3 ms·

> He can have a great quality of life from his salary and earns an extra yearly salary each year from his real estate increasing in value. He doesn't need to se

by tzs 3y ago

> He can have a great quality of life from his salary and earns an extra yearly salary each year from his real estate increasing in value. He doesn't need to sell to reap that money, he can borrow against his increased home value and use a small part of his salary to pay off the loan. I don't see how that would work. Borrowed money has to be paid back plus interest. My house is currently worth about twice what I paid for it ~17 years ago, and I do have a home equity line of credit so I can borrow against the increased value at will, but the current interest rate on that is over 9%. The only effect I and most of my neighbors see from rising home values unless we sell our homes is that our property taxes rise by about the same factor, which is vary annoying to those whose salaries have not also risen by a similar factor.

carlosjobim 3y ago
Of course you have to pay it back with interest, what do you expect? But you can use that increased real estate value if you need to, without having to sell your home. And usually with the lowest interest rates available to any individual person. A renter can not use any of the rent he or she has paid as security for any loan.
- tzs 3y ago
  You originally described it as "an extra yearly salary each year from his real estate increasing in value" though, which I think is greatly overstating its utility. It's really more useful for those occasional things that are too big for the liquid assets you have available right now, but that aren't so big that it will take you too long to pay off. For example you need a new HVAC system, but to pay for it would have to take some money from an IRA. You are close enough to the next tax bracket that half of that IRA withdrawal will be taxed at that higher marginal rate. It may then be cheaper to only take 1/2 of what you need from the IRA and the other half from your home equity line of credit. Then at the start of next year make another withdrawal from the IRA to pay back the home equity loan. That way none of the IRA withdrawals end up in a higher bracket. A similar scenario would be if you are getting ACA tax credits and taking all the money at once from your IRA would push your income over the maximum income for ACA tax credit eligibility. For most of us I think such situations will be rare enough that what we can gain by doing them won't be as much as what we lose from the increased property taxes from our home values going up.
  - carlosjobim 3y ago
    An extra yearly salary in appreciation each year is not an overstatement, and I'll tell you why: Many people are for decades in unskilled or low salary jobs, that in the past paid plenty to afford a house/mortgage. The wages have not kept up with real estate prices, but for the person who has his home paid off or mostly paid off, this is not a problem. For the person without real estate this is a problem. But yes, combine a big house with a low wage and you will have a real estate appreciation that is bigger than the yearly take home. Secondly, many countries have always had low salaries for all occupations, such as European countries. These countries have now seen an explosion in real estate prices, while salaries remain low and highly taxed. In these countries it is not unusual to have real estate appreciation being larger than the take home salary. But even if it's half or a third yearly salary in real estate appreciation every year for not working, that's still a great deal. Outside the USA property taxes are usually extremely low, with governments paying for schools and roads etc by taxes on labour. In practice people borrow against their real estate to buy new cars at low interest or to renovate their homes to increase their real estate value. One hour spent renovating your home as an amateur gives you several twice the value as one hour spent working in your field as a professional. And it's tax free.
quantified 3y ago
Man 1 didn't borrow. He paid for it with an inheritance.

by tzs 3y ago

carlosjobim 3y ago

Of course you have to pay it back with interest, what do you expect? But you can use that increased real estate value if you need to, without having to sell your home. And usually with the lowest interest rates available to any individual person. A renter can not use any of the rent he or she has paid as security for any loan.

tzs 3y ago
You originally described it as "an extra yearly salary each year from his real estate increasing in value" though, which I think is greatly overstating its utility. It's really more useful for those occasional things that are too big for the liquid assets you have available right now, but that aren't so big that it will take you too long to pay off. For example you need a new HVAC system, but to pay for it would have to take some money from an IRA. You are close enough to the next tax bracket that half of that IRA withdrawal will be taxed at that higher marginal rate. It may then be cheaper to only take 1/2 of what you need from the IRA and the other half from your home equity line of credit. Then at the start of next year make another withdrawal from the IRA to pay back the home equity loan. That way none of the IRA withdrawals end up in a higher bracket. A similar scenario would be if you are getting ACA tax credits and taking all the money at once from your IRA would push your income over the maximum income for ACA tax credit eligibility. For most of us I think such situations will be rare enough that what we can gain by doing them won't be as much as what we lose from the increased property taxes from our home values going up.
- carlosjobim 3y ago
  An extra yearly salary in appreciation each year is not an overstatement, and I'll tell you why: Many people are for decades in unskilled or low salary jobs, that in the past paid plenty to afford a house/mortgage. The wages have not kept up with real estate prices, but for the person who has his home paid off or mostly paid off, this is not a problem. For the person without real estate this is a problem. But yes, combine a big house with a low wage and you will have a real estate appreciation that is bigger than the yearly take home. Secondly, many countries have always had low salaries for all occupations, such as European countries. These countries have now seen an explosion in real estate prices, while salaries remain low and highly taxed. In these countries it is not unusual to have real estate appreciation being larger than the take home salary. But even if it's half or a third yearly salary in real estate appreciation every year for not working, that's still a great deal. Outside the USA property taxes are usually extremely low, with governments paying for schools and roads etc by taxes on labour. In practice people borrow against their real estate to buy new cars at low interest or to renovate their homes to increase their real estate value. One hour spent renovating your home as an amateur gives you several twice the value as one hour spent working in your field as a professional. And it's tax free.

quantified 3y ago

Man 1 didn't borrow. He paid for it with an inheritance.