…need not be limited…, sigh.
Nm
I think one thing that is bugging me is the blind spot people seem to have toward the costs of home ownership outside of the mortgage.
My little apartment is cheap to heat- not many chances to heat to escape, and we have a central system that efficiently serves 300 units. My building has a single security system, which costs relatively little averaged across 300 units. We have little green space (but great parks next door), so we pay basically nothing for landscaping. Yes, maintenance is folded in to the rent, but there just isn’t all that much of it to do per unit.
A cheap, small condo or row house that you but might be similar. But sorry, move on to a three bedroom house on an average lot, and you are going to be paying out lots of money every month that people in smaller, more efficient arrangements aren’t going to be paying. And that stuff is all “extra.” It’s not an investment. It’s not better to spend $30.00 a month on lawn bags and mulch than it is to live someplace cheap and spend the extra on a Rolex.
And just in case you think I’m on the attack-- there is nothing wrong with spending your money this way. But you are making a choice about how you are spending money based on something other than straight financial return.
It’s like with cars, you have a bit of an inflated idea about how much this stuff costs. No one is spending $30 a month on lawn bags and its a ridiculous example to use. Are there costs associated with a house that aren’t associated with renting, sure. But be realistic.
Not all houses appreciate in value. For some people, becoming a homeowner was the very worse decision they could make. They would have been better off renting and investing the difference. If they had rented, they would still have decent credit and wouldn’t have had to declare bankruptcy. If you recall, a lot of Americans jut went through this quite recently.
Experiences (like cruise vacations) can also be seen as investments in oneself. The guy who decides to take up golfing so he’ll be invited to outings with his golf-loving boss is making a responsible investment in himself. A woman who spends lots of money on hair and make-up so she’ll attract a wealthy suitor is doing the exact same thing. The same as taking a cruise every year with the in-laws to ensure you’ll be remembered when the wills are written. In all these cases, someone’s putting some money down in hopes of high returns.
These are less riskier ways of investing than buying a house. It can take a long time before a homeowner is in the black, but an upgrade in wardrobe and orthodontics can help move someone from “spinster”" to “Missus” virtually overnight.
Almost everything, if used intelligently, can be viewed as an asset. Even spinning rims.
Do you know what “usually” means?
Riiiiight. So a trip to the Bahamas is no different from a 401(k).
If you really think that, I have a bridge in Brooklyn that is a wonderful investment…
Regards,
Shodan
Well certainly, for many people it makes sense to rent. But you do seem somewhat defensive about it. I’ve rented for years as well and I much prefer owning my home.
I bought (this is the third I’ve bought) for several reasons, and the financial aspect is the least of them quite frankly. Except that where I live, it can actually be cheaper to own than to rent.
My largest reason: If I’m renting, I don’t feel secure. Property owner defaulting on mortgage or water bills (recently in the Flint area there have been news stories about hundreds of renters being forced out of their homes because the owners defaulted on taxes and water bills) or for whatever reason.
I don’t have a 3000 sf house, I have a barely 800 sf house on almost a half acre on a dead end road. It’s a marginal neighborhood but it’s quiet and I like my neighbors. Mainly because I am not living elbow to elbow with the occupants of 300 other housing units. That’s fine for people who enjoy more dense/urban living, but I don’t.
Parks, lake, river and miles and miles of trails a mile away.
As long as I keep paying my measly cheap taxes, I will always have a roof over my head. Taxes are about $50 per month. I have no mortgage.
I can have whatever pets I want (within township rules of course.)
I can decorate, paint, do whatever. It’s mine. I don’t need anyone’s permission.
I love having a garden, plant vegetables, enjoy landscaping. Hate mowing but that only costs me about $50 a month for five-six months out of the year. Or I could do it myself I suppose. It doesn’t take long since part of my lot is a big copse of trees that I leave alone.
I’m quite handy, and have some extremely handy friends, neighbors and acquaintances who will help me out in an emergency for not much money, and the other way around. In spring I’m bartering painting for a new roof.
Home maintenance doesn’t have to be expensive: in a cumulative 20+ years of owning a house my biggest repair-type bill has been having tree work done and that was under a grand.
Maintenance, quite simply, does not have to be expensive.
Not arguing. You are making your case for renting - it works for you and that’s great. You remind me of my youngest brother actually, who wanders all over the world having varying jobs and uni positions, loves big cities, hates to feel tied down. I am making my case for owning a house, which is what works for me.
I think we have gone off on some serious tangents here. It’s all well and good to argue about the merits and demerits of going on cruises etc. when one is working off of a solid or at least tenable financial foundation. There is no argument, however, for these sorts of things though when the fundamentals aren’t there.
And we aren’t going to solve everyone’s financial problems as some people are just stupid, lazy and need instant gratification. Not most, not even a lot but some. The rest just need some more financial literacy.
The heating thing is why I’m not planning on giving up my 700 sq ft rental house any time soon. It takes all of ten minutes to get my house to a comfortable temperature. My utility bill doesn’t stress me out every month.
But I can’t find a house to buy that’s in my price range, that isn’t a crack den, that has similar square footage. All the tiny bungalows in my area are rental properties. None for sale.
I could buy a condo, but I don’t want to share a roof and walls. I like having a front and backyard, and a big porch. I like that I can step out of my front door and be outside rather than a hallway. Going back to a multi-family dwelling would feel like a step down.
I’ll be a homeowner when someone shows me something that meets my criteria and makes me excited. My momma taught me not to settle for “meh” just because of peer pressure.
That’s the important thing, I think. Many people don’t realize that while the stock market does have a certain element of risk, for your average investor, it’s not nearly as similar to gambling as the movies would have you think. If anything, it’s more like a hard-to-get-at savings account that makes you more money than a CD or regular savings account would. You still have to start with some money to make money; a guy with half a million bucks a year might make more than minimum wage on investment income alone, while the guy who has $5000 in stocks is liable to top out at around $400 per year. You’re not likely to get rich doing that.
Similarly, a lot of people mistake big ticket purchases for investments. Cars aren’t investments, electronics generally aren’t investments, etc… I’d even argue that the home you live in isn’t really an investment, in the sense that you didn’t buy the house with the express intent of making money off it. Making money is just a bonus after you’ve lived there.
No, it means that a person who brags about the $100,000 house that they purchased with $5000 down is no different than the person who brags about the $1000 Bahamas vacation they paid for with cash. I don’t know that the former is more responsible or the latter is less responsible. All I know is that both possess symbols of success, neither of which is indicative of financial responsibility.
The fact that a Bahamas vacation can sometimes result in financial opportunities and the house purchase can sometimes result in financial ruin means that judging the acumen of the homeowner more favorably than the vacationer doesn’t make any sense.
There are plenty of people who invest in “bridges in Brooklyn” when they’d be better off investing in their own or their children’s education, finding better spouses, moving to different locations, not being so concerned about “symbolic representations” of success, or making stupid wise cracks on the internet.
It is significantly more likely that the house purchase will be a better financial decision then a holiday to the Bahamas. Last time I checked, you can’t get a tax deduction for a holiday. Moreover, you’re unlikely to live there. I am not saying that a house purchase is always the right move (as I noted upthread) but, all things being equal, it is for sure a better investment then a holiday.
Actual conversation I had with a friend, paraphrased.
Friend: “If I came into $100,000, I’d invest it and live off the interest”.
Me:“Really? So what interest rate do you think you can get on $100,000? I’m assuming you don’t want a risky investment because that’s all your money, so it needs to be something fairly safe, right? So let’s pretend you can get a return of 10% on it… That’s per annum, so $10,000 a year. That’s less than unemployment benefits pay. Hell, that’s less than your rent. Let’s assume you can get a 20% return. Congrats, you’ve just barely exceeded the poverty line in Australia, defined as $18,667/year for a single adult. Oh wait, you’re married with four kids. Well the poverty line for a couple with two kids is $39,211/year, so if you lose two kids and manage to invest that $100k at 50% per annum, after tax you’ll just about be living at the poverty line.”
Friend: “Oh”.
And I’ve told before of the manager we had during the GFC who imparted his wisdom about the shares our company was giving us, telling everyone that now was “not the time to be getting into the share market”. Some people did actually turn down the gift of $500 worth of the company’s shares, then worth about $12 each, and now worth $41 each.
It depends on what you intend to do with that holiday. If you just want to lay on your ass on the beach, yeah, your returns will be non-existent. But if you’re mixing and mingling, handing out your business card to prospective clients, and networking, then you can come out of there with both tangible and intangible increases.
This summer I came back from my travel vacation with lots of pictures and funny stories. My senior supervisor happened to see the pictures I took and was visibly impressed and full of curiosity. Maybe prior to our conversation, he thought I was a boring, crazy cat person. Perhaps hearing about my experiences has made him to see me in a different light…and now that light will shine the next time I’m up for promotion. Who knows? All I know is that experiences, sometimes very expensive experiences, provide dividends. A person who seeks valuable experiences over valuable stuff is not a “loser”.
I had the same conversation with a friend who had come into $300,000. Of course, he needed to pay off $70k in student loans first, but $230k is still enough money to live off of for the rest of your life, right? And if you want to work part time, be single, and live very frugally, its a nice tidy little amount of “I don’t need to have a real job” money. But it isn’t exactly “quit my job, not work, and still get to take vacations” sort of money - not for the rest of your life (you could take a few years off).
I explained the 4% rule - if you take out 4%, and leave the rest alone, then over time your principal will remain intact and adjust for inflation. $9,200 (U.S.) per year isn’t a lot of money.
Gosh, $300,000 wouldn’t even really cover retirement, would it? I’m really not the sharpest crayon in the box when it comes to managing personal finances, but it wouldn’t even occur to me that $300,000 was ‘‘quit your job’’ money. I’d pay off my student loans, take a small cut for discretionary/fun money and invest the rest.
I’ve never heard the 4% rule. That may come in handy someday.
Wow. When I brought this topic up, there was a lot of “You hate poor people!” being thrown around. It’s good to see how civilized SD has become over the past 2 years.
The idea is that the market tends to return 8% over time - conservatively (and OVER TIME), and inflation is between 2-4%. So in an average gain year with high inflation, you take out 4% and cover the inflation by leaving 4% in to grow. Since 8% OVER TIME is conservative (did I mention that’s over time, you can lose your shirt in any given year) and 4% inflation is pretty drastic (there have been a few exceptions) this will beat the Monte Carlo simulations with a pretty high degree of confidence.
Of course, hit a depression or a really high level of inflation, and all bets are off - but its not a bad rule of thumb to plan against. I regularly measure my 401ks against the 4% rule to determine how I’d do today if I retired and how close I am to being able to hang it up at the magic 59 1/2 age.
Strictly speaking, the 4% rule is not 4% of your portfolio each year.
Instead, you take 4% the first year then do a COLA adjustment that dollar amount in subsequent years. Depending on how the market performs you might take more or less than 4% in any given year.
This sort of strategy falls under what is referred to as a “Safe Withdrawal Rate”. The exact number and strategy is hotly debated in many forums…
Someone once said, “Poor people do things poorly.” I think there’s a lot of truth in that. At least for chronically poor people.
A good portion of my childhood was spent being poor. And I’ve known countless people whom I would describe as chronically poor. They’re their own worst enemies. They make the same bad decisions over and over and over. And then they blame others for their “misery and misfortune.” I have also learned that these people can’t be helped.