3 ms·

Turns out that paying off someone's mortgage without getting any of the cut really sucks.

WalterBright 3y ago
The bulk of the mortgage payment is interest, and you don't get a cut of that. Nor do you get a cut of the property tax paid, or the insurance costs. Housing is overrated as an investment. My dad lost money on every house he owned. The trouble is, he had an economics degree and knew how to calculate how much it cost to own the house. It isn't as simple as you bought it for $100,000 and sold it for $110,000. Have you ever had a house sit vacant for months while trying to sell it? It's extremely costly, and stressful.
- mattlondon 3y ago
  I have had properties empty for months at a time. In the UK you get (maybe used to get?) a tax discount for empty properties. There is an opportunity cost of course, but the actual money-out-of-bank costs were almost zero. What costs are you talking about?
  - aksss 3y ago
    Utilities, risk of vandalism/squatters (where depending on your location can be a real pain to get rid of), tax, mortgage payments. There are very fringe scenarios where using a such a facility as equity on another loan depends upon maintaining a certain occupancy rate in the building. I can imagine all of the above causing stress depending on your income situation, expense obligations, indebtedness, and proximity to the building in question.
    - WalterBright 3y ago
      Insurance problems, too. Insurers do not like to insure vacant homes.
  - WalterBright 3y ago
    One not mentioned is the 6% commission you pay to the realtor. My neighbor did a lot of repairs and upgrades before putting the house up for scale. His family had already moved out. Months of delay and gawd knows how much money he poured into it to just get past the immediate "nope" from customers. There's the rent on "staging" furniture. In the US, I never heard of a break on the property tax for vacant properties. When I sold my previous house, I priced it to sell to minimize vacant time.
    - mattlondon 3y ago
      In the UK there is no property value tax - you pay a local "council tax" per property that pays for things like rubbish collection and so on. You get a discount on that if your property is empty since you're not putting any strain on those services if no one lives there. Other costs are essentially zero. Insurance is like £0.50/day. Utilities similar amounts for standing charges and minimal usage since it is empty. You might cost the same as like a Starbucks coffee a day when everything is taken into consideration. If course if you have a mortgage, yes, there is a cost there. But that is not so much about the empty property itself and more about your debts.
mlinhares 3y ago
Turns out being surprised by the rent going up by 50% during a pandemic where a lot of people were forced out of the labor force also sucks. Whenever I see "financial advice youtubers" saying people shouldn't buy their homes because there's no liquidity I think about my 2.5K 30 years fixed mortgage in a mcmansion which is the same I paid for rent in a 2br in PHL's center city 3 years ago. Had I listened to them i would likely be paying half my salary in rent alone to live at some shitty apartment building with bad schools and a landlord that was going to hike the price as far as he could. Guess that constant stress might not be good for my health.
aksss 3y ago
The "cut" you're getting is dwelling in a building where you own near zero liability for its upkeep; you often get to live in a place whose ownership is above your means and credit worthiness to own directly; you have no long-term commitment to the facility. These characteristics of your living situation all have value for which you cannot expect for free.
- diogenes4 3y ago
  > The "cut" you're getting is dwelling in a building where you own near zero liability for its upkeep No, the liability is rent. I'd happily take upkeep just to avoid a parasitic middleman that adds no value. People generally don't rent because they don't want to buy; they rent because banks withhold the mortgages necessary to own even though renting is a higher monthly commitment.
  - aksss 3y ago
    > the liability is rent. Yeah, the words "monthly commitment" are the key there, which describe the upper limit to your exposure. There's value (which has a cost) to the limited liability. Conversely, you're not entering into a long-term debt relationship, nor do you have the obligation to fund or perform ad-hoc maintenance. As a renter, you are abstracted from those additional and significant risks, but you do pay for the privilege. You get to simply throw money at the problem, not concern yourself with where to find a new zone valve at 11pm or whether you should tie up cash to keep inventory on hand. There's a sizeable market of people who prefer not to buy - young people who aren't settled down to one place; older people who don't want to do maintenance work; middle-aged people who don't want commitment (because reasons). There are also people who would prefer to buy but can't qualify. There are also people who merely think they would prefer to buy (but do nothing to structure their lives around it, or even comprehend the obligations it entails). It seems you're talking earnestly about the people who prefer to buy but can't qualify. In that case, you're stuck renting and invariably are going to hate the landlord/super (they always suck), the place will seem rattier every month, you obsess over visions of what you would do with the place if you just had ownership incentive to invest in the asset. Been there. The only way out of that is to structure your life financially towards the goal. That can include voting with your feet to live somewhere not as expensive to buy (and taking the trade-offs in location), it can mean disciplined spending to reduce expenses, ambitious career advancement to increase revenue, and maybe partnering with someone highly trusted to go halvsies. This can be an outcome (though not a sole motivation) for marriage, or may look like an LLC with a friend with an operating agreement that clearly details the terms of dissolution, buy-out, inheritance, etc. But at the end of the day it's important to recognize that mortgages are money-making endeavors for banks who are greatly incentivized to set them up (sometimes too much, e.g. see 2008 CDOs), but through a combination of regulation and their own risk-management need you to meet a certain risk profile (e.g. are you "stable", do you make more money that you owe, are you gainfully employed, etc.). They would no more lend to a bad profile than you would. Any you're not even family. ;)

The bulk of the mortgage payment is interest, and you don't get a cut of that. Nor do you get a cut of the property tax paid, or the insurance costs. Housing is overrated as an investment. My dad lost money on every house he owned. The trouble is, he had an economics degree and knew how to calculate how much it cost to own the house. It isn't as simple as you bought it for $100,000 and sold it for $110,000. Have you ever had a house sit vacant for months while trying to sell it? It's extremely costly, and stressful.

mattlondon 3y ago
I have had properties empty for months at a time. In the UK you get (maybe used to get?) a tax discount for empty properties. There is an opportunity cost of course, but the actual money-out-of-bank costs were almost zero. What costs are you talking about?
- aksss 3y ago
  Utilities, risk of vandalism/squatters (where depending on your location can be a real pain to get rid of), tax, mortgage payments. There are very fringe scenarios where using a such a facility as equity on another loan depends upon maintaining a certain occupancy rate in the building. I can imagine all of the above causing stress depending on your income situation, expense obligations, indebtedness, and proximity to the building in question.
  - WalterBright 3y ago
    Insurance problems, too. Insurers do not like to insure vacant homes.
- WalterBright 3y ago
  One not mentioned is the 6% commission you pay to the realtor. My neighbor did a lot of repairs and upgrades before putting the house up for scale. His family had already moved out. Months of delay and gawd knows how much money he poured into it to just get past the immediate "nope" from customers. There's the rent on "staging" furniture. In the US, I never heard of a break on the property tax for vacant properties. When I sold my previous house, I priced it to sell to minimize vacant time.
  - mattlondon 3y ago
    In the UK there is no property value tax - you pay a local "council tax" per property that pays for things like rubbish collection and so on. You get a discount on that if your property is empty since you're not putting any strain on those services if no one lives there. Other costs are essentially zero. Insurance is like £0.50/day. Utilities similar amounts for standing charges and minimal usage since it is empty. You might cost the same as like a Starbucks coffee a day when everything is taken into consideration. If course if you have a mortgage, yes, there is a cost there. But that is not so much about the empty property itself and more about your debts.

mlinhares 3y ago

Turns out being surprised by the rent going up by 50% during a pandemic where a lot of people were forced out of the labor force also sucks. Whenever I see "financial advice youtubers" saying people shouldn't buy their homes because there's no liquidity I think about my 2.5K 30 years fixed mortgage in a mcmansion which is the same I paid for rent in a 2br in PHL's center city 3 years ago. Had I listened to them i would likely be paying half my salary in rent alone to live at some shitty apartment building with bad schools and a landlord that was going to hike the price as far as he could. Guess that constant stress might not be good for my health.

aksss 3y ago

The "cut" you're getting is dwelling in a building where you own near zero liability for its upkeep; you often get to live in a place whose ownership is above your means and credit worthiness to own directly; you have no long-term commitment to the facility. These characteristics of your living situation all have value for which you cannot expect for free.

diogenes4 3y ago
> The "cut" you're getting is dwelling in a building where you own near zero liability for its upkeep No, the liability is rent. I'd happily take upkeep just to avoid a parasitic middleman that adds no value. People generally don't rent because they don't want to buy; they rent because banks withhold the mortgages necessary to own even though renting is a higher monthly commitment.
- aksss 3y ago
  > the liability is rent. Yeah, the words "monthly commitment" are the key there, which describe the upper limit to your exposure. There's value (which has a cost) to the limited liability. Conversely, you're not entering into a long-term debt relationship, nor do you have the obligation to fund or perform ad-hoc maintenance. As a renter, you are abstracted from those additional and significant risks, but you do pay for the privilege. You get to simply throw money at the problem, not concern yourself with where to find a new zone valve at 11pm or whether you should tie up cash to keep inventory on hand. There's a sizeable market of people who prefer not to buy - young people who aren't settled down to one place; older people who don't want to do maintenance work; middle-aged people who don't want commitment (because reasons). There are also people who would prefer to buy but can't qualify. There are also people who merely think they would prefer to buy (but do nothing to structure their lives around it, or even comprehend the obligations it entails). It seems you're talking earnestly about the people who prefer to buy but can't qualify. In that case, you're stuck renting and invariably are going to hate the landlord/super (they always suck), the place will seem rattier every month, you obsess over visions of what you would do with the place if you just had ownership incentive to invest in the asset. Been there. The only way out of that is to structure your life financially towards the goal. That can include voting with your feet to live somewhere not as expensive to buy (and taking the trade-offs in location), it can mean disciplined spending to reduce expenses, ambitious career advancement to increase revenue, and maybe partnering with someone highly trusted to go halvsies. This can be an outcome (though not a sole motivation) for marriage, or may look like an LLC with a friend with an operating agreement that clearly details the terms of dissolution, buy-out, inheritance, etc. But at the end of the day it's important to recognize that mortgages are money-making endeavors for banks who are greatly incentivized to set them up (sometimes too much, e.g. see 2008 CDOs), but through a combination of regulation and their own risk-management need you to meet a certain risk profile (e.g. are you "stable", do you make more money that you owe, are you gainfully employed, etc.). They would no more lend to a bad profile than you would. Any you're not even family. ;)