I am a big proponent of buying over renting for your residential property, especially if you can buy without a mortgage. This is because renting is just lost money, whereas property ownership is getting payment in kind from the asset.
That being said, I understand that ownership doesn't fit all people in all situations, and there are many markets where buying property is a really, really bad idea.
With that in mind, I present you with this: http://patrick.net/housing/crash1.html
My favorite quote: "It is necessary that YOU be forced deeply into debt, and therefore forced into slavery, for the banks to make a profit. If you pay a low price for a house and manage to avoid debt, the banks lose control over you. Unacceptable to them. It's all a filthy battle for control over your labor.
This is why you will never hear the president or anyone else in power say that we need lower house prices. They always talk about "affordability" but what they always mean is debt-slavery."
One thing I really like about ERE is that it has made me much less ideologically charged--debates about Democratic vs. Republican or Keynesian vs. Austrian just seem to miss the point and be overly simplistic. The pragmatic self-reliance and self-cultivation of ERE is much more appealing.
Why It's a Bad Idea to Buy a House
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Fred Tracy
- Posts: 106
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As usual, there is not a definite answer to buying and renting. Individual variables coupled with different markets and situations keep decisions dynamic. The key is to be low key and to not posses a need or want for some silly, overpriced space.
I like your political rant that follows. ERE thought processes have lead me to some of the same apolitical views that you touch on. Being able to look at things for how they really are exposes the beneficiary of situations (expensive housing in this case)
I like your political rant that follows. ERE thought processes have lead me to some of the same apolitical views that you touch on. Being able to look at things for how they really are exposes the beneficiary of situations (expensive housing in this case)
Thanks for posting this; it's a really good take on the market. I especially like the observation that "The way to win the game is to have cash on hand to buy outright at a low price when others cannot borrow very much because of high interest rates." Otherwise, someone with savings is effectively bidding against their own savings, as multiplied by the Federal Reserve.
Aside from the Title of the Post being a little misleading, I thank you for the balanced approach. Is it a bad idea to buy a house? Answer: It depends.
Can you afford it?
The trick here is to be objective. Hard for many to do since buying a house is often a highly emotionally based decision...like getting married or having children. You have to be very careful in answering this one.
Is it an investment vs. a personal residence?
If an investment property, will there be sufficient free cash flow? Can you pay the mortgage even if you have extended vacancies? Are you business and budget savvy? Do you have time to manage it, or can you afford a rental management company? If you will management it, do you have the psychological make-up to deal with renters?
Too many people dive off the cliff before asking "How deep is that water, anyway?" Too late.
I've paid cash for houses. I mortgaged one of them for 30 years and ended up paying the mortgage off in 19 months. Others I refinanced from 30 year FRM's to 15 year FRM's because the low interest rates justified the expense. Everything was carefully calculated before making the purchases. It's worked out well for us over the past 10 years (despite the housing crash).
Jesus himself stated ~2000 years ago, "Who of you who wants to build a tower does not first sit down to calculate the expense, to see if he has enough to complete it? Otherwise he might lay its foundation but not be able to finish it, and all the onlookers might start to ridicule him, saying, 'this man started to build but was not able to finish.'"
The lesson thus learned the hard way through the millennia is: Carefully calculate the cost, be it monetary and/or emotional.
Can you afford it?
The trick here is to be objective. Hard for many to do since buying a house is often a highly emotionally based decision...like getting married or having children. You have to be very careful in answering this one.
Is it an investment vs. a personal residence?
If an investment property, will there be sufficient free cash flow? Can you pay the mortgage even if you have extended vacancies? Are you business and budget savvy? Do you have time to manage it, or can you afford a rental management company? If you will management it, do you have the psychological make-up to deal with renters?
Too many people dive off the cliff before asking "How deep is that water, anyway?" Too late.
I've paid cash for houses. I mortgaged one of them for 30 years and ended up paying the mortgage off in 19 months. Others I refinanced from 30 year FRM's to 15 year FRM's because the low interest rates justified the expense. Everything was carefully calculated before making the purchases. It's worked out well for us over the past 10 years (despite the housing crash).
Jesus himself stated ~2000 years ago, "Who of you who wants to build a tower does not first sit down to calculate the expense, to see if he has enough to complete it? Otherwise he might lay its foundation but not be able to finish it, and all the onlookers might start to ridicule him, saying, 'this man started to build but was not able to finish.'"
The lesson thus learned the hard way through the millennia is: Carefully calculate the cost, be it monetary and/or emotional.
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ICouldBeTheWalrus
- Posts: 130
- Joined: Tue May 31, 2011 3:00 am
As it turns out, I (and my wife) are in the process of buying a house. I can't really say I disagree with the linked article, though it's getting to the point where it's not much more expensive than our rent, and we both were getting to the point of wanting to be able to whatever we want with the place.
Technically, if we waited another year or two, it might even have been possible to buy the place for cash, however, that would use up a lot of capital I can do better things with in the markets. Rates around 4% for a 30 year loan are pretty nice, especially if the mortgage interest deduction stays in place.
Technically, if we waited another year or two, it might even have been possible to buy the place for cash, however, that would use up a lot of capital I can do better things with in the markets. Rates around 4% for a 30 year loan are pretty nice, especially if the mortgage interest deduction stays in place.
"As it turns out, I (and my wife) are in the process of buying a house. I can't really say I disagree with the linked article, though it's getting to the point where it's not much more expensive than our rent, and we both were getting to the point of wanting to be able to whatever we want with the place.
Technically, if we waited another year or two, it might even have been possible to buy the place for cash, however, that would use up a lot of capital I can do better things with in the markets. Rates around 4% for a 30 year loan are pretty nice, especially if the mortgage interest deduction stays in place."
I guess we are in a similar boat, though farther away from being able to buy. When it comes down to it, a house, one you can make your own, can make a big difference in your life and in living how you want to live. It's hard to put a price-tag on that at all times.
I'm still hopeful at some point we'll be able to buy a lot or smaller piece of land and build our own relatively small place out of recycled and repurposed materials. Till then, that guys calculator at least make me feel a little bit better about renting and saving -- it's not SUCH a bad way to go and if that's where you are, that's where you are.
Technically, if we waited another year or two, it might even have been possible to buy the place for cash, however, that would use up a lot of capital I can do better things with in the markets. Rates around 4% for a 30 year loan are pretty nice, especially if the mortgage interest deduction stays in place."
I guess we are in a similar boat, though farther away from being able to buy. When it comes down to it, a house, one you can make your own, can make a big difference in your life and in living how you want to live. It's hard to put a price-tag on that at all times.
I'm still hopeful at some point we'll be able to buy a lot or smaller piece of land and build our own relatively small place out of recycled and repurposed materials. Till then, that guys calculator at least make me feel a little bit better about renting and saving -- it's not SUCH a bad way to go and if that's where you are, that's where you are.