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I searched for Shawna Eccles' story: > Shawna Eccles brought the two-story, semi-detached home for about $477,000 in February 2019 and exhausted her savings to

by geofft 6y ago

I searched for Shawna Eccles' story: > Shawna Eccles brought the two-story, semi-detached home for about $477,000 in February 2019 and exhausted her savings to renovate it. [...] "all of my money covers the mortgage, water bill and property taxes,” Eccles told The Post. I am not going to say it's a good outcome that Eccles is effectively broke and homeless - but it seems absolutely bizarre to me that someone would put their entire savings into a house to use as a rental property when they don't have the budget to spend on mortgage + upkeep and also on their own needs. What happens if Eccles' tenant moves out and nobody moves in, for instance? It could happen for many reasons. It could have happened that the tenant died of COVID in late March 2020 just as housing demand started to plummet! It could happen that the place gets damaged and becomes uninhabitable and needs repairs, and even if you put off paying for the repair, you still have to pay the mortgage and the property tax and nobody can pay you rent. If Eccles had a down payment for a $477K house in the bank, why didn't she keep some of it as an emergency fund? What if she or a family member she cares about gets sick? I have enough money for such a down payment in the bank, and I have a very high-paying tech job, and I'm paying rent on an apartment for myself and looking for a small place to buy for myself - I barely think I've crossed the point where a down payment would leave me with a reasonable amount of savings for an emergency fund (objectively I'm well past that point, but I still worry about it), I have the option of living with my parents if something bad happens, etc. The idea that you would put your entire savings and your entire income into a place for someone else to live is just incomprehensible to me. I don't have an answer for this particular case, but it seems absolutely good to me that potential new Shawna Eccleses understand that a house is not the sort of thing you put your entire life savings into in the expectation that it will be a money-making vehicle. If you want to put your whole savings into a house for yourself, great. If you have a place for yourself to live and you have the savings (or income) to deal with a vacant property, sure, you may as well buy a property and rent it out. But this is reckless, and if our society's policy discourages people in the future from being reckless, that seems good in the long run. The choice is probably subtler than between making people who simply can't afford a place homeless and making people who can definitely afford a place and were irresponsible with their money homeless, but if that's really the choice, the latter seems like the obvious right choice.

bopbeepboop 6y ago
I don’t understand your thinking: A rental house is an asset; a house you live in is a liability. Your argument doesn’t make sense to me if you replace “rental house” with another business: “Why would you put your life savings into gardening equipment to cut other peoples lawns when you don’t have enough savings to also be out of work for months?” If your point is just that you should have 6-12 months of runway before you start any kind of business, that’s lovely advice. That nearly no one can follow and only makes sense to extremely privileged tech workers, who already have stable and high paying employment. If you shouldn’t put your whole savings into a rental property, you definitely shouldn’t put it into a house for yourself.
- geofft 6y ago
  Businesses have risk. The whole point of employment in someone else's business is they take on the risk and you don't, with the tradeoff that you take less of the reward if it works out. If you are in a position where you cannot deal with the risk, gambling on the reward is irresponsible, no matter how great the reward may be. I do actually agree with that hypothetical you've posed! But the amount of gardening equipment you need to cut other people's lawns is pretty minimal, and you would hopefully be buying the equipment outright. A lawn mower costs a couple of hundred dollars. If your entire life savings are couple of hundred dollars, you should probably hold onto those savings instead of starting a lawn-mowing business. Spend some time working for someone else in a low-risk job and grow your savings. And if your entire life savings are merely the down payment on a lawn mower, it's definitely reckless to get that loan. Also, importantly, the market for lawn care equipment is pretty liquid, the upkeep costs are low, and there are no property taxes. If your lawn-mowing business goes nowhere, you can resell your lawn mower quickly and make back a good amount of the money. So maybe it makes perfect financial sense to try starting a lawn-mowing business if you only have about a week of runway, because if it doesn't work out, you can get mostly back to where you were within a week. Buying a house is expensive, and buying a house with a mortgage is even more expensive even though it involves less immediate cash. Maintaining a house is expensive. Selling a house is a slow and arduous process, all the more so if you have a tenant (even a paying tenant). All of these things mean that you objectively need more money to pull it off. And if you want to get out of the house-renting business, you should expect that it will take you a while and it will come at a significant loss. It may well be true that my advice only makes sense to privileged, rich people - but the invisible hand of the market is not going to take your lack of money, let alone privilege, into account and be nice to you. Rather the opposite: a $500K house will cost you well over $500K if all you can afford right now is a $100K down payment. The rich and privileged person who can make an all-cash offer saves money. I do actually believe tech workers are overpaid relative to society (though underpaid relative to their employer's profits), and I am a fan of absurdly high marginal taxes on my salary level, because I think that's a practical solution to the problem of income inequality, even though it is extremely politically unpopular. Pretending that you can do things that need a lot of money even if you don't have money is not a practical solution, even if it sounds great and is politically popular. (And all of this is leaving aside the qualitative difference that if you evict a non-paying tenant, they become homeless, and if you get rid of a non-paying lawn-mowing customer, their grass gets overgrown. If you want to build a society that's good for people other than extremely privileged tech workers, it seems to be that a great place to start is through policies that ensures that people who cannot afford alternatives from becoming homeless - for instance, by encouraging people who desire to go into business to go into the lawnmowing business instead of the landlord business, unless they're extremely financially secure. In the extreme, as in this case, those policies might make people with alternatives homeless. That's not great, and as I said I don't like it, but it seems the clear right choice between two bad choices, because it gets rid of the moral hazard.)

by geofft 6y ago

bopbeepboop 6y ago

I don’t understand your thinking: A rental house is an asset; a house you live in is a liability. Your argument doesn’t make sense to me if you replace “rental house” with another business: “Why would you put your life savings into gardening equipment to cut other peoples lawns when you don’t have enough savings to also be out of work for months?” If your point is just that you should have 6-12 months of runway before you start any kind of business, that’s lovely advice. That nearly no one can follow and only makes sense to extremely privileged tech workers, who already have stable and high paying employment. If you shouldn’t put your whole savings into a rental property, you definitely shouldn’t put it into a house for yourself.

geofft 6y ago
Businesses have risk. The whole point of employment in someone else's business is they take on the risk and you don't, with the tradeoff that you take less of the reward if it works out. If you are in a position where you cannot deal with the risk, gambling on the reward is irresponsible, no matter how great the reward may be. I do actually agree with that hypothetical you've posed! But the amount of gardening equipment you need to cut other people's lawns is pretty minimal, and you would hopefully be buying the equipment outright. A lawn mower costs a couple of hundred dollars. If your entire life savings are couple of hundred dollars, you should probably hold onto those savings instead of starting a lawn-mowing business. Spend some time working for someone else in a low-risk job and grow your savings. And if your entire life savings are merely the down payment on a lawn mower, it's definitely reckless to get that loan. Also, importantly, the market for lawn care equipment is pretty liquid, the upkeep costs are low, and there are no property taxes. If your lawn-mowing business goes nowhere, you can resell your lawn mower quickly and make back a good amount of the money. So maybe it makes perfect financial sense to try starting a lawn-mowing business if you only have about a week of runway, because if it doesn't work out, you can get mostly back to where you were within a week. Buying a house is expensive, and buying a house with a mortgage is even more expensive even though it involves less immediate cash. Maintaining a house is expensive. Selling a house is a slow and arduous process, all the more so if you have a tenant (even a paying tenant). All of these things mean that you objectively need more money to pull it off. And if you want to get out of the house-renting business, you should expect that it will take you a while and it will come at a significant loss. It may well be true that my advice only makes sense to privileged, rich people - but the invisible hand of the market is not going to take your lack of money, let alone privilege, into account and be nice to you. Rather the opposite: a $500K house will cost you well over $500K if all you can afford right now is a $100K down payment. The rich and privileged person who can make an all-cash offer saves money. I do actually believe tech workers are overpaid relative to society (though underpaid relative to their employer's profits), and I am a fan of absurdly high marginal taxes on my salary level, because I think that's a practical solution to the problem of income inequality, even though it is extremely politically unpopular. Pretending that you can do things that need a lot of money even if you don't have money is not a practical solution, even if it sounds great and is politically popular. (And all of this is leaving aside the qualitative difference that if you evict a non-paying tenant, they become homeless, and if you get rid of a non-paying lawn-mowing customer, their grass gets overgrown. If you want to build a society that's good for people other than extremely privileged tech workers, it seems to be that a great place to start is through policies that ensures that people who cannot afford alternatives from becoming homeless - for instance, by encouraging people who desire to go into business to go into the lawnmowing business instead of the landlord business, unless they're extremely financially secure. In the extreme, as in this case, those policies might make people with alternatives homeless. That's not great, and as I said I don't like it, but it seems the clear right choice between two bad choices, because it gets rid of the moral hazard.)