The last half of that post is pretty true, but I don't agree that your cost to move is more if you sell your house or stop renting your apartment. The cost of moving X amount of shit from point A to point B is about the same regardless of the type of housing point A or B are. There are some light costs associated with selling the house, but they aren't massive.

Before I continue, if you buy a house you don't plan on living in, don't make huge upgrades. Tiny upgrades are fine, and you shouldn't take the headache.

That said, you still throw all that money down the drain on rent. You want a place with considerably less work that offers a house-like lifestyle? Get a town house. You only own and have to deal with the area from the interior walls inward, everything else is handled by someone else. They are usually cheaper, and usually easier to get rid of. Also, they are everygoddamnwhere nowadays, so you can get them in great locations. No yard to worry about, no outside stuff to worry about, nothin.

4/26/2011 3:56:50 PM

Quote :

"What about when declaring bankruptcy is the only option?"

The bank loses and you win.

4/26/2011 6:15:51 PM

Haha. I think we have very different definitions of "win"

4/26/2011 6:19:51 PM

agreed. the lady we bought our house from was in personal bankruptcy and she definitely wasn't "winning"

4/26/2011 9:19:27 PM

^she just couldn't handle the Charlie Sheen drug that was melting her face off #winning

4/26/2011 11:59:33 PM

It's because you can't comprehend what I have posted.

As a financial decision only it makes more sense to strategically default with plenty of money in the bank than to have your equity wiped out but still have good credit. You can't seem to grasp the idea that a person that gets into this situation won't need a good credit rating for years, at which point they will have mostly restored their credit rating with the added benefit of MUCH more cash in their bank accounts. I suppose there are some high income earners who got way overleveraged but are still liquid that have a reasonable expectation they'll recover in a shorter period of time and would need/want their credit rating intact, but again, that person isn't your average American.

For someone who fancies himself a financial person I'm a bit shocked you don't understand this...but over the years I've noticed you give pretty by the book replies regarding investing and finance advice.

4/27/2011 7:12:05 AM

^I actually agree with that post. The problem is you're arguing with two financially savvy people who have all of their ducks in an row and probably need good credit for their every day lives and/or couldn't imagine having bad credit (no offense to those guys...its more a compliment to them and how they've been successful and handled their money of their year).

I'll just give an example of something happening to a good friend of mine:

3 years ago this friend of mine got a good job as a general manager of a very nice restaurant that was run by an extremely successful restaurant group where we had both witnessed many people (some of them our friends) move up over the years into great jobs. Previously she had just been a server/bartender and was getting tired of that lifestyle and saw this as an opportunity to start settling down (she was 25). So she started looking for a house and went out and bought one (great house...decent deal...this was close to the burst of the bubble, which came a little later in Charleston).

A year and a half later she got the opportunity to spend the summer living and working in Santorini, Greece where she developed the traveling bug. But what about the house?? No worries...she'll just rent it out. She got a property manager and that seemed to work out for a little while. Fast forward another year and she's gone through shitty college roommates who she's had to take to court to get to pay, another "family man" who after paying rent for a few months while my friend was traveling Thailand...got put in jail for delinquent child support payments.

So unfortunately the house goes up for rent in the middle of the first semester (worst time to try and rent in a good-sized college town) and it is not renting. At the same time, my friend puts the house on the market...and it's not selling either. My friend gets a another good job at a local restaurant and is saving to do some more traveling...but she won't be able to travel because every month the bank is taking $1,500 out of her bank account to pay the mortgage. Before, she had about $8,000 saved in her savings account. After 4 months of no tenants and no buyers, it's almost all gone.

Now the bank is foreclosing. She's been able to start saving money again and is looking to tour South America at the end of the summer. She knows about her bad credit, but she could care less. She's going to be working and traveling the world for the next 3-5 years. When she gets back, she has no desire no buy another house, so why would her credit matter? She'll continue to work and save up money, then maybe 10 years from now she'll be ready to purchase again. Who knows?

Obviously this exact scenario isn't occurring with every foreclosure, but I'm sure a lot fall in the same category. People could afford the house when the economy was good, they lost their jobs, ran through their savings, now they can't afford it anymore. Better to go ahead and foreclose before you lose all of your liquid assets then try and string it out and end up with no cash and no home.

4/27/2011 7:51:38 AM

correct me if I'm wrong, but if you're getting foreclosed, can the bank go after the money in your savings?

4/27/2011 8:27:22 AM

Quote :

"correct me if I'm wrong, but if you're getting foreclosed, can the bank go after the money in your savings?"

Depends on the state. It's called a deficiency judgment, which allows the bank to go after other assets if the sale of the home doesn't cover the mortgage debt.

I honestly don't know what it is in SC (I think there are deficiency judgments, but they're rarely given)...but she's talked with some financial guys around here and she seems to be pretty confident she'll be able to keep her money.

[Edited on April 27, 2011 at 8:36 AM. Reason : .]

4/27/2011 8:33:21 AM

Quote :

"deficiency judgment, which allows the bank to go after other assets if the sale of the home doesn't cover the mortgage debt."

Exactly. That's why I didn't understand why it would matter if you defaulted with a ton of cash in the bank, b/c I was under the impression they could go after that.

Quote :

"she has no desire no buy another house, so why would her credit matter?"

Credit is taken into account when you get a car loan, rent an apt, buy insurance, or even apply to a job.

Quote :

"I'd much rater have 40,000 in my pocket and shitty credit"

vs the chance of being unemployed I think it's well worth the $40,000

4/27/2011 9:39:01 AM

@AstralEngine: I am speaking of monetary costs, time costs and external events being able to limit one's choice.

Monetary costs: 3-6% to a realtor (Or, DIY, and add more to the time cost), mortgage for the time the house is on the market but hasn't sold, and fixing those little things to get the house in selling condition. The realtor's fee is likely to approach 6 months worth of mortgage, and in my case, I'm expecting about 3 months mortgage worth of expenses to prep the house and stage it nicely.

Time Costs: Any of the DIY prep or sales. Meeting with realtor/buyers, etc.

External limitations: An unsold house can be a significant limitation on where one can move or what housing you can acquire when you get there. Renting a house waiting to sell is not a certainty, and can make it harder to sell.

None of these exists in renting. Leases provide their own flexibility problems, but breaking a lease is generally cheaper than selling a house. I am not suggesting that buying is bad, or that renting is better. They are different choices, with different limitations. I don't think I understood the whole picture of getting in and out of houses when I bought (And that was when houses would last for 1-3 days on the market)

I am glad I bought the house I'm getting ready to sell and I would do it again if I were in a similar situation. I currently have an apartment in Raleigh, and will be apartment living for the immediate future after the house is sold. Too much indeterminancy in what happens next, and where.

4/27/2011 9:43:23 AM

Yeah, there are a lot of "hidden" costs, but you also have to realize it's much nicer living in a house vs an apt. Even if living in a house costs a little more each month in the end, I'd much prefer it over an apt.

4/27/2011 9:50:42 AM

Quote :

"Credit is taken into account when you get a car loan, rent an apt, buy insurance, or even apply to a job."

I think its difficult for you to put yourselves in the position of the people who are facing foreclosure.

First...I think it is pretty simple to explain that your credit is bad as a result of foreclosure when you are looking for a job. I'm pretty sure companies see that quite commonly these days.

Same thing with rentals...but I also don't think it's a big deal. Especially where I live, I know my friend will never have any trouble finding a room. Might be different in other places, but if you need to find a room/house to rent, it's not that difficult.

And if someone is foreclosing on a house, I don't think they'll be applying for too many big car loans where their credit will really matter.

I'll give you insurance...kinda. You can get basic insurance without good credit. You can also get it with jobs.

You're being nitpicky and you're also looking at it through your eyes. If people can't afford to keep their house, they also probably aren't too worried about the other things you mentioned (obviously there are exceptions with families and so forth). And if they are, those things can still be had, they just might have to go through a few more loops or just go different routes.

4/27/2011 9:51:04 AM

Good points, but in the example given the poster suggested that person would have a large chunk of cash and we were debating the pros/cons of using it as a down payment. It's hard to picture a person so irresponsible yet with so much cash on hand.

4/27/2011 9:53:25 AM

Yeah...the example with the person having $40,000 leftover is a little ridiculous. I guess it depends on the situation with the house...but if you have that much money left over, then you need to try and make the house work.

The situation with my friend was her having about a $1500/$1600 mortgage and less than $10,000 in the bank. In 6 months, that money is gone. I know if I lost my job and got to that point (after attempting to sell the house for a little while), I would probably go the foreclosure route as well.

4/27/2011 9:59:45 AM

Sounds as though the "traveling bug" also may have done her in.

4/27/2011 10:07:52 AM

True. But I think I would do the same if I were in her situation. I'm very paranoid about having a "nest egg" in the bank. I would be freaking out if I couldn't sell a house and $1,500 was vanishing every month in a shitty market.

4/27/2011 10:15:14 AM

Paranoid which way?

4/27/2011 10:28:27 AM

I don't want to run out of money??

With the exception for a few months right after law school (and doing some traveling myself)...I've always had a job. Whether it's been bartending or a low-profile legal job, I've always been able to find some way to bring money in. But I've seen a ton of fellow law school classmates and food and beverage people who have been jobless and struggled over the years to scare me into always having a certain amount of money for "emergencies." With the exception of actually moving back in with my mom, I have no family back-up or anything to fall back on.

My mom scared the shit out of me with her/our financial situation while I was in high school/college (had to take on two extra jobs in addition to teaching 1st grade because of a divorce where my step-dad squandered all of their money).

Although I'm currently making good money, it's still not a salaried/set job. I'm one malpractice suit away from being out on my ass. I guess I'm just overly cautious. With that attitude I probably shouldn't have bought my recent house...but I fell in love with it and it's generally in a market that hasn't been affected too much over the years and I feel pretty good about being able to get rid of it if I have to.

4/27/2011 10:38:01 AM

Quote :

"That's why I didn't understand why it would matter if you defaulted with a ton of cash in the bank, b/c I was under the impression they could go after that."

The house secures the loan. Most notes don't have language spelling out that if the house becomes less than the remaining debt that they could come after the difference, and hopefully no one would enter into that contract. This is actually different than in other countries which is why their housing bubbles are imploding slower than ours has. This is also why a student loan default can't happen because what the creditor is securing is, generally speaking, potential future earnings.

4/27/2011 8:32:44 PM

Are you saying you can't default on a student loan?

4/27/2011 9:26:15 PM

In practice, no

http://www.nolo.com/legal-encyclopedia/default-student-loan-29859.html

4/27/2011 9:36:12 PM

whether a mortgage is or isn't a recourse loan varies by state, homeslice. it also has nothing to do with defaulting on student loans

4/27/2011 9:39:36 PM

^ ^ yes you can

read the fine print - or go to the authority http://www.nslds.ed.gov/nslds_SA/

you can absolutely default on the loan and Uncle Sam will be collecting on you for years to come.

but in practice you can pick and choose any number of exemptions and delayed payment options

4/27/2011 9:42:06 PM

^^ What does that even mean?

4/27/2011 9:44:27 PM

just google the big words and you can probably piece it together

4/27/2011 9:52:07 PM

Stop being a bitch. It's obvious as hell my pointing out student loans was a separate and mostly unrelated thought to a home mortgage. You somehow trying to make a point of that is just stupid as fuck and redundant. Get the fuck out.

[Edited on April 27, 2011 at 10:00 PM. Reason : .]

4/27/2011 9:59:47 PM

A house is not an investment. You will most likely not make money it. After insurance, all the shit you have to buy for a house, work you put into it, maintenance, property tax, and a mortgage, any capital gains you ever make on it will most likely get your rate of return to the level of inflation.

Thus, the choice is financially neutral. Through the bubble years, there was a lot of bad advice about how you will never lose money on a house. Don't believe this BS.

The choice between house and rent is simply a lifestyle choice. If you rent, you will have money to blow on nightlife and recreation in addition to investing in assets that have a higher rate of return than a house. If you buy a house, you will have a place you can call your own when you get home for work.

If you have a family, it probably makes the most sense to get a house. In fact, if you are willing to share a house with multiple income earners, then buying a house could make sense, as well.

I know plenty of folks who bought houses out of college and are worse off today than the renters, financially. The homeowners are (naturally) homebodies. Not much traveling or anything like that. The lack of mobility is another huge problem with buying so early -- how the hell do you know that your first job will be the right one? You learn a lot about what you want to do from that first job.

* Read the first post -- interest rate is a dumb reason to buy a house. It's deductible anyway, and you can always refinance if the rate drops.

[Edited on April 27, 2011 at 10:08 PM. Reason : .]

4/27/2011 10:03:53 PM

blow me putz

4/27/2011 10:06:58 PM

Buying a home is no longer a long term investment. Lets get that out of the way.

David hits the nail on the head. Buying a home now is about freedom of choice. You get to do whatever you want to it, with it and around it (within code of course ). For a lot of people, that is a really compelling reason to own a home.

That said, I have been thinking about buying a home for nearly 3 years now and frankly it still just doesn't make sense to me.

After running all the numbers for a ~350k property in Seattle, WA in the average case I will be within a few thousand dollars of renting for the same period of time. In the worst case I stand to lose tens of thousands buy purchasing a home. There are SO many unforeseen expenses (repairs, appliances, upgrades, taxes, market conditions) that can absolutely kill your real profit potential over time.

Property tax here is high (will be close to 6k per year on a 350k home), the housing market is still falling, and when you sell your home you are losing 10-15% of the value from fees and commissions and all the other bullshit. Then you put the interest rate of the loan on top of all that, it adds up FAST.

The realtors will talk about how you get all these tax breaks for owning property, but thats against the interest, not the principle.

One very interesting strategy I've heard is for folks like me who normally would save for and then pay cash for your home, instead to do a dual investment. Put down a minimum down payment (20%), then finance the rest. Take the cash you would have put in the home, and instead place it in moderate risk investment portfolio that equals or slightly outearns the interest rate of the home loan.

Now you have the ability to move your investment around (rather than sinking it into the home itself), you offset the interest payment AND still get to deduct it, and if the housing market dramatically shifts, you are protected at either end (you can sell quickly in a worsening market, and sell at a profit in a climbing market). Keeps you with a massive amount of liquid capital that you can move as needed.

4/27/2011 10:13:15 PM

You sound like someone who doesn't quite understand all the financial mechanics of owning a home. It doesn't cost 10-15% to unload a place, typically 5-6% or less if you list it yourself (which is what I did and had our home sold in 8 days).

Quote :

"(you can sell quickly in a worsening market, and sell at a profit in a climbing market)"

Whether you have 0 or 100% equity in the home it will stay sell at the same pace.

Quote :

"One very interesting strategy I've heard is for folks like me who normally would save for and then pay cash for your home, instead to do a dual investment. Put down a minimum down payment (20%), then finance the rest. Take the cash you would have put in the home, and instead place it in moderate risk investment portfolio that equals or slightly outearns the interest rate of the home loan."

This is the idea for ANY investment. If you can earn more in one asset than you are earning in another then you should do that. It's mainly why Dave Ramsey followers are idiots.

Quote :

"nterest rate is a dumb reason to buy a house. It's deductible anyway, and you can always refinance if the rate drops."

Good point. If interest rates were 9% versus 5% then surely the amount of payment you can afford isn't affected. Look at the long term chart of the 30yr. We could plod along at low interest rates but it's hard to go much lower than historical lows so the only other direction is up. And refinancing costs cash.

4/28/2011 6:13:39 AM

Quote :

"The choice between house and rent is simply a lifestyle choice. If you rent, you will have money to blow on nightlife and recreation in addition to investing in assets that have a higher rate of return than a house. If you buy a house, you will have a place you can call your own when you get home for work."

I think there are a lot of factors to weigh there. I also think that it has less to do with owning a house = having less money and more with owning an apartment means more "flexibility." The reason I say that is that most smart people our age these days are picking up mortgage payments (principal, interest, insurance, taxes) that are roughly equal to what they were paying in rent before when you back out the benefit of writing off the interest. (Assuming they weren't renting some tiny 1bedroom apartment and then moving to a big house). However I do agree that it is more a lifestyle choice than a financial choice for a lot of people.

For my wife and I, we moved from very a nice 1000 ft² apartment to a house over 2.5x as big and our mortgage payment each month once the benefits of interest write-off are included is <$100 difference. Add in the fact that we save money by having a home gym now (no gym fees plus gas driving to gym) and we also have a band room instead of renting a place to play and we are just about dead even. In other words, we have the same amount of money allocated to entertainment, shopping, etc. that we did before. Obviously we had to put money into the down-payment that we wouldn't with rent though.

I will also note that we both really enjoy "projects" and couldn't really do that with an apartment. That sort of falls underneath the lifestyle differences category I guess as one reason we like the house more than an apartment.

4/28/2011 8:05:23 AM

At least with a house you can do whatever you please with it for the most part. I'm tired of apartment white walls

4/28/2011 8:58:02 AM

Quote :

"You sound like someone who doesn't quite understand all the financial mechanics of owning a home. It doesn't cost 10-15% to unload a place, typically 5-6% or less if you list it yourself (which is what I did and had our home sold in 8 days)."

I'm glad you were able to list yourself and sell quickly. That doesn't mean everyone else will have the same results. I'm assuming worst case scenarios here.

Quote :

"Whether you have 0 or 100% equity in the home it will stay sell at the same pace."

But by having liquid assets rather than equity, I have far more options available to me in either market condition.

4/28/2011 3:13:33 PM

^^ agreed. That's what I meant by "projects." My wife and I really enjoy painting, trimming, decorating, refinishing etc. All really low-cost but fun projects that make the house a lot more fun and rewarding to live in than our previous apartments. That plus having the home gym, the band room, and 3 extra beds for guests makes it a more enjoyable environment for us and I guess those are things that we value that someone else renting might not really care as much about.

4/28/2011 3:28:14 PM