Re: Meg Munn chunters on...

In article <0jZZe.553444$5V4.357524@pd7tw3no>,
"Heidi Graw" <heidigraw@xxxxxxx> wrote:

> ><mark_sobolewski@xxxxxxxxx> wrote in message
> >news:1127748273.891526.82240@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
> (snip)
>
> >Mark wrote:
> > I did a further cost analysis of my rent:
> >
> > A) I pay a $1000 a month for EVERYTHING. It's incredibly
> > convenient. To buy my unit, I'd get hit with about $1,300 total
> > per month.
>
> When you rent, you don't own the suite. If you buy it, you own it.

Really? I didn't know that!

Ultimately, it appears that your argument for buying,
in my particular situation, is that it's NOT RENTING!
OK, I get it.

But it's precisely that kind of emotional attachment,
either way, that may be pushing a lot of people to
make poor investment decisions. People should buy
or rent because their analysis says that's best for
them for the risks/hopes they have.

I really feel sorry for the poor folks who are going
to ride their home cost all the way down and then
have to pay for 5 to 10 years just to get back to breakeven.
Maybe they'll enjoy that because THEY OWN IT, but
I would be miserable. To each his (or her) own.

> > B) $750 of the 30/yr mortgage would be interest.
>
> As the years roll by the interest portion of the mortgage payment
> *decreases.*

No, really? :-)

The interest rate stays above $500 for the first _20_ years of
the loan (good ol reverse exponential growth). This leads us to:

> Most traditional mortgages have the interest part higher at
> the beginning, but virtually nil near the end of the life of that mortgage.
> So, over time, equity builds. Market values also rise, which affects the
> building of equity.

But this is for the first _20_ years of the loan. Sheesh!
The first kid (I hope) should be grown up and in college
by then (if it's a boy :-)

> >None of it
> > would be deductable under our current tax bracket. You
> > talk of "wasting" $1,000 a month in rent, but the fact is
> > I would be wasting:
>
> Whether you pay $500.00 or $1000.00 a month in rent...after 30 years paying
> rent, you have *no* equity at all for any portion of that rent money!

What's CERTAIN is that I would pay $500 in interest for that period
of time for 20 years. You don't seem terribly concerned about that.

In the meantime, I get $300 in REAL investment capital UP FRONT,
per month, that can be invested. Apparently, it's not that bad.

Here's the fundamental problem you're working with: Just
because something is owned, doesn't make it a great deal.

> Rent
> tends to also increase steadily upwards over the years, whereas mortgage
> interest rates can fluctuate up or down. Sometimes you pay a little more,
> sometimes less, depending on the length of time between mortgage renewals.

That's strange, my rent has DECREASED when adjusted for inflation.

> Interest rates never do rise *consistently* according to the rate of
> inflation, for example you'll never see interest rates go up by 2% or 4%
> annually and steadily over 30 years. That 6% will not go up to
> 60%...something that rental rates have done in the past 30 years. That
> suite which used to rent out for $175.00 in 1975 is now renting for
> $1750.00.

When I was first looking at rental properties in this area
(just passing through) 25 years ago, I saw rents typically
about 500 to 600 for a 1 br apartment.

Now, it's about a grand.

But regardless, I think you're confusing interest rates
with overall inflation. Interest rates rise and fall
according to the monetary supply and have to do with
what it takes to finance a house or apartment (and fund
business startups and expansions.)

> That mortgage holder who paid $350.00 per month 30 years ago is
> now paying nothing.

Ok. And if the person put the money with a Janus fund at
10%, they'd have $2,000,000!!!!!!!

Even in the market I live in, $350 a month wouldn't pay
a mortgage and neither would it pay the property taxes.

Keep trying. Oh,wait, did you mention that they'd OWN
THEIR HOUSE? :-)

> The mortgage is all paid off. That renter owns nothing
> for the increasing rental fees, but that mortgage payer has something worth
> $350,000.

Yes, the renter is required, by law, to not invest that
money in anything else. I wasn't aware of that.

> > C) +$125 a month in property taxes (per month). Add to this
> > the $750 a month in interest costs and that comes to a cool
> > $875 in monthly expenses.
>
> That $750.00 interest cost *decreases* over the life of the mortgage! That
> expense does not remain consistent. It's an error for you to think that it
> does.

Did you mention WHEN? You may have forgotten in your haze
of "home ownership... home ownership.... brains... brains....
must eat brains... must mow lawn..."

That 750 takes _20_ years to drop down to $500 bucks!

Not only do I have more money to invest by renting, but I have
more of it longer than I do if I was buying.

Sure, in some situations, buying is a great investment especially
if they're at the bottom of the market. If they're at the
middle or the top, it's sheer stupidity combined with immediate
fiscal loss!

> > So in order to not "waste"
> > that "$1,000" in rent, I would need to put in an additional
> > $300 bucks into the pot and would only "save" about $125.
> >
> > $125 bucks? That's a sewer/water/heating bill for some people! :-)
> >
> > D) The $300 bucks I have now is free and clear. It's mine.
> > Mine mine mine mine mine. (OK, my wife's too. :-)
> > We have that money and can invest it in a diverse Janus
> > fund with an very good return of about 10%.
>
> And if you buy a home, you can have that additional $1,000 earning a good
> return for you, too!

Sure! In 75% interest that goes to the bank. I suppose they
can send us a toaster for the first 20 years or so.

> What you're wasting in rent, you could be using to
> build up additional equity. You're not putting that $1,000 to work for
> *you.*

It's NOT a grand! You keep forgetting that!

"Brains! Brains!"

(It's funny how close this is to Halloween. Maybe
I'll dress up as a housebuyer zombie pushing a mower
around. :-)

> >NOW! Today.
> > We can cash out anytime.
>
> You can sell a house at any time, too! It may take a few weeks or a few
> months. It certainly won't take years!

I didn't say years but yes, in a bust market it is common to see
some people stuck with property for years because they refuse
to sell at a loss. Suddenly, that dream home becomes a ball
and chain.

> >To cash out your $125 per month
> > in equity would require about 1 to 2 grand in closing
> > and processing costs and require a buyer.
>
> So? Even if you had to pay $10,000 to gain $20,000 you'd still be $10,000
> ahead of the game.

Assuming they are $20,000 ahead. Even so, these paper gains
only matter _after_ they've made a sale. The more they want
out of the paper gain, the longer they'll have to wait depending
upon the market. If the market is going bust, that is going
to be much more difficult.

> > E) I have flexibility.
>
> You're at the whim of your landlord's mercy.

Oh my! Really? I can't just pick up and go somewhere else? :-)

> She has the right to knock on
> your door tomorrow to hand you an eviction notice telling you to move out in
> two-month's time! She need not even give you a reason! And then what will
> you do? You'll have the expense of moving. You may or may not find an
> equally reasonably priced suite elsewhere.

Are you an expert on Northern Virginia rental laws? :-)

I have read discussions about housing regulations and from
what I hear, it's actually very difficult for a landlord
to evict a tenant unless, perhaps, they are planning to
convert the property to condominiums. Even then,
I imagine that they would have to compensate the
renters for moving expenses and breach of contract
similar to your hypothesis about the government giving
"fair market value" to displaced homeowners
(which isn't true as it turns out.)

If anything, my risks are much less as a renter.
I'm looking at about a $400, at most, in moving expenses.
Lessee: $80 for the truck, $300 for day laborers to
move the heavy stuff, and that's about it!

Moving becomes a major expense only if I move out of one
place into another and I then have to deal with cost
of wear and tear on my security deposit. But in this
case, I imagine that wouldn't be a factor. It would
be rather incredible for a landlord to tear up a lease
and then whine that I don't patch up the walls on the way out.

I could always threaten to fight her in court and
make her life a living hell if she doesn't give me compensation.

> (snip)
>
> > But wait, if the market shoots up higher than they can
> > afford, who will buy the unit from them later? Oh, wait,
> > don't look at the fine print!
> >
> > These are the SUCKERS who are by the MILLIONS buying
> > interest-only loans (and even perhaps my apartment unit)
> > hoping to flip over their property later at a profit.
>
> I've done some reading up on these "interest-only loans." From what I
> understand, it is only within the first 5 years that only interest is being
> paid. Then the equity that should have been paid during that time is
> compressed into 25 years instead of 30. The result may be that people will
> end up paying *slightly* more than they had been. In some cases that only
> involves $200.00 more per month. This is not so significant that people
> will abandon these houses. You're not going to find people walking out by
> the *millions*. That 30% drop in real estate values is just not going to
> happen.

Millions, thousands, what's the difference? :-)

My point is that at the end of that period, they have ZERO equity,
remember what you told me was so bad about renting?

Interest only folks are gambling that their home will be worth
more at the end of the period than they started so they get
to cash in on the homebuying frenzy. Unless, of course, it
doesn't work out so well for them. Then they have to decide
whether to push money into the hole or cut their losses...

You say you hate paying rent. Imagine being one of these
folks seeing themselves facing HIGHER monthly payments
for a home that's worth LESS than the bank loan they
own on it. Does that sound like a fun way to start 25 LONG
years? :-)

It makes dealing with my landlady a pleasure by contrast.

> I do find these "interest-only" loans to be a rather innovative feature. If
> coupled with another investment plan that uses up the equity portion that
> should have been paid during this time, people may find themselves *ahead*
> of the game. Again, meaning that bubble will not burst after all. They can
> use their

Gee, you mean like I've just mentioned with me? I did
this all without buying. Amazing.

> other earnings to plunk down at the time of renewal to reduce
> their mortgage payments even further.

Yet, don't you argue that the reason for buying in the first place,
was, (drum roll)

TO BUILD UP EQUITY?

They're doing basically the same thing I am: Dumping money
to someone else instead of rather than the landlord, it's
to the bank!

> Had this been available to me 30
> years ago, I might have opted for one of these and been even further ahead
> than I am now.

Assuming you had a time machine, certainly. If I had a time
machine, I would travel further in time and get some
great stock tips and then make a billion times what you would.

>
> (snip)
>
> > My landlord LOVES me, really, because I'm a reliable renter
> > who helps to keep the unit clean and ready for her to flip
> > over and sell it later.
>
> Indeed. And then what will you have to show for the many years you spent
> $1,000 for rent! Will the landlady give you a parting gift? ;-)

Probably not quite the same gift that the banks give these
poor interest-only folks at the end of their 5 years. :-)

Of course, this is assuming the landlady flips it over.
If she can't, then she's stuck much like the interest only
falks in a hypothetical bear market. Her parting gift
would most likely be to have me buy my unit at a huge
discount.

Imagine, in order for her to flip over the complex, especially
with renters in it, she would need to show that it was
rentable. I'm sure she would be quite pleasant and unlikely
to want to kick me out.

> Remember,
> she can also toss you out before you're even willing and/or prepared to go.
> You're betting she won't do that. You're at *her* mercy and her goodwill.
> ;-)
>
> Heidi

Oh my! The thought of moving is just so awful! :-)

You're assuming I think like a homeowner who falls in love
with a particular property. I don't. I have seen some other
places that my wife and I would love but can't be bothered
to move. (One place we vetoed because it had a cemetary
next door. I pointed out kitty would love to play there :-)
But there are some other places we would like to try.

If the landlady served up the eviction papers, I imagine enough
tenants would get riled up and go to court and seek an immediate
injunction and get delays and continuonces for up to 6 months
or even YEARS! Then the poor landlady is really up a creek.

regards,
Mark Sobolewski
.

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