the system.

Mon, 03/24/2014 - 18:49 | 4587719 fonestar
fonestar's picture

I heard you can buy 100 houses for 1 BTC in Detroit? 

To the moon!

Mon, 03/24/2014 - 19:02 | 4587773 EggSlayer
EggSlayer's picture

I would rather buy chicken shit than 100 homes in detroit with my 1 BTC

Mon, 03/24/2014 - 19:22 | 4587852 kaiserhoff
kaiserhoff's picture

I heard you could buy all of Deetroit, for fie dollah.

  Your point is?

Mon, 03/24/2014 - 20:18 | 4588093 chemystical
chemystical's picture

Hiya fonestar!

I'm pretty sure you have that backwards;  they pay you to live in Detroit.

Mon, 03/24/2014 - 18:51 | 4587728 waterhorse
waterhorse's picture

"Interest rates are starting to stabilize at a high rate, after rising steadily for two or three years in a row."

Huh?  They are at record lows.  What if you want to buy a house you can afford because you hate dealing with landlords from hell?  I agree with you that not everyone should own and maybe they don't want to, but there are a lot of psychological benefits to owning versus renting (and yes, some headaches too).

Mon, 03/24/2014 - 18:52 | 4587733 DOGGONE
DOGGONE's picture

HERE is the USA national price truth:
http://www.showrealhist.com/RHandRD.html
Realize it!

Mon, 03/24/2014 - 18:55 | 4587744 LetThemEatRand
LetThemEatRand's picture

Buying a home right now even with cash is insane.  The Fed enabled TBTF to hold a massive shadow inventory of foreclosed homes (or homes that should be foreclosed) or transfer them to the taxpayer, while the Fed has tried to inflate prices with artificially low interest rates.  The sole purpose of this intentional price inflation is to enable the banks and eventually the Fed to offload the houses to sucker buyers.   Once the Fed and banks are done offloading their shit onto the taxpayer, and the Fed is done artificially inflating home values, the shit is going to hit the fan something fierce.  

Mon, 03/24/2014 - 18:57 | 4587757 waterhorse
waterhorse's picture

The prices do seem outrageous.  Even my little shack would sell for $285,000, but since I only owe another 68K at 3%, I'm going to keep on going.  Even if it crashes, I have a place to live (until I end up unemployed, no let's not go there!)

Mon, 03/24/2014 - 19:01 | 4587769 LetThemEatRand
LetThemEatRand's picture

You obviously got in at a good time and have a low rate and I would do the same thing (stay the course).  But buying today on the premise that the housing market is just going to keep going up is crazy.   

Mon, 03/24/2014 - 19:04 | 4587778 waterhorse
waterhorse's picture

Yes, I can feel the bubble getting ready to pop.  I think the subprimers (liar's loans are back) are going to get into the frenzy here right before it goes "pop" again though.

Mon, 03/24/2014 - 20:20 | 4588098 W74
W74's picture

68k, as far as my best guess goes, would be about 3½ years worth of rent on your property.

I'm not sure where exactly you live (don't really need to know), but typical rent on a 300k property is aprox. 20-25k per year.

 

Mon, 03/24/2014 - 18:54 | 4587745 rsnoble
rsnoble's picture

Buying a house isn't so bad it's the fucking rent payment to pad the public union pension fund that's a bitch.

Mon, 03/24/2014 - 18:56 | 4587756 yogibear
yogibear's picture

Exactly. They keep raising the property taxes to pay for the ever-increasing public pensions and their increasing demands.

Mon, 03/24/2014 - 19:50 | 4587964 Accounting101
Accounting101's picture

Will you and the village idiot above stop being stupid. Most, if not all, state public pensions systems have ten of billions in asset value. For instance, Michigan's public pension system has a value just above $43 billion and last year grew $3 billion, after pension obligations. Let's also not forget that these public, middle class workers put in significant amounts of their own money into those public pension systems. A Michigan teacher will put as much as $120,000 or more over a thirty year career. I bet your radio didn't tell you that.

I'm sure facts won't move you. The hard on for your middle class neighbors is mystifying. So, please post your employer's name and location so that those who contribute to and collect from a public pension system will know where not to spend their money.

Cut your body in half to spite your face. You can't fix stupid.

Mon, 03/24/2014 - 20:11 | 4588062 Blankenstein
Blankenstein's picture

Here are some facts for you:

  

 

An interview with Eugene Fama:

"How do you feel about buying Illinois bonds?

Well, in the short term, they’re OK. In the long term, I wouldn’t touch them. The [state’s] pension liability is much worse than [the reported $100 billion that] people think.

How so?

States discount their liabilities—I think Illinois uses a discount of 7.5 percent [it’s between 7 and 8]—arguing that’s the expected [annual] return on their portfolio. But the expected return on a portfolio is totally irrelevant. What counts is, How risky are the claims that you have to meet? You’ve made a promise to your employees that you’ll pay them a certain fraction of their income that is usually indexed. Which means it’s a risk-free real outcome. What’s the risk-free real rate? Is it anywhere near 7.5 percent? It isn’t. Historically, it’s like 2 percent. A 2 percent discount rate would approximately triple Illinois’s pension liabilities."

http://www.chicagomag.com/Chicago-Magazine/December-2013/Q-and-A-with-Un...

 

Calpers discount rate is also 7.5 % and in the fiscal year ending June 30 2012, the return on their investments was 1%.

http://blogs.barrons.com/incomeinvesting/2012/07/17/calpers-1-annual-ret...

 

 "Politicians helped bring Chicago's public pension funds to the brink of insolvency"

http://articles.chicagotribune.com/2010-11-16/news/ct-met-pensions-deals...

 

In trying to achieve that 7.5 % return on investments, they have sunk a lot of money into some extremely questionable investments.  

And looky, those benevolent government officials funneling money to relatives:

 "City pension funds already have been criticized for investing about $60 million in a real estate firm co-founded by Daley nephew Robert Vanecko that has lost about $11 million in value, according to fund documents."

 

http://articles.chicagotribune.com/2010-11-17/news/ct-met-pensions-inves...

 

Mon, 03/24/2014 - 20:22 | 4588106 Accounting101
Accounting101's picture

So you refute publicly produced and disseminated data with the feelings of Eugene Fama? I also see you have conflated city pension funds with state pension systems. Perhaps all public pension systems are not the same. Reality is like that sometimes.

Oh, be careful of the unfunded, underfunded or almost funded, but not quite bullshit. That's how the Oligarchs convince you that your money doesn't belong to you. People who make that claim expect your current account balance to be able to pay every liability from now to infinity.

Those goddamn facts do often get in the way of a good false narrative.

Mon, 03/24/2014 - 20:40 | 4588164 Blankenstein
Blankenstein's picture

 

Math can get in the way of a good false narrative.  Fixed it for you. 

Mon, 03/24/2014 - 20:50 | 4588196 machineh
machineh's picture

Michigan's public pension system has a value just above $43 billion.

Wonderful. And what are its liabilities? $60 billion? $100 billion?

Did you think we were going to be impressed, just because you threw out a big number at us? 

Accounting 101 never read the chapter on net worth. Go sit in the corner, kid.

Tue, 03/25/2014 - 02:13 | 4589034 MeelionDollerBogus
MeelionDollerBogus's picture

This is Fight Club, not kindergarten. It's 3 days on the porch, blondie.

Mon, 03/24/2014 - 22:33 | 4588621 FredFlintstone
FredFlintstone's picture

Michigan teacher puts in $120k over 30 years? By some miracle of state investing this techer can then live off of that and the state's contribution for the next 30 to 40 years?

PONZI!!!!!!!!!!!!

Bitchez!!

MADOFF on steroids. 

Tue, 03/25/2014 - 08:45 | 4589481 Agstacker
Agstacker's picture

I'm sure you're buying bonds in Michigan hand over fist, aren't you?  

 

/sarcasm off

Mon, 03/24/2014 - 18:54 | 4587747 yogibear
yogibear's picture

live in a trailer on undeveloped land. Starve the tax collectors. Paying $800/year property taxes is better than paying $9,000/year.

Mon, 03/24/2014 - 18:58 | 4587762 waterhorse
waterhorse's picture

I'm covered by Prop 13.  My taxes are about 1100 per year.

Mon, 03/24/2014 - 19:37 | 4587910 RafterManFMJ
RafterManFMJ's picture

I like you. Hell, you can come over to my house and fuck my sister!

Snake aside, I'm looking for an out of the way property I can buy and build a slip form stone house on...

... Getting ready.

Mon, 03/24/2014 - 20:02 | 4588018 greatbeard
greatbeard's picture

>> a trailer on undeveloped land.

I live in a trailer, if you want to consider an 1,800 sq ft triple wide a trailer.  This place is built better than many sticks and bricks. I guess you could call this undeveloped land, but it's cleared with 3 acres of fence pasture, 7,700 sq ft vegetable garden that produces more than I can eat, can and give away.  42 fruit trees, 21 blackberries. 1,800 sq ft of pole barns and sheds. I'm on a nicely paved state road.  Plenty of the homes around me are in the 1/2 mil range.  Just outside of a major college town and in between two very nice small towns.  My taxes are $700 a year and that includes fire and garbage service.  They can only go up, I think it's 3%, but it could be 5%, a year. With a little planning and working the system you can get by reasonable on taxes.

Mon, 03/24/2014 - 20:38 | 4588158 chemystical
chemystical's picture

We allocated most of the land on one home's property to "farming".  Ornamental koi ponds and wraparound walkways might abut the home and be truly decorative in nature, but that's part of the farm. 

Tax savings are huge, and the hurdle to qualifying is a joke.  Now, that's turned into more of a real farm.  The tax code might be re-written some day, but for now, we're ok being part of the problem rather than the solution.  When the tax code stops sucking out my income to pay for SNAP, free cable, free housing, free school, free lunches, etc etc, THEN I might feel bad about our little tax avoidance.

Mon, 03/24/2014 - 18:56 | 4587752 Ralph Spoilsport
Ralph Spoilsport's picture

What about keeping a home and property that you inherit? If you can afford the taxes and you really like living there, what's the downside?

Mon, 03/24/2014 - 18:59 | 4587765 yogibear
yogibear's picture

If a senior lived there you lose the senior exemption and they jack up the property taxes. Every few years they re-assess the property anyway. They just want your F'n money. More of each year.

Mon, 03/24/2014 - 18:59 | 4587754 SgtShaftoe
SgtShaftoe's picture

Most houses are a speculative decision, or a wash at best.  Investing in a productive property that you live in, could be a benefit - urban farm, etc.  If you're just buying all your GMO groceries at the fascist mart, it's less attractive. 

 

Ideally, you buy a small farm that pays a bit back to you, and adds to your overall resilience.  That can pay back in dividends.  However good farm ground is nutso crazy expensive.  It comes down to scraping some life out of some very marginal ground, and being creative. 

Mon, 03/24/2014 - 20:05 | 4588034 greatbeard
greatbeard's picture

>> However good farm ground is nutso crazy expensive.

I've got a very nice, productive, hobby farm on five acres, very fertile ground (many organic orchards in the area).  It's for sale at $125K.  The action has been slow.

Tue, 03/25/2014 - 12:10 | 4590348 Abaco
Abaco's picture

Where?

Mon, 03/24/2014 - 19:00 | 4587766 A Lunatic
A Lunatic's picture

I needed a house and liquidity so I purchase a property in the flood plain........

Mon, 03/24/2014 - 20:54 | 4588219 machineh
machineh's picture

Now just buy some federal flood insurance, and pray for a big rain!

Mon, 03/24/2014 - 19:00 | 4587767 nightshiftsucks
nightshiftsucks's picture

So if I buy a house and pay it off then I only have property taxes,sure is a lot cheaper than paying rent until I die.

Mon, 03/24/2014 - 20:55 | 4588222 machineh
machineh's picture

Not in the tax hells of NJ and NY.

Mon, 03/24/2014 - 21:16 | 4588285 post turtle saver
post turtle saver's picture

You may all go to Hell, and I will go to Texas. - Davy Crockett

Mon, 03/24/2014 - 19:05 | 4587775 malek
malek's picture

Fully agree.
But just like you I struggle to fully understand those lemmings, much less make them at least consider a different point of view on the sense of buying a house.

One has to keep in mind though that we recently went through 5+ years of the biggest nation-wide housing bubble ever, and so far very few got really burned thanks to the Fed.

Mon, 03/24/2014 - 19:07 | 4587787 Creepy Lurker
Creepy Lurker's picture

For some of us, it has nothing to do with investment. If I tried to live in an apartment crammed in cheek by jowl with the usual idiot zombies, I'd go postal. I can't tolerate shared walls. Hell, the exurban area I live in now is nearly intolerable. (People and thier freaking dogs!)

Next step for me is 10 or so acres out in the country.

Mon, 03/24/2014 - 19:08 | 4587795 waterhorse
waterhorse's picture

Me too!  Can't live like that either.  I have a small farm "out in the country" but not too bad of a commute.

Mon, 03/24/2014 - 19:35 | 4587894 ebworthen
ebworthen's picture

What is it with people and their dogs anyways?

The zombies in my place have big dogs in 750 sq. ft. apartments they walk outside once a day to crap all over the common areas.  Most of the owners spit like troglodytes too.  Inhumane to make a dog live that way IMHO.

Mon, 03/24/2014 - 19:42 | 4587930 Creepy Lurker
Creepy Lurker's picture

Couldn't agree more. In this neighborhood, a bunch of them have dogs that they leave in the backyard 24/7 and completely ignore. (except to feed them I suppose) The dogs are lonely. They cry whine and bark continuously. Why have a dog if you're going to treat it like that?

Mon, 03/24/2014 - 20:01 | 4588014 U4 eee aaa
U4 eee aaa's picture

The dog is being used as a cheap security system

Mon, 03/24/2014 - 20:10 | 4588059 greatbeard
greatbeard's picture

>> 10 or so acres out in the country.

If you think you've got dogs in the city, just wait until you get into the country.  Every place I've ever been has been dogs barking 24/7.  I'll go outside to piss with the dogs at 3 AM and it's dogs barking.  7 AM, dogs barking.  12, dogs barking.  3 dogs barking.  Of course, then there's the gun fire.  There always seems to be some neighbor that wants to blast away all day with high caliber weapons in the front yard.

I've lived in metro areas on busy streets and it's quieter than the country. 

Mon, 03/24/2014 - 20:47 | 4588189 chemystical
chemystical's picture

We've got 2 large (think ~ 20) packs of feral dogs running our county's countryside.  (Including a big fucking poodle).  Legally we cannot shoot them (despite a vermin permit), but the local constabulary has no problem not enforcing that because they kill game, livestock, and pets.  "Poodle??  Shit I thought it was a coyote." 

 

Mon, 03/24/2014 - 21:20 | 4588308 post turtle saver
post turtle saver's picture

suppressors are hopefully legal where you live... just sayin'

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