On debt and mortgage: Change my view

[OutOfTheBlue]

I was thinking of something, correct me if I'm wrong.
It is not worth buying a house with cash, as that cash could be invested in obtaining a net annual ROI of at least 3%, then using this ROI to pay off the mortgage. This is very simple, even a child gets there, but since we had focused on the "mental stress" factor, and being able to "sleep at night", this strategy would allow us to face the mortgage with a different mindset.
In practice, we have only given a small down payment for a house, the rest we have made a mortgage, which we repay with the interest generated by the cash we have invested. Which means, if we fail to pay the mortgage payment, for various reasons, and therefore we would be forced to leave the house, we could simply decide to sell it and repay the remaining portion of the mortgage, or simply leave it to the bank. In this case, we have lost our house, but our cash remains. Which bodes well for us, since with that money we could start doing the same cycle again. Then we have the option to try again.

Is this right? What did I miss? Other strategies?

What's the mortgage rate? How does it compare to the investing ROI?
Does buying a new house (in case of losing the current one) incur taxes and other additional fees?
Does housing tend to appreciate over time in your neck of the woods? If so, what's the average per year? After ten years with that rate, will that cash you're investing (and that hasn't moved due to using the gains to repay the mortgage) buy you the same house or will it not suffice?
On the psychological level, do you feel you own the house? Does it change how you "invest yourself" in the house?

[lillo9546]

It's really hard to reply in a sentence, but I'd like to ask myself
"How do I evaluate if it's worth to buy a house in this place, rather than another one?"

Do I have to compare Salary, COL, House Prices, etc?

[unemployable]

It's really hard to reply in a sentence, but I'd like to ask myself
"How do I evaluate if it's worth to buy a house in this place, rather than another one?"

Do I have to compare Salary, COL, House Prices, etc?

Depends on the stage of life/FIRE you're in.

Cost of living matters to everyone, but it's your personal cost of living. Schools matter less if you don't have kids. Salaries don't matter at all if you're retired/not working. Stuff to do and places you want to be near to matter, but it's different for everyone. I cook my own food so don't need to be near nice restaurants, but those serve a social function as well. Everyone has to pay taxes — property, income, sales.

So I'm always skeptical of those "best places to live/retire" lists.

One issue may be whether you intend this to be a year-round residence or a seasonal one, and what you prefer to do with the property in the off-season — leave it vacant, rent it long term or airbnb it, and the accompanying local regulations and hassles n place if you choose the latter.

A house is an asset. If you don't like it you can sell. Maybe not at the price you want and maybe with some pain involved, but there's no third law of thermodynamics at work here.

[lillo9546]

I'd like to just make an example on the housing market, and to try to answer to the question: Where should one live?

Why we could buy a house, or even an entire building for less than 30/50k in such amazing natural places, and then, we have to spend at least 300k for a 60 square meters independent house in busy places like city, seacoast, etc?
What's wrong on buying/living in a house in such LCOL places, if you manage to find a good place, with a good social environment?
Wouldn't quality of life just raise in more a nature-prone environment?

Examples of Lcost Houses
1 https://www.casa.it/immobili/46984435/
2 https://www.casa.it/immobili/46965054/
3 https://www.casa.it/immobili/45310315/

Example of Hcost Houses
1 https://www.casa.it/immobili/44582200/
2 https://www.casa.it/immobili/46726160/
3 https://www.casa.it/immobili/43594316/

Please don't just evaluate the building status, instead, you could also get a glimpse of the surrounding environment. Look at maps/street view, and You could notice the amazing surroundings


ps:
This is an example of my country. YMMV.
In italy, many people have gone from the country to the city to find a job. What if I tell you that with that job, you would need to pay a 30y mortgage, if you want to still live in the city?
Wouldn't be a better idea to make some money and go back in the country, find a good places where you could build an "inn" or "b&b" and start your own little farm business?
Then you would enjoy the true people, amazing nature.

[ertyu]

Looking at your low cost houses, many of them appear to need repairs. For instance, the third one appears to have some damage on the wood that supports the roof. Assuming you are ok with your property not being "modern" on the inside as long as it is functional (so, discarding the need for cosmetic remodeling), if the property needs any work, this work could be quite expensive due to distance from qualified contractors and construction materials. It might cost quite a bit more to deliver the materials, for instance. Any furniture or appliances you might need to buy/replace due to age might be expensive as well. Not to mention expenses associated with getting rid of construction waste of old furniture.

[lillo9546]

Looking at your low cost houses, many of them appear to need repairs. For instance, the third one appears to have some damage on the wood that supports the roof. Assuming you are ok with your property not being "modern" on the inside as long as it is functional (so, discarding the need for cosmetic remodeling), if the property needs any work, this work could be quite expensive due to distance from qualified contractors and construction materials. It might cost quite a bit more to deliver the materials, for instance. Any furniture or appliances you might need to buy/replace due to age might be expensive as well. Not to mention expenses associated with getting rid of construction waste of old furniture.

The same in the city

[lillo9546]

This comes from an essay "How to dropout"

In a temperate climate, you have only five physical needs: food, water, clothing, shelter, and fuel. Everything else that costs money is a luxury or a manufactured need: entertainment, transportation, education, employment, housing, "health care." In every case these are creations of, and enablers of, an alienating and dominating system, a world of lost wholeness.

If you love your normal activities, you don't need to tack on "entertainment." If you aren't forced to travel many miles a day, you don't need "transportation." If you are permitted to learn on your own, you don't need "education." If you can meet all your physical needs through the direct action of yourself and your friends, you don't need to go do someone else's work all day. If you're permitted to merely occupy physical space and build something to keep the wind and rain out, you don't need to pay someone to "provide" it. Expensive health care is especially insidious: not only is our toxic and stressful society the primary cause of sickness, but the enormous expenses that have been added in the last hundred years are mostly profit-making scams that cause and prolong sickness far more than they heal it.

This is the low-budget universe: I ride around the city on an old cheap road bike, in street clothes, often hauling food I've just pulled out of a dumpster. Sometimes I'll be on a trail where I'll invariably be passed by people on thousand dollar bikes in racing outfits. Why are they riding around if they're not carrying anything? And why are they in such a hurry?

This is what I meant with the previous post, about, why are house prices higher in such places, and lower on another

[zbigi]

This is what I meant with the previous post, about, why are house prices higher in such places, and lower on another

Because, in the low cost of living places, it's hard even to make the low amount of money required to live there. It's easier to make a good amount of money in the city than a modest amount of money in a semi-abandoned small town. Hence, most people choose the easier path, and move to cities. This raises prices of houses in the cities.

[ether]

debt is amazing:
-It slowly transfers wealth from old people who hate risk and keep their money in a bank account into the pockets of risk takers who build things we need (homes, businesses, infrastructure and new ideas)
-italy is in the middle of a hyper inflation and historically you could get euro home loans for less than 1.5% prime. Every years homes get more expensive and the smart investors have locked in 30 year loans at 1.5% while inflation rages at 6-9% which is an instant profit of 5% per year of total loan value
-rents almost never go down over time, while mortgages stay fixed (granted maintenance and taxes are variable). As your loan matures your cash flow will improve
-the entire economy is built on debt. There are old people who have lots of money and don't want to take risks who will give you all the money you could ever want if you're willing to take a little risk. And even if you take too much risk just go bankrupt and start over again.

[lillo9546]

debt is amazing:
-It slowly transfers wealth from old people who hate risk and keep their money in a bank account into the pockets of risk takers who build things we need (homes, businesses, infrastructure and new ideas)
-italy is in the middle of a hyper inflation and historically you could get euro home loans for less than 1.5% prime. Every years homes get more expensive and the smart investors have locked in 30 year loans at 1.5% while inflation rages at 6-9% which is an instant profit of 5% per year of total loan value
-rents almost never go down over time, while mortgages stay fixed (granted maintenance and taxes are variable). As your loan matures your cash flow will improve
-the entire economy is built on debt. There are old people who have lots of money and don't want to take risks who will give you all the money you could ever want if you're willing to take a little risk. And even if you take too much risk just go bankrupt and start over again.

Hmm, now in Italy you have mortgage for 5% interest

[fiby41]

I could try to change your view on viewing your home as an asset...
A home is a liability. An asset is something that puts money in your pocket. A liability is that which takes money out of your pocket. If you live in your house you are consuming it (as opposed to renting it.)
If it is rented out, you should know that even the most well run hotels don't have 100% occupancy, so what to say of a single home? There could months for which your home can sit vacant while your loan payments don't pause.
Also there is maintenance and keeping tenents from damaging the place, which is ok if you like it but could also be a hassle.

Also I would like to know the reason for the airbnb aversion (as I haven't used it)?

[lillo9546]

I could try to change your view on viewing your home as an asset...
A home is a liability. An asset is something that puts money in your pocket. A liability is that which takes money out of your pocket. If you live in your house you are consuming it (as opposed to renting it.)
If it is rented out, you should know that even the most well run hotels don't have 100% occupancy, so what to say of a single home? There could months for which your home can sit vacant while your loan payments don't pause.
Also there is maintenance and keeping tenents from damaging the place, which is ok if you like it but could also be a hassle.

Also I would like to know the reason for the airbnb aversion (as I haven't used it)?

What do you say with this comment?

[chenda]

Also I would like to know the reason for the airbnb aversion (as I haven't used it)?

In volume they can inflate the price of rent, especially in tourist areas, so locals get priced out of the housing market. Which damages the local culture which is what the tourists are there for in the first place. Which is why some cities like Barcelona have attempted to restrict airbnbs (which can be legally problematic)

[zbigi]

In Kraków's touristy areas, there are hardly any locals left. The tourists don't seem to mind - the touristy areas have mostly morphed into an amusement park for them (and also for the locals, how live in cheaper parts of town, but like to visit the centre).

[chenda]

@zbigi yeah it can work especially if there are more affordable districts, and can spur regeneration. I do live in quite a touristy town and it does create a nice atmosphere.

[ducknald_don]

It depends. I live near Oxford which has had 3 million visitors so far this year. Probably too many.

The academic side has closed itself off because they are so disruptive. As a local this is quite annoying, when I was a teenager we had access to all sorts of resources that wouldn't be available now. I learnt to program on a system in the physics building, a couple of us just went along and asked if it would be OK and they said yes. There is no chance that would happen now.

Then you have the problems with the weight of people moving in and out and the distortions to the local economy. Sure, there are a ton of cafes and restaurants but everything else is thinning out. Our favourite department store is turning into a hotel.

Finally because it is so difficult to build housing the supply is constrained and prices have gone through the roof. It's not much cheaper than London.

[grundomatic]

I think pricing "the help" out of housing has long been an issue in resort towns. It seems like AirBnB (as used in 2023) is efficient enough to do not just that, but also price out even the wealthier locals, and not just in small towns, but larger places as well.

Given one's preferences and desires, there is probably a "Goldilocks" amount of tourism. The amusement park comparison is a good one. I read an article that likened Amsterdam to an open-air museum, which I thought was also pretty accurate. As an occasional tourist myself, I like the places where I feel like a welcomed, small minority. Neuschwanstein is a beautiful castle, but when we went to Buedingen Castle, they let my buddy try on a chest plate and a helmet, which was pretty cool. Viewing some Rubens in Antwerp was way more enjoyable than art museums in Paris or Vatican City, because no cattle lines, no crowds. I'm sure it's the same from the other side--probably nice if you own a little cafe or restaurant and business is boosted some by tourism, but maybe not so nice if you have to weave around or push through crowds of gawking tourists all day, every day, just to live your life in the city where your family has always lived.

[chenda]

Given one's preferences and desires, there is probably a "Goldilocks" amount of tourism.

Absolutely. Tourism can offer real economic benefits but you can have too much of a good thing. Barcelona regenerated itself from a deprived backwater in the 1990s on the back of tourism but is now suffering from the side effects of too much. Problem is tourists tend to have a herd mentality and excessively congregate in well marketed destinations.