5 ms·

And the other shoe drops. I'll have little sympathy for those who were busy buying their second house in 5 years by being heavily leveraged in order to squeeze

And the other shoe drops. I'll have little sympathy for those who were busy buying their second house in 5 years by being heavily leveraged in order to squeeze exorbitant rent rates out of those, while I was being looked down in for not getting involved because I chose to pay down my other debts rather than accumulating more. Here's some sound financial advice, spend less than you earn, set money aside for a rainy day and try to avoid unreasonable debt.

thorncorona 4y ago
Buying a home during covid was a sound financial decision. Interest rates for a new home were ~2% which are INSANELY good and well below inflation.
- toomuchtodo 4y ago
  It’s good if you don’t plan on moving. If you need to move in the next five years, you’ll be underwater and have to cough up cash to close the sale, if you’re not willing to go through the rental schlep. First folks up on the block in the new macro who will set the declining comps are the ones who must sell.
  - Ancalagon 4y ago
    The idea is to just rent the house with the 2.75% interest rate or house hack it while you live there. Being below inflation, your mortgage payment will likely be below the comparable rents for essentially forever. So unless you absolutely need the cash out of that second home, should have zero reason to sell ever.
    - toomuchtodo 4y ago
      It works as long as you can service the debt. Low or no reserves and you lose your income or your tenant defaults and you can’t make it through to eviction and re-renting? Godspeed to you. I’ll give the same advice I gave in 2000 and 2008: don’t lose your job, everything else you can figure out on the fly.
      - Ekaros 4y ago
        Who knows, maybe depression will be answered by eviction moratorium. Can't let the people on the streets, so let's allow them to not pay rents...
        toomuchtodo 4y ago
        Maybe! I foreclosed on my last home during the 2008 crises because I was so far underwater, the credit derogatory was worth it. It’s still not worth what I paid for it 14 years and two owners later. Gotta plan for nobody coming to save you but you, but if there is stimulus, support, whatever, take the money. No extra credit for playing life on hard mode out of pride or fear of moral hazard.
    - buscoquadnary 4y ago
      Sure as long as nothing ever goes wrong, like an accident leaving you with a disability, a change in employment, a chronically terminally ill family member, things like that never happen to anyone though, well they happen to other people, just not me.
      - cinntaile 4y ago
        Things go wrong, sure. But at the same time you can't plan your life according to worst case scenario's, you won't get anywhere that way. Have some contingency plans, no need to overdo it.
      - awinder 4y ago
        These are all pretty much problems on a short horizon and only if you compromise emergency savings to finance your rental property, which isn’t a great idea. Once you’ve established rental income and a few years of paying on loan this situation flips and your income stream becomes an asset in these situations. Also purchase disability insurance, there’s no reason to excessively worry about a tail risk that is very affordable to protect against. If you’ve got second house money you had disability insurance money a while ago.
    - dylan604 4y ago
      If you purchased the house with a personal mortgage, is the terms for that note not written so that it is expected to be your primary domicile while also explicitly stating that it will not be a rental property? Of the mortgages that I've had in the past, this is how they were written. Or were we specifically talking about how to handle that 2nd home. I don't have experience on those contracts.
      - anonAndOn 4y ago
        It's written as your primary domicile when you take the loan. There is no way to enforce that it remains as such for the life of the loan.
      - dcole2929 4y ago
        No buying a house with a personal mortgage requires you to have that house as your primary residence only for 1 year. That's pretty much the core behind the concept of house hacking. Buy, live there for 1 year, move and rent it out, repeat.
    - LeanderK 4y ago
      This sounds like it has an incredible tail-risk. A sound plan if everything goes to plan but if anything serious happens you might loose big time. Everything is essentially placed on one card. I am not sure how much you can reduce it with insurance (e.g. against renters unable to pay, renters damaging your home, damage from natural disasters or just random repair costs due to unforeseen failure of some equipment etc.) without making the whole calculation turn upside down. I wouldn't finance everything using debt with this reasoning. Also, is it that easy to rent if you move away? It's different if you live in it, but casually buying a house and renting it sounds like a huge risk.
      - HeyLaughingBoy 4y ago
        It is a risk, but so are most money-making endeavors outside of just getting a job.
    - gruez 4y ago
      >Being below inflation, your mortgage payment will likely be below the comparable rents for essentially forever. The price to rent ratio is above 20 in most major us cities[1]. In hot markets like Seattle or Oakland it's even above 30. With a price to rent ratio of 20, 2.75% interest, and $1 million house, your monthly mortgage payment would be $4613, but you'll only be bringing in $4167 in rent, which means a loss of $446/month. This is before expenses like maintenance or property taxes, which would make the loss even higher. With a price to rent ratio of 30, this is even worse, with $2778 in rent and a loss of $1835 before expenses. [1] https://smartasset.com/data-studies/price-to-rent-ratio-in-the-50-largest-us-cities-2022 https://smartasset.com/data-studies/price-to-rent-ratio-in-t...
      - foobarian 4y ago
        True for cash flow, but don't forget that some of that mortgage payment will come back out when sold.
      - HeyLaughingBoy 4y ago
        And I'd be paying $446/month to own a $1M house. Sounds like a good deal to me, and that's before taking the tax deductions on interest, property taxes and maintenance (which is deductible, because it's a rental property). Now you've got me thinking about getting back into the rental game...
        Ancalagon 4y ago
        also need to factor in that rent in those markets continues to go up YoY
  - FireBeyond 4y ago
    > It’s good if you don’t plan on moving. If you need to move in the next five years, you’ll be underwater and have to cough up cash to close the sale, if you’re not willing to go through the rental schlep. I bought a home just over 18 months ago. Put 10% down. I'm already able to remove PMI, and if I sold it today, I would be able to walk away with a _profit_ of $120-160K (and this is on a conventional loan, nothing exorbitant).
    - z3c0 4y ago
      > if I sold it today Always interesting to see this thrown out in discussions about house prices, given that homes are not an easily-traded asset. You selling today indicates that you got the ball rolling at least several weeks ago and have already secured your next home. Lots of costs to be assumed there. So this hypothetical will almost never bear any relevance. These aren't stocks.
      - thunky 4y ago
        This, and with rates rising fast, the buyer you think you have today could be sidelined next week. And I trust you're not using Zillow to estimate the value of your home.
        z3c0 4y ago
        > And I trust you're not using Zillow to estimate the value of your home. Thank you for the laugh. Related - several years ago, I built a competitive pricing dashboard for a major US homebuilder, and it sourced Zillow for a portion of its analysis. Time-to-time, I find myself hoping they got around to using a different source.
        FireBeyond 4y ago
        Very true, to be sure. "Assume a spherical cow" and all that. But no, not Zillow. One, Redfin seems to be more accurate (but still optimistic) while Zillow is -hopelessly- optimistic (or was, I haven't checked in a few months, when they were trying to bail themselves out of their own situation. I "utilize" my friend who is a mortgage broker and they use their own database to determine how they'd either "automatic appraise" a home, or require an actual appraisal. On the flip side, I don't use BOAs valuer, either. While my home is (and always has been) 4br/3.5ba, 2600 sqft, BOA has it as a 3br/2.5ba, 2100 sqft in their database, and had it valued at 25% less than the bank appraiser (which was the most conservative of appraiser, Redfin, Zillow).
  - lelanthran 4y ago
    > ’s good if you don’t plan on moving. If you need to move in the next five years, you’ll be underwater Isn't that most people? Very few people move to a different town, city or suburb every five years.
- nomel 4y ago
  Housing prices are set by mortgage payments. If interest rates go up, prices have to eventually go down, and vice versa. So, if you plan on sticking around to the next interest rate swing, buying at an unusually high interest rate allows you to eventually refinance, saving significant amounts of money. Buying at an unusually low interest rate offers no advantage. You’re stuck.
- asdajksah2123 4y ago
  2% interest rates isn't that big a deal when you're paying upto 50-100% above what would be a reasonable non-hysteria driven price for a property.
- anotherman554 4y ago
  The average mortgage rate in 2021 was 2.65% and the current 10 year breakeven inflation rate is 2.52%
BlargMcLarg 4y ago
Great advice but for many, that's the entire problem: waiting for either rent, RE or both markets to drop to a point they can save. The lower classes are often still priced out of low budget living.

thorncorona 4y ago

Buying a home during covid was a sound financial decision. Interest rates for a new home were ~2% which are INSANELY good and well below inflation.

toomuchtodo 4y ago
It’s good if you don’t plan on moving. If you need to move in the next five years, you’ll be underwater and have to cough up cash to close the sale, if you’re not willing to go through the rental schlep. First folks up on the block in the new macro who will set the declining comps are the ones who must sell.
- Ancalagon 4y ago
  The idea is to just rent the house with the 2.75% interest rate or house hack it while you live there. Being below inflation, your mortgage payment will likely be below the comparable rents for essentially forever. So unless you absolutely need the cash out of that second home, should have zero reason to sell ever.
  - toomuchtodo 4y ago
    It works as long as you can service the debt. Low or no reserves and you lose your income or your tenant defaults and you can’t make it through to eviction and re-renting? Godspeed to you. I’ll give the same advice I gave in 2000 and 2008: don’t lose your job, everything else you can figure out on the fly.
    - Ekaros 4y ago
      Who knows, maybe depression will be answered by eviction moratorium. Can't let the people on the streets, so let's allow them to not pay rents...
      - toomuchtodo 4y ago
        Maybe! I foreclosed on my last home during the 2008 crises because I was so far underwater, the credit derogatory was worth it. It’s still not worth what I paid for it 14 years and two owners later. Gotta plan for nobody coming to save you but you, but if there is stimulus, support, whatever, take the money. No extra credit for playing life on hard mode out of pride or fear of moral hazard.
  - buscoquadnary 4y ago
    Sure as long as nothing ever goes wrong, like an accident leaving you with a disability, a change in employment, a chronically terminally ill family member, things like that never happen to anyone though, well they happen to other people, just not me.
    - cinntaile 4y ago
      Things go wrong, sure. But at the same time you can't plan your life according to worst case scenario's, you won't get anywhere that way. Have some contingency plans, no need to overdo it.
    - awinder 4y ago
      These are all pretty much problems on a short horizon and only if you compromise emergency savings to finance your rental property, which isn’t a great idea. Once you’ve established rental income and a few years of paying on loan this situation flips and your income stream becomes an asset in these situations. Also purchase disability insurance, there’s no reason to excessively worry about a tail risk that is very affordable to protect against. If you’ve got second house money you had disability insurance money a while ago.
  - dylan604 4y ago
    If you purchased the house with a personal mortgage, is the terms for that note not written so that it is expected to be your primary domicile while also explicitly stating that it will not be a rental property? Of the mortgages that I've had in the past, this is how they were written. Or were we specifically talking about how to handle that 2nd home. I don't have experience on those contracts.
    - anonAndOn 4y ago
      It's written as your primary domicile when you take the loan. There is no way to enforce that it remains as such for the life of the loan.
    - dcole2929 4y ago
      No buying a house with a personal mortgage requires you to have that house as your primary residence only for 1 year. That's pretty much the core behind the concept of house hacking. Buy, live there for 1 year, move and rent it out, repeat.
  - LeanderK 4y ago
    This sounds like it has an incredible tail-risk. A sound plan if everything goes to plan but if anything serious happens you might loose big time. Everything is essentially placed on one card. I am not sure how much you can reduce it with insurance (e.g. against renters unable to pay, renters damaging your home, damage from natural disasters or just random repair costs due to unforeseen failure of some equipment etc.) without making the whole calculation turn upside down. I wouldn't finance everything using debt with this reasoning. Also, is it that easy to rent if you move away? It's different if you live in it, but casually buying a house and renting it sounds like a huge risk.
    - HeyLaughingBoy 4y ago
      It is a risk, but so are most money-making endeavors outside of just getting a job.
  - gruez 4y ago
    >Being below inflation, your mortgage payment will likely be below the comparable rents for essentially forever. The price to rent ratio is above 20 in most major us cities[1]. In hot markets like Seattle or Oakland it's even above 30. With a price to rent ratio of 20, 2.75% interest, and $1 million house, your monthly mortgage payment would be $4613, but you'll only be bringing in $4167 in rent, which means a loss of $446/month. This is before expenses like maintenance or property taxes, which would make the loss even higher. With a price to rent ratio of 30, this is even worse, with $2778 in rent and a loss of $1835 before expenses. [1] https://smartasset.com/data-studies/price-to-rent-ratio-in-the-50-largest-us-cities-2022 https://smartasset.com/data-studies/price-to-rent-ratio-in-t...
    - foobarian 4y ago
      True for cash flow, but don't forget that some of that mortgage payment will come back out when sold.
    - HeyLaughingBoy 4y ago
      And I'd be paying $446/month to own a $1M house. Sounds like a good deal to me, and that's before taking the tax deductions on interest, property taxes and maintenance (which is deductible, because it's a rental property). Now you've got me thinking about getting back into the rental game...
      - Ancalagon 4y ago
        also need to factor in that rent in those markets continues to go up YoY
- FireBeyond 4y ago
  > It’s good if you don’t plan on moving. If you need to move in the next five years, you’ll be underwater and have to cough up cash to close the sale, if you’re not willing to go through the rental schlep. I bought a home just over 18 months ago. Put 10% down. I'm already able to remove PMI, and if I sold it today, I would be able to walk away with a _profit_ of $120-160K (and this is on a conventional loan, nothing exorbitant).
  - z3c0 4y ago
    > if I sold it today Always interesting to see this thrown out in discussions about house prices, given that homes are not an easily-traded asset. You selling today indicates that you got the ball rolling at least several weeks ago and have already secured your next home. Lots of costs to be assumed there. So this hypothetical will almost never bear any relevance. These aren't stocks.
    - thunky 4y ago
      This, and with rates rising fast, the buyer you think you have today could be sidelined next week. And I trust you're not using Zillow to estimate the value of your home.
      - z3c0 4y ago
        > And I trust you're not using Zillow to estimate the value of your home. Thank you for the laugh. Related - several years ago, I built a competitive pricing dashboard for a major US homebuilder, and it sourced Zillow for a portion of its analysis. Time-to-time, I find myself hoping they got around to using a different source.
      - FireBeyond 4y ago
        Very true, to be sure. "Assume a spherical cow" and all that. But no, not Zillow. One, Redfin seems to be more accurate (but still optimistic) while Zillow is -hopelessly- optimistic (or was, I haven't checked in a few months, when they were trying to bail themselves out of their own situation. I "utilize" my friend who is a mortgage broker and they use their own database to determine how they'd either "automatic appraise" a home, or require an actual appraisal. On the flip side, I don't use BOAs valuer, either. While my home is (and always has been) 4br/3.5ba, 2600 sqft, BOA has it as a 3br/2.5ba, 2100 sqft in their database, and had it valued at 25% less than the bank appraiser (which was the most conservative of appraiser, Redfin, Zillow).
- lelanthran 4y ago
  > ’s good if you don’t plan on moving. If you need to move in the next five years, you’ll be underwater Isn't that most people? Very few people move to a different town, city or suburb every five years.
nomel 4y ago
Housing prices are set by mortgage payments. If interest rates go up, prices have to eventually go down, and vice versa. So, if you plan on sticking around to the next interest rate swing, buying at an unusually high interest rate allows you to eventually refinance, saving significant amounts of money. Buying at an unusually low interest rate offers no advantage. You’re stuck.
asdajksah2123 4y ago
2% interest rates isn't that big a deal when you're paying upto 50-100% above what would be a reasonable non-hysteria driven price for a property.
anotherman554 4y ago
The average mortgage rate in 2021 was 2.65% and the current 10 year breakeven inflation rate is 2.52%

BlargMcLarg 4y ago

Great advice but for many, that's the entire problem: waiting for either rent, RE or both markets to drop to a point they can save. The lower classes are often still priced out of low budget living.