Credit card purchases...

[hammy]

Casey, aren't you still a teenager?

No.

Alright, let me paint a couple of scenarios for you, because if you don't own your place you're either renting or sponging off of your friends or relatives until you've saved enough money for your own place (and I don't know of too many parents who would let you live with them for ten years rent-free while you saved up enough money to buy your first home):

Scenario 1: You've managed to get together the deposit money for a 7-800 sq. ft. 2 bedroom apartment (yes, you needed decent credit to do it in the first place). Your rent is $1200/month and you're annual net monthly income is $2500. After utilities, food, rent, car insurance, gas, maybe a car payment...you're pretty much scraping by. So, you get a roommate to move in and pay half the rent and utilities, so y0ou're able to save about $600/month towards your house you intend to eventually buy. How many years do you think that will take?

Scenario 2: You've managed to scrape together the 5-10% minimum down payment to buy your first starter home. It's a decent 1600 sq. ft, 3 bedroom 2-bath home. Pretty standard. Homes like this in your area are going for for around $198k, but you found a good deal and picked one up at a steal for $183k because the owners were desperate and just needed to get out. You got a good interest rate on your mortgage and your monthly payment is around $1000. After utilities, car and homeowners insurance, mortgage payment, food and gas and maybe a car payment, you still have several hundred per month that you can put in the bank. Being smart, you get yourself a roommate and get them paying at least half if not more of your mortgage and utilities and you're able to even save more money per month.

Okay, so, two scenarios. So, let's look at each of them a little more closely. When you rent, your money is gone. Every month, you are just giving your money away. It's gone. Forever. In someone else's pocket. So, in Scenario 1, you are essentially bleeding money every month. Money that you could be using to accomplish your future goals. When you own, that money goes back into the equity of the property that you own. Since you found such a great deal on your house in Scenario 2, you already have instant equity in your home to the tune of $15k worth of value if you were to sell and able to get full price. You were also smart enough to pick a home that was in a neighborhood that's appreciating, so over time your equity will continue to grow in this house while you may your mortgage payments every month. After three years, you decide to sell and get enough to walk away with $30-40k in profit because the place appreciated over time. Now you have money that you can use to upgrade to a better, bigger house, which you can afford because you've worked hard and gotten raises and promotions and now make more money and can afford nicer things.

There are some other bonuses to having your own house. You can paint and decorate the interior however you damn well please. The exterior you may have some limitations with depending on your neighborhood covenants, but still...you have some ability to make changes. You are not going to have that same freedom in an apartment, quite often. Also, in your own house, you can play your stereo as loud as you want at any hour of the night or day. You also don't have to deal with noisy neighbors, conversely, stomping on the ceiling or blaring THEIR stereos. In an apartment, you'll always have that to contend with.

So, knowing that living in an apartment, aside from the limited freedom to do what you want with the place and the noisy neighbors, you will literally be giving your money away never to return, why would you ever do so? I could see if you were new to a city and wanted to just look around and get to know the town so you could decide which part of the city you wanted to live in eventually or if you weren't sure you would be staying there permanently because maybe you were on temporary assignment by your company or something. Otherwise, being able to build equity and know that your money isn't just completely going to waste to line someone else's pockets on your mortgage because the principal of your payment is essentially paying yourself back for the loan on your own place that you have more freedom to do what you want to do with it makes a hell of a lot more sense.

So, go ahead and keep throwing your money away on rent if you like. Seems pretty damn silly, to me.

jag

Or, Scenario 3 (the real scenario) I stay where I currently am and continue flipping houses. My goal is three per year. After closing costs, escrows, materials, labor and real estate fees, I make $15,000. I choose not to wait one year to pay the lowest capital gains tax of 15%, which puts me at a disadvantage, requiring me to pay in my tax bracket of 28%. However, it frees up my money for the next house. Net to me is actually a little over $12,000. I do 3-4 flips a year. Which adds approximately $48,000 - $60,000 to my bank account. I do that for 2-3 more years, and that money, coupled with the substantial amount I already have in savings gives me well over $200,000 which buys a hell of a house in my area (not a starter). I pay cash, I have no mortgage.

Advantages are: I am not fooling myself in to thinking the paltry amount of money I am paying on principle each month is a great investment. I have no fears that if I suddenly have no income for six months, someone is going to take my house away. I am not living some lie that writing off your monthly interest payments is a 'good investment.' And I don’t even have to throw money away on MIP. (possibly on the order of $200.00 or more per month) I pay a one time fee of say, $225,000.

OR, taking your advice, I get a mortgage for that $225,000 and over thirty years I pay literally, $500,000 for that house. If my interest rate wasn’t great, it could easily be $600,000 - $700,000. (I’d only be paying roughly $250.00 per month on principle. I’d easily be paying $1100-1200 per month in interest, even with a sizable down and a very favorable interest rate. It wouldn’t be until half the life of the loan that the numbers would switch to my favor and I’d be paying more principle than interest.) If I went with a 15 year mortgage, I’d still be paying $1,000 per month in interest alone and easily $100,000 in interest for the life of the loan.

Now who’s the silly one?

HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

The "affluent" people you mentioned who can flat out pay cash for a home? That's less than 1% of the population. Really, listen to Jag on this one, he's spot-on.

My brother and his wife combined make over $150 K a year or so. That's pretty damn affluent. They own a home, they each own nice cars, and they own a business. And they're making payments on all of it.

Then they are not affluent. I make nearly that, myself. They may have a decent income, but they are throwing it all away on payments, making someone else rich. They don’t “own” any of that. The banks own it. In fact, the banks own them. If they were out of work for more than a few months, would they be in trouble?

So, like someone else mentioned in this thread, unless you're posting from your yatch right now, you'll be dealing with credit at some point in your life. If you're really determined never to, and you're somehow capable of that? Hey, kudos, that's your choice. But that's not how 99% of the people in this country live, and for good reason. The people who are affluent don't always start as affluent. They become wealthy by making wise investments.

That is exactly what I am talking about. Why don’t you see that? I didn’t start out affluent either, but I am well on my way because instead of making credit card companies, car companies and banks rich, I have made the conscious decision to make myself rich.

You say you bought a cheap home with cash for flipping? Hey, wise investment. But a cheap home is still gonna be in the $50-100,000 range.
And you paid that cash?

I bought a VERY inexpensive house my first time out. The one I just made an offer on was much more expensive, but I had all my cash from my previous sale, which is what enables me to get this one. I also expect to make more than my average return on it.

Very few people have that kind of money sitting in their bank accounts. Most of us have that in escrow earning value on our homes. It makes me think of this Futurama episode where someone's on trial for robbing a bank, and the judge says "Now, someone told me a bank is apparently a building where people keep money that's not properly invested." And it's totally true. Ideally, you always keep at least a years living expenses in the bank, but anything more than that should be in stocks, or property, or some other secure investment.

Do you even know what escrow means? Your escrows are the funds that cover your yearly property taxes and homeowners insurance. Your mortgage lender siphons those amounts off your monthly payments and stows them in an escrow account (where they also enjoy the interest, on you.) Then when those bills come due each year, they pay them for you, from that account. Unless of course you paid enough down to get a conventional loan and you pay those separate from your mortgage payment. Perhaps you meant ‘equity.’ The equity in your home is the difference between what you owe and what you could sell for.

I’m not saying it’s easy. I’m just saying, it’s not impossible. You have to make wise decisions and sacrifices. I am very frugal with my money and make the most of it. I make it work for me.

 

[jaguarr]

No.



Or, Scenario 3 (the real scenario) I stay where I currently am and continue flipping houses. My goal is three per year. After closing costs, escrows, materials, labor and real estate fees, I make $15,000. I choose not to wait one year to pay the lowest capital gains tax of 15%, which puts me at a disadvantage, requiring me to pay in my tax bracket of 28%. However, it frees up my money for the next house. Net to me is actually a little over $12,000. I do 3-4 flips a year. Which adds approximately $48,000 - $60,000 to my bank account. I do that for 2-3 more years, and that money, coupled with the substantial amount I already have in savings gives me well over $200,000 which buys a hell of a house in my area (not a starter). I pay cash, I have no mortgage.

Advantages are: I am not fooling myself in to thinking the paltry amount of money I am paying on principle each month is a great investment. I have no fears that if I suddenly have no income for six months, someone is going to take my house away. I am not living some lie that writing off your monthly interest payments is a 'good investment.' And I don’t even have to throw money away on MIP. (possibly on the order of $200.00 or more per month) I pay a one time fee of say, $225,000.

OR, taking your advice, I get a mortgage for that $225,000 and over thirty years I pay literally, $500,000 for that house. If my interest rate wasn’t great, it could easily be $600,000 - $700,000. (I’d only be paying roughly $250.00 per month on principle. I’d easily be paying $1100-1200 per month in interest, even with a sizable down and a very favorable interest rate. It wouldn’t be until half the life of the loan that the numbers would switch to my favor and I’d be paying more principle than interest.) If I went with a 15 year mortgage, I’d still be paying $1,000 per month in interest alone and easily $100,000 in interest for the life of the loan.

Now who’s the silly one?

You are, because you've tied all of your investment dollars up in real estate instead of diversifying your portfolio across several different types of investments to maximize your return both in the short and long term and protect it from things like a downturn in one or even several markets such as the current housing and DOW index downturns that we are currently experiencing. And you STILL needed good credit to do any of what you are doing, which you just got through telling everyone nobody needed. So, answer me this. Do you currently rent or do you own your own house?

And nearly nobody lives in a house for the full term of a loan anymore, so 9/10's of your argument is a moot point. They build equity while they live in it, allow it to appreciate, and then sell to make a profit. Smart people invest their free money and profit from such things in other money market accounts, Roth IRA's, mutual funds, stocks, other real estate holdings (as in commercial, not residential), CD's and bonds, etc. Perhaps you should look into diversifying your portfolio. Housing market's not doing so well at the moment.

jag

 

[jaguarr]

That's true. But you only need credit if you're poor. If you have money you don't need credit.

Just so we're clear, the person who wrote the above then went on to talk about how they're using their credit to make money in the real estate market.

jag

 

[hammy]

You are, because you've tied all of your investment dollars up in real estate instead of diversifying your portfolio across several different types of investments to maximize your return both in the short and long term and protect it from things like a downturn in one or even several markets such as the current housing and DOW index downturns that we are currently experiencing. And you STILL needed good credit to do any of what you are doing, which you just got through telling everyone nobody needed. So, answer me this. Do you currently rent or do you own your own house?

And nearly nobody lives in a house for the full term of a loan anymore, so 9/10's of your argument is a moot point. They build equity while they live in it, allow it to appreciate, and then sell to make a profit. Smart people invest their free money and profit from such things in other money market accounts, Roth IRA's, mutual funds, stocks, other real estate holdings (as in commercial, not residential), CD's and bonds, etc. Perhaps you should look into diversifying your portfolio. Housing market's not doing so well at the moment.

jag

You just can't stand it when someone knows as much or more about something than you, and challenges you, can you? And you know nothing of my portfolio, so why would you ASSUME I have all my investments tied up in real estate? I have a 401 K like everyone else. But unlike everyone else, I am savvy enough to know I can divert funds from my IRA for investing in .. ta da .. real estate. Everyone assumes IRA = mutual funds. (boring) And I have those too, but I don't like to be wholly at the mercy of some guy I hardly know making stock decisions for me. So I have diverted some of my IRA to be self directed.

As for me being silly because I will soon be capable of paying cash for a nice home .. that doesn't even make sense.

I'm disappointed in you, jag. Not surprised, mind you. I've seen this from you before. But I am still disappointed. Instead of showing some class and saying, "Hey, yeah .. that sounds like a great plan, good luck with it. " You say it's silly. Of course, you didn't say why it's silly. Just because you've been duped into doing the 'same old same old,' doesn't mean I'm dumb enough to. I don't know where you live, but where I live, the market is just fine. I'm doing very well with my house flipping plan.

And here's a freebie .. a tip for you since you are stuck with that thirty year noose around your neck. Take your tax refund each year and make one extra house payment. It will shave that 30 years down to 23. Not as good as my plan, but it's better than nothing.

P.S. Just like you shouldn't assume I don't know what I'm doing with my money, you shouldn't assume everyone here is some 15 year old jag wannabe.

 

[hammy]

Just so we're clear, the person who wrote the above then went on to talk about how they're using their credit to make money in the real estate market.

jag

Read it again. I said I paid cash for the house. You don't need credit when you pay cash.

Honestly, you sound a little jealous.

 

[Malice]

I am jealous....can you pay off my house?

 

[hammy]

I am jealous....can you pay off my house?

Probably not. But I could tell you how to, faster.

 

[Malice]

I am not a financial guy, but actually jsut did a bunch of work yesterday to get some future planning worked out

 

[jaguarr]

Ugh. Double post. See other one.

jag

 

[hammy]

I am not a financial guy, but actually jsut did a bunch of work yesterday to get some future planning worked out

That's good. It's always good to have a plan. If you're interested in building wealth, I can recommend an author. His name is Dave Ramsey. His first book was called, Financial Peace. He also does a syndicated radio program. He councils people on getting out of debt and building wealth. Even if you don't like everything he says, he has a lot of good advice.

 

[hammy]

Oh, I'm not jealous. I'm just making you work to explain asinine statements like "only poor people need credit". You're obviously very astute with your money, which is a far cry from most people, and I applaud you for it even if you're a little to smug for your own good over it. As good as your financial situation appears to be, I can promise you, mine is better.

Now, how about this? Where did you come up with the money to buy that first house for cash in the first place?

jag

Talk about smug.

 

[jaguarr]

Read it again. I said I paid cash for the house. You don't need credit when you pay cash.

Honestly, you sound a little jealous.

Oh, I'm not jealous. I'm just making you work to explain asinine statements like "only poor people need credit". You're obviously very astute with your money, which is a far cry from most people, and I applaud you for it even if you're a little to smug for your own good over it (so don't talk to me about showing class because you're in the same boat as me and I'll sink us both just for spite. ). Besides, as good as your financial situation appears to be, I can promise you, mine is better.

So, from what I'm reading, you financed your first house out of your IRA? Smart, but don't let your IRA suffer over time.

jag

 

[jaguarr]

Talk about smug.

You're just as bad as I'll ever be, lady.

jag

 

[hammy]

Oh, I'm not jealous. I'm just making you work to explain asinine statements like "only poor people need credit". You're obviously very astute with your money, which is a far cry from most people, and I applaud you for it even if you're a little to smug for your own good over it (so don't talk to me about showing class because you're in the same boat as me and I'll sink us both just for spite. ). Besides, as good as your financial situation appears to be, I can promise you, mine is better.

So, from what I'm reading, you financed your first house out of your IRA? Smart, but don't let your IRA suffer over time.

jag

No. As I said, I paid cash for the house. The IRA money is for commercial real estate investments, not residential.

And I was not smug at all, simply explaining my situation since I was challenge d by someone who only seems to understand the status quo.

 

[jaguarr]

No. As I said, I paid cash for the house. The IRA money is for commercial real estate investments, not residential.

And I was not smug at all, simply explaining my situation since I was challenge d by someone who only seems to understand the status quo.

Ahh. So answer me this, then. Where did the cash to buy a house outright come from that first time around?

And, yes, you were smug. And abrasive. I know it when I see it because I'm smug and abrasive.

jag

 

[hammy]

Ahh. So answer me this, then. Where did the cash to buy a house outright come from that first time around?

And, yes, you were smug. And abrasive. I know it when I see it because I'm smug and abrasive.

jag

I picked it off the money tree. Not really. As you might imagine, I saved it from my earnings.

And I disagree with your last comment. Well, that I am smug and abrasive. You definitely are smug and abrasive.

 

[jaguarr]

I picked it off the money tree. Not really. As you might imagine, I saved it from my earnings.

And I disagree with your last comment. Well, that I am smug and abrasive. You definitely are smug and abrasive.

So, were you renting while you saved this money, or did you own your own place, Ms. Smugandabrasive? Also, if you have a degree, did you pay your own way through school? Or did you work your way through or take out loans to pay for college?

jag

 

[hammy]

What difference does it make? It didn't take me long to save it. I make quite a bit more than the average person. And I'm cheap.

 

[hammy]

So, were you renting while you saved this money, or did you own your own place, Ms. Smugandabrasive? Also, if you have a degree, did you pay your own way through school? Or did you work your way through or take out loans to pay for college?

jag

I have more than one. And I did a combination of scholarships, grants, working- my-ass-off and a private loan.

 

[jaguarr]

What difference does it make? It didn't take me long to save it. I make quite a bit more than the average person. And I'm cheap.

It makes a big difference and I think you know it which is why you're avoiding the question. If you were living at home (i.e. with your parents) rent free for a time while you amassed your fortune to buy your first house, you had an advantage most people do not.

jag

 

[jaguarr]

I have more than one. And I did a combination of scholarships, grants, working- my-ass-off and a private loan.

Good! Most people don't get scholarships or grants. Kudos to you for doing so and making the most of it.

jag

 

[Badger]

Plus she's a very good dancer.

Easily worth an extra twenty.

 

[hammy]

It makes a big difference and I think you know it which is why you're avoiding the question. If you were living at home (i.e. with your parents) rent free for a time while you amassed your fortune to buy your first house, you had an advantage most people do not.

jag

Ahhh ... that's what you were getting at. Why didn't you just say that in the first place? No, I wasn't being supported by my parents. But as I keep saying, I am frugal. Roommates help. And why don't you pay attention?!! I said the house was VERY inexpensive. I didn't need a fortune. Only about one and a half new cars worth.

 

[jaguarr]

Ahhh ... that's what you were getting at. Why didn't you just say that in the first place? No, I wasn't being supported by my parents. But as I keep saying, I am frugal. Roommates help. And why don't you pay attention?!! I said the house was VERY inexpensive. I didn't need a fortune. Only about one and a half new cars worth.

Well, it sounds like you've been very smart with your money. I hope you're smart enough to at least own the place you and your roommates are living in.

At any rate, I have no problem with people knowing more about something than me. I know a lot about a lot of things, but I'm certainly not an expert in everything by any means and I only ever speak up on things I have some knowledge about. What I don't like is when people purport to have more knowledge about something but can't quantify it, which is what I will make them do. You did that, so kudos. You and Ahura Mazda are now the only people on this site I would ever ask financial advice from.

Now here's an extra $20. Give Badger a really nice dance.

jag

 

[hammy]

Classless, as usual.