4 ms·

I never understood why the person who owns a $1.8M asset is poor and the person who is obligated to pay a $1.8M mortgage is rich in these conversations

by rcpt 4y ago

titzer 4y ago
It has more to do with income and running expenses. That $1.8M that was bought in the 1960s for a few tens of thousands has appreciated, sure. But houses require maintenance, upgrades, and taxes that are in today's prices. Someone that old that has retired and is living on fixed income maybe can't afford those anymore and opt to move to a lower cost of living area. Thus they are forced out by the general demand for everything--basically being outbid by the influx of new residents. Relative to the person earning a lot and paying a mortgage, yes, they are poor.
- jeffbee 4y ago
  Retired Americans are the only Americans who are categorically never on a fixed income.
  - titzer 4y ago
    I mean technically Social Security benefits are tied to cost-of-living and thus inflation and are not "fixed income". But that's just technically. My mother's retired and her SS is not a lot. There are a lot of very low income older people in America that fall in this category.
- cma 4y ago
  California capped the tax increase to far below inflation.
PaulDavisThe1st 4y ago
You need to differentiate between liquid and illiquid assets, because they represent different kinds of wealth. The person with a $1.8M property holds a very valuable illiquid asset. They cannot convert the value to cash trivially (they could perhaps take out a home equity credit or remortgage the house). Effectively none of the value of asset is available to them to meet any other needs, and will only be fully realized when the house (their home) is sold. The person who can pay the mortgage on a $1.8M property has substantial income and/or cash reserves, which are liquid assets and thus distinctly different from the property owned by the previously discussed person. They may not have a net worth of $1.8M but they are much more easily able to shift financial resources aound to meet their needs.
- rcpt 4y ago
  I would trade a million dollar debt for the inconveniences of getting a HELOC any day. Wouldn't you?
  - PaulDavisThe1st 4y ago
    For the most part sure. But there are situations where the HELOC will either be hard to get. For example, you may own the house outright but have very very low income. Or the bank may not be willing to view the land in the same light as potential developers. "House rich, cash poor" is generally convertible into "have mortgage, and cash", but it is still a distinct condition from "Income rich, have mortgage", especially for low income folks.

I never understood why the person who owns a $1.8M asset is poor and the person who is obligated to pay a $1.8M mortgage is rich in these conversations

by rcpt 4y ago

I never understood why the person who owns a $1.8M asset is poor and the person who is obligated to pay a $1.8M mortgage is rich in these conversations

titzer 4y ago

It has more to do with income and running expenses. That $1.8M that was bought in the 1960s for a few tens of thousands has appreciated, sure. But houses require maintenance, upgrades, and taxes that are in today's prices. Someone that old that has retired and is living on fixed income maybe can't afford those anymore and opt to move to a lower cost of living area. Thus they are forced out by the general demand for everything--basically being outbid by the influx of new residents. Relative to the person earning a lot and paying a mortgage, yes, they are poor.

jeffbee 4y ago
Retired Americans are the only Americans who are categorically never on a fixed income.
- titzer 4y ago
  I mean technically Social Security benefits are tied to cost-of-living and thus inflation and are not "fixed income". But that's just technically. My mother's retired and her SS is not a lot. There are a lot of very low income older people in America that fall in this category.
cma 4y ago
California capped the tax increase to far below inflation.

PaulDavisThe1st 4y ago

You need to differentiate between liquid and illiquid assets, because they represent different kinds of wealth. The person with a $1.8M property holds a very valuable illiquid asset. They cannot convert the value to cash trivially (they could perhaps take out a home equity credit or remortgage the house). Effectively none of the value of asset is available to them to meet any other needs, and will only be fully realized when the house (their home) is sold. The person who can pay the mortgage on a $1.8M property has substantial income and/or cash reserves, which are liquid assets and thus distinctly different from the property owned by the previously discussed person. They may not have a net worth of $1.8M but they are much more easily able to shift financial resources aound to meet their needs.

rcpt 4y ago
I would trade a million dollar debt for the inconveniences of getting a HELOC any day. Wouldn't you?
- PaulDavisThe1st 4y ago
  For the most part sure. But there are situations where the HELOC will either be hard to get. For example, you may own the house outright but have very very low income. Or the bank may not be willing to view the land in the same light as potential developers. "House rich, cash poor" is generally convertible into "have mortgage, and cash", but it is still a distinct condition from "Income rich, have mortgage", especially for low income folks.