OT: Housing Market

[Trojanbulldog19]

We sold ours at the top of the market when I switched jobs and moved to the wife's hometown. Luckily my in laws have a ton of room and we get along well, so we're crashing with them while we house hunt. We're trying to wait for the dip so we don't lose all our profits from selling but we shall see.

We basically did the same thing but we didn't get a long as well. Much smaller house. And drive to work was too long to keep doing a while. So we decided to buy after discussing with our realtor. She didn't see the market coming down any time soon just due to the lack of inventory.

 

[Jeffreauxdawg]

Fred has the very best seasonally or unseasonally adjusted data on anything.

 

[johnson86-1]

I think it depends on your definition of bad times. If you take any extra margin and invest it instead of paying your mortgage off early, you’d have more liquidity if you lost your job. A paid off house is well and good, but home equity doesn’t pay the bills if you lost your job. Now that statement obviously flies out the window if you use any excess margin to increase your lifestyle.

Took me way too long to figure this out. Married into a bunch of debt and had probably $5k to my name when we got married. Worked like hell to pay everything down as quickly as possible. I paid off long term debt in my 20's that was locked at 17ing 3.4%, which was dirt cheap money then. Was halfway to paying off my first house in just five years. Drove paid for cars. Finally realized I was being stupid but it's probably cost me an easy $300k by now. And that's not even accounting for the fact that I paid down debt instead of maxing out my 401k and roth for about 6 years, so if you throw in the tax advantages I wasted it's going to be worse. Having that debt payment each month also would have likely slowed my lifestyle inflation, because when I got done with paying debt other than the house, I all the sudden have.

And the whole time if I had lost my job, I would have been cash poor. My job was pretty secure, but still an unnecessary risk compared to just dropping that money into an S&P index fund and having easily accessible liquidity if I needed it.

 

[Antonio Brown's Foot]

I bought a house in the DFW area in July, 2020. It's already gone up 20,000-40,000 in value.

 

[dorndawg]

I bought a house in the DFW area in July, 2020. It's already gone up 20,000-40,000 in value.

If you're not selling it in order to buy a slightly bigger/nicer house you aint real Dallas

 

[dorndawg]

We sold ours at the top of the market when I switched jobs and moved to the wife's hometown. Luckily my in laws have a ton of room and we get along well, so we're crashing with them while we house hunt. We're trying to wait for the dip so we don't lose all our profits from selling but we shall see.

Wish you the best of luck but *this* is the dip for the foreseeable future.

 

[Smoked Toag]

I think it depends on your definition of bad times. If you take any extra margin and invest it instead of paying your mortgage off early, you’d have more liquidity if you lost your job. A paid off house is well and good, but home equity doesn’t pay the bills if you lost your job. Now that statement obviously flies out the window if you use any excess margin to increase your lifestyle.

Why not just keep an emergency fund?

Also, seems to me that if you had no debt, that's absolutely a better place to be if you lost your job, than having debt. I really don't see how it can be argued. There are numerous ways to skin a cat, and I don't want to get into a Dave Ramsey type argument, but the less you owe the better. Add in an emergency fund, and you're totally set if any bad financial situation happens.

And I get that fact that a low interest rate is nearly 'free money' but to me I look at the long game and see that interest rate as extra money going out the window. Especially when you break down how much you pay each month (and I'm on a 15 year mortgage at 2.5%).

 

[Jeffreauxdawg]

Not that it's the same thing, but you already have had this option with modular homes and prebuilt panels for houses. You're going to have to have the 3D printed houses look like regular houses or be competitive with trailers for it to take off it seems.

Of course, I am actually surprised the prebuilt panels never took off since you can build a good looking house with them. Most of the housing being built seems to be cookie cutter housing with limited options to customize anyway. Seems like you'd be able to save some money and improve quality by prebuilding the panels in a factory setting and then shipping them to the job site. I guess there's just not that much labor saved though compared to having workers on site building the same house over and over again.

I'm a big fan of kit homes. I actually live in one. All the walls are fabricated in a factory and loaded on the truck and assembled on site by crane. But framing a house is all of about 5% of the building. Site, foundation, mechanical, flooring, drywall, insulation, doors and windows, cabinets, millwork, etc... All are still done on site.

The people that built the house I live in bought the kit and hired a local GC put it together. They went so far over budget they had to sell. They got the Co in April and I bought it in June. Construction still took 7 months and I am finding all kinds of problems.

As for Modular/mobile/prefabbed homes. You are severely limited by weight and size restrictions. You will never get the quality of build in a portable home that you will of something assembled on site. Printed houses are very high quality from a building science perspective. Very similar to ICF forms.

A guy I know is a custom builder in Austin and probably the biggest YouTuber in the building world. Here's some 3d printed houses he breaks down if you're interested in learning. I figure your 5-10 years from finding that happy medium of getting the tech, acceptance, and cost in the happy zone together. 20 years from now they will be everywhere.

 

[dog12]

Agreed. I’ve got 15-16 financed properties with an average rate of 3.65% so I’m not in any hurry to pay any of them off. It’s essentially a huge carry trade…borrow low for long and invest the difference.

What do you do with those 15-16 financed properties? Do you rent them?

 

[turkish]

What finally convinced me to forsake my early mortgage payoff, in the interest of increasing investment, was when I realized how much my “note” really won’t change when the mortgage is paid of. Taxes and insurance won’t go away. Now I happily pay no extra and focus on putting the would-be extra principal to work. And my net worth is better off for it. Heck, IBonds pay a whole percentage point more than your mortgage, and their rate is about to double 11/1!

 

[Smoked Toag]

What finally convinced me to forsake my early mortgage payoff, in the interest of increasing investment, was when I realized how much my “note” really won’t change when the mortgage is paid of. Taxes and insurance won’t go away. Now I happily pay no extra and focus on putting the would-be extra principal to work. And my net worth is better off for it. Heck, IBonds pay a whole percentage point more than your mortgage, and their rate is about to double 11/1!

Yeah no doubt about that. If you're house payment is $1,500, take $300 out for taxes and insurance, and you only have $14,400 at the end of year. Can't even buy a decent car with that.

But again, to me, it's about the freedom.

 

[dorndawg]

What do you do with those 15-16 financed properties? Do you rent them?

Fishwaters like to have a bathroom available anywhere in the country.*

 

[johnson86-1]

I'm a big fan of kit homes. I actually live in one. All the walls are fabricated in a factory and loaded on the truck and assembled on site by crane. But framing a house is all of about 5% of the building. Site, foundation, mechanical, flooring, drywall, insulation, doors and windows, cabinets, millwork, etc... All are still done on site.

The people that built the house I live in bought the kit and hired a local GC put it together. They went so far over budget they had to sell. They got the Co in April and I bought it in June. Construction still took 7 months and I am finding all kinds of problems.

As for Modular/mobile/prefabbed homes. You are severely limited by weight and size restrictions. You will never get the quality of build in a portable home that you will of something assembled on site. Printed houses are very high quality from a building science perspective. Very similar to ICF forms.

A guy I know is a custom builder in Austin and probably the biggest YouTuber in the building world. Here's some 3d printed houses he breaks down if you're interested in learning. I figure your 5-10 years from finding that happy medium of getting the tech, acceptance, and cost in the happy zone together. 20 years from now they will be everywhere.

I don't know. That looks pretty good from afar and seems to be decorated really well, but the walls still look like **** to me when you see them up close. I think they're going to have to be able to print them with the layers being much less prominent for them to be accepted.

And while they have further labor savings and don't have to ship prebuilt panels, it seems like it has the same challenges as prefabricated panels, where you aren't impacting most of the costs.

It definitely looks cool though.

 

[Go Budaw]

IDK… this guy is a cash money millionaire many times over. His reasoning for the crash coming is that many people are going to get stuck with homes that were overvalued when they financed that they can’t afford.

Oh well that changes everything….

Here’s some other cash money millionaires….the original New Orleans variety. Would you trust Mannie Fresh or Birdman to tell you when to buy or sell an investment property, or rebalance your retirement portfolio?

View attachment 22610

I’m more of a Wu Tang Financial guy, myself.

 

[NWADawg]

It really has gotten absurd. All the houses in our subdivision are on the market 5 days tops and most of the time they have competing offers.

Where are all the people coming from? For my little town in Northwest Arkansas (population about 7500), as of a few months ago, we had over 1800 new homes somewhere in the process between development approved and finished construction. Some of the developments are selling all "houses" before the streets and infrastructure are completed with the understanding that final cost will vary with material costs when their house is built months later. So hundreds of families basically own futures in a house. Sounds like the same thing is going on other places as well.

 

[johnson86-1]

Why not just keep an emergency fund?

Also, seems to me that if you had no debt, that's absolutely a better place to be if you lost your job, than having debt. I really don't see how it can be argued. There are numerous ways to skin a cat, and I don't want to get into a Dave Ramsey type argument, but the less you owe the better. Add in an emergency fund, and you're totally set if any bad financial situation happens.

And I get that fact that a low interest rate is nearly 'free money' but to me I look at the long game and see that interest rate as extra money going out the window. Especially when you break down how much you pay each month (and I'm on a 15 year mortgage at 2.5%).

I think I'd rather have a bunch of money in stocks than a paid off house if I lost my job. Just to put some conservative numbers on it, let's say you have a mortgage for the most recent median sales price ($468,000) and a mortgage at 3.5%. You can pay an extra $1244.12 a month ($14,929.45 a year) and pay it off in 15 years. Or you can put that extra 1244.12 a month into the stock market, and if you get a 5% return for the next 15 years, you will have a ~$294k mortgage with $322,156.17 in your brokerage account. Granted around $98k of that will be subject to long term capital gains tax, but that $322,156 would be a lot more comforting to me as I looked for a job than having a paid off house.

If you get 7% returns rather than 5% returns, you'll have more than $375k. If you have a 3% mortgage instead of 3.5%, you'll only have a 285k mortgage left after 15 years and you'll have $325k in your brokerage if you get a 5% return, or almost $380k if you get a 7% return.

But the thing that makes putting extra in stock rather than towards your mortgage safer is that there is a real chance that something bad happens before you pay off your mortgage. If you lose your job in year 13 rather than after you pay it off in year 15, then you don't have the cash cushion and you still have to make your mortgage payment. And if you just lost your job, I'm not sure how eager the bank will be to lend against your home equity. Maybe they will no problem; no clue, but I could see them seeing that as a risky loan.

Once you can fully pay off your mortgage, then there is certainly an argument for paying it off and eliminating that payment. But until you can actually eliminate the payment, it seems riskier to pay extra on it to me.

 

[stateu1]

I think I'd rather have a bunch of money in stocks than a paid off house if I lost my job. Just to put some conservative numbers on it, let's say you have a mortgage for the most recent median sales price ($468,000) and a mortgage at 3.5%. You can pay an extra $1244.12 a month ($14,929.45 a year) and pay it off in 15 years. Or you can put that extra 1244.12 a month into the stock market, and if you get a 5% return for the next 15 years, you will have a ~$294k mortgage with $322,156.17 in your brokerage account. Granted around $98k of that will be subject to long term capital gains tax, but that $322,156 would be a lot more comforting to me as I looked for a job than having a paid off house.

If you get 7% returns rather than 5% returns, you'll have more than $375k. If you have a 3% mortgage instead of 3.5%, you'll only have a 285k mortgage left after 15 years and you'll have $325k in your brokerage if you get a 5% return, or almost $380k if you get a 7% return.

But the thing that makes putting extra in stock rather than towards your mortgage safer is that there is a real chance that something bad happens before you pay off your mortgage. If you lose your job in year 13 rather than after you pay it off in year 15, then you don't have the cash cushion and you still have to make your mortgage payment. And if you just lost your job, I'm not sure how eager the bank will be to lend against your home equity. Maybe they will no problem; no clue, but I could see them seeing that as a risky loan.

Once you can fully pay off your mortgage, then there is certainly an argument for paying it off and eliminating that payment. But until you can actually eliminate the payment, it seems riskier to pay it off to me.

Good argument. On the other hand, with a paid off house, you can always cash out in case of an emergency.

 

[johnson86-1]

Good argument. On the other hand, with a paid off house, you can always cash out in case of an emergency.

Can you though? The 2008 crash was extreme, but I know people and businesses that thought they had lines of credit they could draw on that the banks froze. Nothing to do with the individual borrowers; the banks just had to delever.

But even in more normal recessions, if you have a paid off house and lose your job and then try to get a HELOC or a cash out refinance, can you get that when you just lost your W-2 income that was your only real source of income?

I guess if you get a Heloc set up ahead of time they probably won't freeze it because they won't know you lost your job.

 

[turkish]

Good argument. On the other hand, with a paid off house, you can always cash out in case of an emergency.

That’s iffy, at best.

 

[stateu1]

Can you though? The 2008 crash was extreme, but I know people and businesses that thought they had lines of credit they could draw on that the banks froze. Nothing to do with the individual borrowers; the banks just had to delever.

But even in more normal recessions, if you have a paid off house and lose your job and then try to get a HELOC or a cash out refinance, can you get that when you just lost your W-2 income that was your only real source of income?

I guess if you get a Heloc set up ahead of time they probably won't freeze it because they won't know you lost your job.

Good point. If we want to look at 2008, what would your $380k in 2007 in the market be worth on 12/31/2008? $140,000.

 

[Jeffreauxdawg]

Paying off a home early is not a very sophisticated way to manage your wealth. It's a low downside risk asset. If you pay cash for it, in a lot of cases you put as much into as you gain in appreciation with upkeep expenses.

By using a 30 year mortgage, you lever your cash investment 5-1 with a 20% down payment. If you had a $500k cash and wanted to buy a home with cash, it would be much wiser to use leverage. You put $100k down on your primary home and make the monthly payment on the rest. You can invest that other 400k in the market. Or you could use it to buy four other homes and rent them out.

Scenerio 1:
Let's look at your total net worth if you used all of your $500k to buy 1 house and investing your monthly payment ($1686 for $400k at 3%) into the S&P 500. Assuming the house appreciated at a historic 3 percent and the S&P at 9% you end up with a $579k house and $126k in your brokerage account. Total of $705. Not bad

Scenario 2
Now let's say you buy the 1 house with 20% down and put the other $400k in the S&P 500 and make your monthly payment on your house. You end up with a $579k house that you owe $356k on. $223k in equity. And your $400k in the S&P grew to $615k. Your total is now $838k. 18% better off. Also, you have amazing liquidity. You can get your cash out of the market in hours and not have to sell or borrow against your home you live in. Much better.

Scenerio 3.

You take your $500 k and use it for 5 down payments on 5-$500k houses. Live in one and rent the other 4 out at a break even. After 5 years you have 5 homes worth $579k that you owe $356k on with equity of $223k each. $223k x 5 = $1.115 million. $410k more than scenario 1 in 5 years. Or 58% greater returns. Not as liquid as in scenario 2, but you can sell one of your investment homes anytime you want.

 

[Smoked Toag]

I think I'd rather have a bunch of money in stocks than a paid off house if I lost my job. Just to put some conservative numbers on it, let's say you have a mortgage for the most recent median sales price ($468,000) and a mortgage at 3.5%. You can pay an extra $1244.12 a month ($14,929.45 a year) and pay it off in 15 years. Or you can put that extra 1244.12 a month into the stock market, and if you get a 5% return for the next 15 years, you will have a ~$294k mortgage with $322,156.17 in your brokerage account. Granted around $98k of that will be subject to long term capital gains tax, but that $322,156 would be a lot more comforting to me as I looked for a job than having a paid off house.

If you get 7% returns rather than 5% returns, you'll have more than $375k. If you have a 3% mortgage instead of 3.5%, you'll only have a 285k mortgage left after 15 years and you'll have $325k in your brokerage if you get a 5% return, or almost $380k if you get a 7% return.

But the thing that makes putting extra in stock rather than towards your mortgage safer is that there is a real chance that something bad happens before you pay off your mortgage. If you lose your job in year 13 rather than after you pay it off in year 15, then you don't have the cash cushion and you still have to make your mortgage payment. And if you just lost your job, I'm not sure how eager the bank will be to lend against your home equity. Maybe they will no problem; no clue, but I could see them seeing that as a risky loan.

Once you can fully pay off your mortgage, then there is certainly an argument for paying it off and eliminating that payment. But until you can actually eliminate the payment, it seems riskier to pay extra on it to me.

All this is true, and of course we already know you're not factoring in risk, as you could also lose money in your stock account. But the kicker to me is that I have a 6 month fully-funded emergency fund. And yes, I've done the Dave Ramsey plan, in case you haven't already picked up on that.

But again, I don't care whether you pay your house off or put your money in the stocks.....the key here is that you are budgeting that number for an asset....whatever it is. And not spending it. It's all just a math equation. I'm just a little more on the conservative side, and I want that house payment gone. Especially since at this point, it's also an investment for me (I got mine at a great deal and see no way it can ever go below where I got it again).

ETA: And also.....with a paid for house......whenever you make that final payment, will be the last time you'll ever have to worry about living at that level. Assuming you are using that 14K or whatever your payment used to be, and sticking that in assets, with no payments, your wealth will take off exponentially. It's a slow slog to get there, but once you do, it's worth it. That's why we should be telling our kids to do these things early, so they get the best of both worlds. Or better yet, invest in real estate early and house hack. In college, early life, whenever.

 

[Smoked Toag]

Paying off a home early is not a very sophisticated way to manage your wealth. It's a low downside risk asset. If you pay cash for it, in a lot of cases you put as much into as you gain in appreciation with upkeep expenses.

By using a 30 year mortgage, you lever your cash investment 5-1 with a 20% down payment. If you had a $500k cash and wanted to buy a home with cash, it would be much wiser to use leverage. You put $100k down on your primary home and make the monthly payment on the rest. You can invest that other 400k in the market. Or you could use it to buy four other homes and rent them out.

Scenerio 1:
Let's look at your total net worth if you used all of your $500k to buy 1 house and investing your monthly payment ($1686 for $400k at 3%) into the S&P 500. Assuming the house appreciated at a historic 3 percent and the S&P at 9% you end up with a $579k house and $126k in your brokerage account. Total of $705. Not bad

Scenario 2
Now let's say you buy the 1 house with 20% down and put the other $400k in the S&P 500 and make your monthly payment on your house. You end up with a $579k house that you owe $356k on. $223k in equity. And your $400k in the S&P grew to $615k. Your total is now $838k. 18% better off. Also, you have amazing liquidity. You can get your cash out of the market in hours and not have to sell or borrow against your home you live in. Much better.

Scenerio 3.

You take your $500 k and use it for 5 down payments on 5-$500k houses. Live in one and rent the other 4 out at a break even. After 5 years you have 5 homes worth $579k that you owe $356k on with equity of $223k each. $223k x 5 = $1.115 million. $410k more than scenario 1 in 5 years. Or 58% greater returns. Not as liquid as in scenario 2, but you can sell one of your investment homes anytime you want.

It's all a matter of the speed in which you do this. You are using interest to do it now, I'm going to use cash to do it later. Your way seems like easy money right now, but I've been around a long time. Things change.

 

[Jeffreauxdawg]

It's all a matter of the speed in which you do this. You are using interest to do it now, I'm going to use cash to do it later. Your way seems like easy money right now, but I've been around a long time. Things change.

Agree. Things change and that's why you want to diversify your wealth. Both within a sector and across different sectors. If you're entire real estate portfolio is in one home, try to break it up into a few homes if possible. Of most of your entire wealth is in one home, try to add some technology, consumer discretionary, healthcare, etc exposure through the equity markets.

One idea I like if you want to pay down a primary home is to allocate some of your fixed income portfolio/investing to it. If you are dropping 20-40% of your investments into low yield bonds or fixed income, it's not a terrible idea to use some of that money to pay down your home loan as it's giving you a real return equal to your Apr which may be better than you can earn in the markets.

But I wouldn't dare use the equity portion of my investing for that purpose. So if you have a plan to invest $10k per year at a 65% equities, 30% fixed income, 5% commodities let's say.... Buy your $6.5k in equities, $500 in commodities, and then decide how much of that $3k is better off going into paying down your mortgage vs buying low yielding fixed income.

But I would cut that faucet off as interest rates rise and fixed income markets start yielding more. You're 3% mortgage rate will probably low in 5-10 years and it will be the cheapest money available. Why give it all away early?

 

[Smoked Toag]

Agree. Things change and that's why you want to diversify your wealth. Both within a sector and across different sectors. If you're entire real estate portfolio is in one home, try to break it up into a few homes if possible. Of most of your entire wealth is in one home, try to add some technology, consumer discretionary, healthcare, etc exposure through the equity markets.

One idea I like if you want to pay down a primary home is to allocate some of your fixed income portfolio/investing to it. If you are dropping 20-40% of your investments into low yield bonds or fixed income, it's not a terrible idea to use some of that money to pay down your home loan as it's giving you a real return equal to your Apr which may be better than you can earn in the markets.

But I wouldn't dare use the equity portion of my investing for that purpose. So if you have a plan to invest $10k per year at a 65% equities, 30% fixed income, 5% commodities let's say.... Buy your $6.5k in equities, $500 in commodities, and then decide how much of that $3k is better off going into paying down your mortgage vs buying low yielding fixed income.

But I would cut that faucet off as interest rates rise and fixed income markets start yielding more. You're 3% mortgage rate will probably low in 5-10 years and it will be the cheapest money available. Why give it all away early?

If this was 2010, I'd probably do this (first paragraph). I had a chance to diversify (in regards to my house and then some vacation rentals) in 2013 and regret that I didn't do it. I was strung out in debt and just didn't have the balls to make it happen.

Fast forward to now. Prices way too high at the moment, but I'll never make that mistake again. Next time I plan to be ready.

 

[johnson86-1]

All this is true, and of course we already know you're not factoring in risk, as you could also lose money in your stock account. But the kicker to me is that I have a 6 month fully-funded emergency fund. And yes, I've done the Dave Ramsey plan, in case you haven't already picked up on that.

But again, I don't care whether you pay your house off or put your money in the stocks.....the key here is that you are budgeting that number for an asset....whatever it is. And not spending it. It's all just a math equation. I'm just a little more on the conservative side, and I want that house payment gone. Especially since at this point, it's also an investment for me (I got mine at a great deal and see no way it can ever go below where I got it again).

ETA: And also.....with a paid for house......whenever you make that final payment, will be the last time you'll ever have to worry about living at that level. Assuming you are using that 14K or whatever your payment used to be, and sticking that in assets, with no payments, your wealth will take off exponentially. It's a slow slog to get there, but once you do, it's worth it. That's why we should be telling our kids to do these things early, so they get the best of both worlds. Or better yet, invest in real estate early and house hack. In college, early life, whenever.

Again, if the stock market doesn't beat 4% in nominal terms over a 30 year period, the average person is so screwed it doesn't really matter.

The real risk is that you have to take money out when the market is down and lock in your losses. And that's not crazy unlikely as job losses are probably more likely when there is a recession and the stock market has been driven down.

But the expected difference between keeping 6 months expenses in a cash-like investment and keeping 6 months expenses in an S&P500 index for 25 years is something like $200k in today's dollars. That's assuming the cash like investment keeps up with inflation and the S&P returns a 5% real return over time. That seems like really expensive insurance to me. If you wanted to negate some of this risk, once you got a couple hundred thousand in stocks you could probably do an ok "simulation" of an index fund by buying individual stocks so that you presumably have some stocks that are somewhat countercyclical taht you can sell if you have to sell in the teeth of a correction or bear market, or try to buy a mix of index funds, with some of them focused on industries or strategies that are likely to withstand a recession better. Or even more simply, just do an 80-20 mix of stocks and bonds so you can deplete your bonds first if the stock market is down.

 

[BoomBoom.sixpack]

Again, if the stock market doesn't beat 4% in nominal terms over a 30 year period, the average person is so screwed it doesn't really matter.

Isnt it the norm though? I mean, isnt it the norm for most countries' stonk markets historically that they dont deliver gains for passive investment? That the last 75 years, for the US especially, are the exception?

 

[johnson86-1]

Isnt it the norm though? I mean, isnt it the norm for most countries' stonk markets historically that they dont deliver gains for passive investment? That the last 75 years, for the US especially, are the exception?

I don't know if the last 75 years should be viewed as an exception versus advancement. I think we will continue to enjoy prosperity unless and until we decide to vote ourself out of prosperity.

Andy yes, the US stock market is definitely exceptional. When you look at smaller markets, there are some horror stories, like Japan still not having recovered to reach its 1990 peak (but I'm not sure off hand what the total return is if dividends are included). Still, I do think a market the size of the US stock market, that is the home of global companies, stagnating for 30 years takes something different than a market like the Nikkei 225 stagnating. Until the US looks like it's becoming an undesirable place for investment, I'm not sure what better bet there is to make.

 

[RBDog82]

Why not just keep an emergency fund?

Also, seems to me that if you had no debt, that's absolutely a better place to be if you lost your job, than having debt. I really don't see how it can be argued. There are numerous ways to skin a cat, and I don't want to get into a Dave Ramsey type argument, but the less you owe the better. Add in an emergency fund, and you're totally set if any bad financial situation happens.

And I get that fact that a low interest rate is nearly 'free money' but to me I look at the long game and see that interest rate as extra money going out the window. Especially when you break down how much you pay each month (and I'm on a 15 year mortgage at 2.5%).

It all depends on what you do with the debt. If you lever up to increase you’re lifestyle, then you’ll always be behind financially. However, if you lever up and buy appreciating assets or assets that generate cash flow, then math wins every time. Borrow at 3% and invest and 8%+ and you’ll be much better off over the long term.

And, mathematically, given where rates are, I disagree with the statement “the less you owe the better.” Emotionally, that’s probably correct, but I don’t look at building wealth at an emotional level. I’ve got plenty of liquid capital as well, but I do make a point to cash out refinance my properties if the equity gets too large because leaving cash in a property earning my loan interest rate is a very inefficient use of capital.

 

[RBDog82]

What do you do with those 15-16 financed properties? Do you rent them?

I do.

 

[RBDog82]

Oh well that changes everything….

Here’s some other cash money millionaires….the original New Orleans variety. Would you trust Mannie Fresh or Birdman to tell you when to buy or sell an investment property, or rebalance your retirement portfolio?

View attachment 22610

I’m more of a Wu Tang Financial guy, myself.

Taking over for the nine nine two thousand.

 

[Leeshouldveflanked]

A good rule of thumb is to not take financial advice from broke people.

 

[CoastTrash]

Interesting observation: it was certainly mainstream to avoid and payoff debt quickly in early 2010s.

Now, it appears to have reversed and leveraging up debt is considered cool.

If you floated the mainstream in 2010, you are probably ok bc you paid off lots of debt. However, you likely missed out on lots of gain had you levered up and bought assets.

IOW, In 2010 it paid off to be a contrarian and leverage up to buy real estate or other appreciating assets.

In 2021, being a contrarian means avoiding leverage and building cash. Only time will tell if it the contrarian approach will continue to pay off bigly.

 

[Jeffreauxdawg]

But what if I am a cash money millionaire? Can I be taken seriously then?**

 

[RBDog82]

Interesting observation: it was certainly mainstream to avoid and payoff debt quickly in early 2010s.

Now, it appears to have reversed and leveraging up debt is considered cool.

If you floated the mainstream in 2010, you are probably ok bc you paid off lots of debt. However, you likely missed out on lots of gain had you levered up and bought assets.

IOW, In 2010 it paid off to be a contrarian and leverage up to buy real estate or other appreciating assets.

In 2021, being a contrarian means avoiding leverage and building cash. Only time will tell if it the contrarian approach will continue to pay off bigly.

I’d argue that leverage actually allows you to keep more of your cash liquid. Now it makes no sense to borrow and park money in a checking account earning nothing, but leverage does allow you to hold on to your existing cash.

 

[Jeffreauxdawg]

I’d argue that leverage actually allows you to keep more of your cash liquid. Now it makes no sense to borrow and park money in a checking account earning nothing, but leverage does allow you to hold on to your existing cash.

Agreed. And in fact, US personal debt to GDP and personal debt service are at or near all time lows. The reality is most of us are under leveraged.

I haven't had a car payment in years. Don't like debt on depreciating assets. I don't have interest in levering up on those. But appreciating assets like real estate... Yeah, I'll take more of that if you don't mind.

Personal debt to GDP
View attachment 22620

Personal debt service to disposable income
View attachment 22621

 

[BoomBoom.sixpack]

I don't know if the last 75 years should be viewed as an exception versus advancement. I think we will continue to enjoy prosperity unless and until we decide to vote ourself out of prosperity.

Andy yes, the US stock market is definitely exceptional. When you look at smaller markets, there are some horror stories, like Japan still not having recovered to reach its 1990 peak (but I'm not sure off hand what the total return is if dividends are included). Still, I do think a market the size of the US stock market, that is the home of global companies, stagnating for 30 years takes something different than a market like the Nikkei 225 stagnating. Until the US looks like it's becoming an undesirable place for investment, I'm not sure what better bet there is to make.

The last 75 years were the first with advancement? We're going to advance just as much going forward?

The scary part with Japan is the demographics that mainly drove that are just now hitting the US.

There's also England I think, which was historically the largest market in history.....until it stagnated.

I wonder if we can repeat the conditions of the last 75 years, and I doubt it. That divergence of profit between labor and capital can only decrease, we don't have an extra spouse that can enter the workforce, tax advantages for capital can't really increase, corruption cant really increase, the market is getting better and better at capturing gains for the billionaires. I think people that expect returns on the same level as the past will be sorely disappointed. And it kinda amazes me how people just assume past performance will repeat itself.