5 ms·

But real estate debt is only good if you can afford it and you buy smart. I know a lot of people who bought a house and sold it later for less even after all th

But real estate debt is only good if you can afford it and you buy smart. I know a lot of people who bought a house and sold it later for less even after all the payments because they bought it high and sold it low. Furthermore, if you pay for something very long, you are also going to be paying a lot of interest. You wouldn’t be paying that long if you could afford it and you would be getting a better credit rate if you could afford it. Unfortunately not everybody is able to invest smartly and thus good debt easily becomes bad debt. It doesn’t help that most people potray reale estates as good debt because they really aren’t that good unless you know what you are doing.

deleted 8y ago
[deleted]
AdamM12 8y ago
Personally don't view this as a necessarily bad thing. Short term losses like this suck but what you learn long term is entirely more valuable than if you did well the first time. Nothing teaches you as well as losing money.
shaggerty 8y ago
Even if your house ends up being less than you bought it for you still have a house. Assuming you want to live in the same area long term it seems wiser to finish a mortgage and be left with a house that's worth less than you paid for it versus paying rent for the same amount of time and ending up with nothing.
- astura 8y ago
  I think you're ignoring the significant carrying costs of a house. My house last year had over $11,000 in carrying costs in just taxes, insurance,and interest. Never minding the upkeep and repairs (which are significant yet difficult to estimate). There's other hidden costs like opportunity cost, the return on investment you'd be getting if you didn't have that money tied up in your house.
  - toomuchtodo 8y ago
    Houses have almost always kept ahead of inflation, and carrying expenses replace rent.
    - astura 8y ago
      Read the post I'm replying to, we're talking about a house that went DOWN in value.
      - toomuchtodo 8y ago
        I did. It’s extremely rare for real estate to decline in value, and walking away from the property is always an option if it has (or a short sale, which is must less detrimental on your credit).
        TheCoelacanth 8y ago
        > It’s extremely rare for real estate to decline in value You and I must have very different ideas of what the word "extremely" means. > walking away from the property is always an option That is only true in twelve states. In the other 38, the lender can sue you to recover the difference between the house's value and what you owe even after they foreclose.
        toomuchtodo 8y ago
        As I mention above, you need to do your due diligence. Investing without knowing the rules is fraught with peril. I only use non-recourse mortgages when investing in real estate. YMMV.
        TheCoelacanth 8y ago
        The mere fact that you are looking at real estate as an investment rather than as a place to live indicates that you have far more financial resources than a typical person. For a typical person it is not a realistic option to discard their entire social network and move halfway across the country just to get some more favorable mortgage laws.
- shoo 8y ago
  It depends. On parameters like interest rates and rates of return on other asset classes and rental prices and inflation. There is opportunity cost - in some circumstances paying cheap rent and investing the difference into other investment asset classes might leave you better off in the long run. See the New York Times rent vs buy thing.
mi100hael 8y ago
I think a lot of people incorrectly view personal residences as investments. They don't produce income and their valuation is tied largely to comps which really translates to other peoples' feelings and purchasing power at that time. Mortgaging a home is arguably a poor use of debt unless you're actually able to put a similar sum to work making a higher return elsewhere. If you're investing in real estate by purchasing a cash-flowing property like apartments, then you'd be crazy not to use leverage. You can easily calculate your ROI based on property cashflow and projected value based on rent growth. And your ROI is always going to be bigger if you only put up 25% of the value and let the bank pay for the rest as long as you're cashflowing more than the mortgage payments.

deleted 8y ago

[deleted]

AdamM12 8y ago

Personally don't view this as a necessarily bad thing. Short term losses like this suck but what you learn long term is entirely more valuable than if you did well the first time. Nothing teaches you as well as losing money.

shaggerty 8y ago

Even if your house ends up being less than you bought it for you still have a house. Assuming you want to live in the same area long term it seems wiser to finish a mortgage and be left with a house that's worth less than you paid for it versus paying rent for the same amount of time and ending up with nothing.

astura 8y ago
I think you're ignoring the significant carrying costs of a house. My house last year had over $11,000 in carrying costs in just taxes, insurance,and interest. Never minding the upkeep and repairs (which are significant yet difficult to estimate). There's other hidden costs like opportunity cost, the return on investment you'd be getting if you didn't have that money tied up in your house.
- toomuchtodo 8y ago
  Houses have almost always kept ahead of inflation, and carrying expenses replace rent.
  - astura 8y ago
    Read the post I'm replying to, we're talking about a house that went DOWN in value.
    - toomuchtodo 8y ago
      I did. It’s extremely rare for real estate to decline in value, and walking away from the property is always an option if it has (or a short sale, which is must less detrimental on your credit).
      - TheCoelacanth 8y ago
        > It’s extremely rare for real estate to decline in value You and I must have very different ideas of what the word "extremely" means. > walking away from the property is always an option That is only true in twelve states. In the other 38, the lender can sue you to recover the difference between the house's value and what you owe even after they foreclose.
        toomuchtodo 8y ago
        As I mention above, you need to do your due diligence. Investing without knowing the rules is fraught with peril. I only use non-recourse mortgages when investing in real estate. YMMV.
        TheCoelacanth 8y ago
        The mere fact that you are looking at real estate as an investment rather than as a place to live indicates that you have far more financial resources than a typical person. For a typical person it is not a realistic option to discard their entire social network and move halfway across the country just to get some more favorable mortgage laws.
shoo 8y ago
It depends. On parameters like interest rates and rates of return on other asset classes and rental prices and inflation. There is opportunity cost - in some circumstances paying cheap rent and investing the difference into other investment asset classes might leave you better off in the long run. See the New York Times rent vs buy thing.

mi100hael 8y ago

I think a lot of people incorrectly view personal residences as investments. They don't produce income and their valuation is tied largely to comps which really translates to other peoples' feelings and purchasing power at that time. Mortgaging a home is arguably a poor use of debt unless you're actually able to put a similar sum to work making a higher return elsewhere. If you're investing in real estate by purchasing a cash-flowing property like apartments, then you'd be crazy not to use leverage. You can easily calculate your ROI based on property cashflow and projected value based on rent growth. And your ROI is always going to be bigger if you only put up 25% of the value and let the bank pay for the rest as long as you're cashflowing more than the mortgage payments.