Merv's Politically Incorrect Audio Blog

Discussion in 'SBAF Blogs' started by purr1n, Dec 26, 2018.

  1. Elysian

    Elysian Friend

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    I bought a house when I set an arbitrary ceiling for myself where monthly net after mortgage, property taxes, and deductions was similar to pre-COVID rent, at least while I'm on the upper-end of the interest rate curve. The SALT tax ceiling hurt as someone living in an HCOL area.

    I took the 30yr because I looked at index fund returns from 2008 and it seemed better to invest the money into equities rather than paying off my mortgage. I'm still undecided on how to balance 529 vs. personal portfolio since higher education costs are out of control due to the growth in administrative staff. That money certainly isn't going to faculty or improved educational resources.

    My biggest real estate mistake was waiting way too long to buy instead of during the 2012-14 crash like many people I know who doubled to tripled their home prices, especially younger families who put everything into buying a SFH in Palo Alto or Mountain View. That said, we have enough and a bigger house or lot won't increase my family's quality of life.

    We're starting to have more discussions on when and why we would want to leave California. With more tech companies allowing remote work, I don't really need to be in the office 5 days a week anymore. My buddy just bought an enormous house and lot out of state (satellite tech hub) for a fraction of the price of a 70 year old Bay Area SFH 1200sqft on a 5k lot. I would be able to put away nearly my entire paycheck if I sold the California house and left the state.

    @zerodeefex Did you actually leave California? I can't tell who actually did it and who is just planning in this thread.
     
  2. penguins

    penguins Friend, formerly known as fp627

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    So, saw this earlier today, hasn't been posted yet, but I've always wondered how politicians or people could say mass (or more than 1 or 2 votes) voter fraud doesn't/can't/won't happen. Regardless of political beliefs, with 200M+ voters in this country, I have always imagined it would be statistically likely that some en masse voter fraud is going to happen on a regular basis. This guy just did it in a dumb way and got caught (100+ tampered/fake votes).

    https://dfw.cbslocal.com/2020/10/08...idate-zul-mirza-mohamed-arrested-voter-fraud/

    To be very clear, I am not implying or saying that the national election this year is invalid, to reject the results, etc. Just questioning why so many refuse to think voter fraud isn't going to be a thing.
     
  3. zerodeefex

    zerodeefex SBAF's Imelda Marcos

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    I'm in Colorado now! Our quality of life in Boulder is 10x what it was in California. We're healthier, have our house 3/4 paid off, and our kids spend more time outdoors. I miss the cultural diversity of the bay area and the food but we've always been woods and mountain people so Colorado suits us just fine.
     
  4. Elysian

    Elysian Friend

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    Congratulations! I have a lot of coworkers in Colorado and it seems like people are a lot healthier and more family oriented out there. It would be really nice not having such a large mortgage hanging over our heads.

    I just looked at home prices in Boulder and they're a lot higher than I remembered. It must be California expats driving up property values. I keep hearing about people leaving the state every week.
     
  5. YMO

    YMO Chief Fun Officer

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    I should show you pics of various CA Tags at my local supermarket in the 904. ;)
     
  6. winders

    winders boomer

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    Why? My house is worth 3x more today than it was when I bought it 22 years ago. Because of refinancing to get better rates and lower monthly payments, I still have 20 years left on my mortgage. Am I indebted to the mortgage company? Yes. I am in debt on the house? Hardly. When I decide to sell, even if the market takes a huge hit, I will walk away with at least twice what I paid for it.
     
  7. ultrabike

    ultrabike Measurbator - Admin

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    My parents had it made. My grandparents had money and they set them up by paying their house up front, before I (the oldest kid) was born. And with that knowledge I know the huge advantage of living w/o debt is.

    My parents could not do the same for me or my brother. I have a mortgage. 30 years. I have about 20 more years to go. But I will try to pay it to end it sooner. I would have long paid off my condo back then, but 10 years ago my daughter was born and we bought the house.

    Number 1 rule to have cash is not to loose cash.
     
  8. purr1n

    purr1n Desire for betterer is endless.

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    "Owned" 22 years and 20 years left for an effective 42 year mortgage?

    Your net of x2 what you paid is in 1998 is shit after taking into account inflation and the interest the bank has been taking from you for 22 years now with 20 more years to go.

    That's horrifying that you've barely been making a dent on your principal. 22 years of payments should be when one starts into the sweet spot of quickly paying off the principal. Instead you've pushed this off into the future with 20 more years to go. Feel free to come back and tell us how you so awesomely won after you've tallied up your interest payments in the past 22 years. Of course refinancing with yet another 30 year term nets you lower payments. Banks must love you.

    upload_2020-10-8_21-0-0.png
     
    Last edited: Oct 8, 2020
  9. purr1n

    purr1n Desire for betterer is endless.

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    The traditional way. 30 year. Already somewhat insane (although we are all conditioned to think this is normal). Note how slowly we come to own (the principal portion of the payment) our homes over time and how the bank has the advantage in the first 20 years. Bankers will outsmart you every time. This is why they are bankers. The only difference between a mortgage banker and Tony Soprano is that bankers have legal mechanisms to shake you down.
    upload_2020-10-8_21-20-28.png

    The winders way: Winning by making sure we never get close to paying off the loan for the bank to keep charging us interest for almost perpetuity.
    upload_2020-10-8_21-18-40.png
     
    Last edited: Oct 8, 2020
  10. purr1n

    purr1n Desire for betterer is endless.

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    Note that I am not calling people stupid. (Well Winders I am). What I am calling out is how insane our modern structures are in terms of convincing all of us (myself included at one time) that stuff like the 30-year mortgage, with the amortization schedule above, is normal. It most certainly is not! The vast majority of us have no choice but to play.

    Really, how much different is this from serfdom in the middle ages? Freedom in the modern age is just an illusion. Renters today actually have more freedom than most home"owners".
     
    Last edited: Oct 8, 2020
  11. Psalmanazar

    Psalmanazar Most improved member; A+

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    I don’t even have credit card debt. I pay that shit off. Yes I will eat peanut butter and wear clothes with holes in them. Debt is slavery. They used to have debtors’ prison and debt slavery. They would sell you into indentured servitude and use your earnings to pay it off. The Mongols didn’t even put up with that. Anyone who went bankrupt or whose businesses went bankrupt three times was executed. Sorry Donald Trump. They would have killed you and one of your sons.

    Looks way better than Big Macs and charcoal with ketchup.
     
    Last edited: Oct 9, 2020
  12. winders

    winders boomer

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    You can call me stupid if you want. But, when you factor in the tax savings from interest write offs and the money I made from investing the money I would have otherwise used to pay down the loan, my loan has been basically free.

    Your not as smart as you think you are.......

    I could have paid off my house 10 years ago if I wanted. Let's see is it smarter to pay off a 3% loan or use that money to make about 15% a year......hmmm.

    Who's stupid again?
     
    Last edited: Oct 9, 2020
  13. penguins

    penguins Friend, formerly known as fp627

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    ^ Don't think either of you are right or wrong. Winders happens to be less risk adverse in regards to this, Purrin is more risk adverse. Compared to the market as a whole, nothing new - some people are more risk adverse than others. Arbitrage is nothing new, etc.

    We could talk about different views on/about debt, why we want to take the risk to make more $, how much is enough / happy, etc etc. but at the end of the day is there really a problem as long as any particular individual can live with their decisions and not try to pass it off to someone else if they mess up? (i.e. no demanding socialism just for the sake of paying my bills, no declaring bankruptcy to get out of paying people money they're owed, no cheating taxes or bribing politicians to come up with loopholes, etc.)
     
  14. ultrabike

    ultrabike Measurbator - Admin

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    I know a lot of people that enumerate the benefits of a loan, as you do:

    1) Tax write off.
    2) Higher interest paid by proper investments, relative to mortgage debt.

    In fact, I would say the majority of people I know, including some good friends, feel that way.

    It does not work out that way however.

    You see, mortgages are not equivalent to a poor performance 3% yield investment. Because they are loaded front. During the first 10 years of a 30 year loan you are not paying 3% in interest or even 15% in interest. You are paying well over 100%. You, and me my friend, are getting screwed in the ass.

    Paying upfront a mortgage therefore, is a huge investment. By refinancing, a person will reset and further load the load to the front again. The 3% deal, is marketing bullshit. Understand that mortgages are banks, and credit unions, bread and butter. And so I was told by a credit union director friend of mine.

    There has to be however a balance. It is risky to pour all your paycheck onto paying off a mortgage. You still need to invest and so forth. But if anything, I would recommend anybody to avoid refinancing. Unless they have to due to necesity.

    Another thing to consider is this. Over 20 years on an S&P500 investment, don't expect 15% return. Expect more like 7% which is quite healthy. Many have tried to beat the market. Very few have been able to do so. Maybe Warren Buffet has, but he sort of cheats.
     
    Last edited: Oct 9, 2020
  15. Hands

    Hands Overzealous Auto Flusher - Measurbator

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    Well, given that as of now you've already made 2 edits and, you know, haven't caught the pretty basic and glaring grammar issue in the first half of a post questioning someone's intelligence, do you really want the answer?
     
  16. winders

    winders boomer

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    Dude, over the last 10 years, I have made over $1.5 mil (after taxes) investing the $400K I could have used to pay off my loan. Go ahead, keep calling me stupid.....
     
  17. winders

    winders boomer

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    Now we have the f'ing grammar police? Get a life.....
     
  18. ultrabike

    ultrabike Measurbator - Admin

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    This is how I personally see it:

    For a $400K loan over 30 years, you would pay about $1.95K a month (excluding taxes). By the end of 10 years you would have paid about $105K in interest and about $95K of the principal ($200K total), with a balance of $305K.

    If you refinance at the end of 10 years, you effecitvely paid $105K for $95K, since you are reseting the clock for the remaining $305K. A total payment of $200K for an effective $95K loan corresponds to an interest rate of 7.7% over 10 years. Which is not 3%, but it is not that bad. Therefore, 10 years could be considered sort of a sweet spot. Again, so long as you do not refinance and reset the loan.

    If you reset the clock earlier, the effective interest rate is higher of course. Though you could argue that is over less paid principal.

    Could you do better? Sure. Don't get a mortgage if you don't need it. If you do, put as much down payment as you comfortably can, and try to pay off the mortgage front load at the beginning, which is hard since one got a mortgage for a reason to begin with. Towards the end, it may not indeed be as attractive to pay it off given investments with higher yield. And more importantly, do not refinance.

    EDIT: Also note that the S&P500 rate of return depends on the type of investment. One could expect 10% on a 401K given it's tax free, but no so on a non-tax free account which would lower the return again to about %7. Note that we are not factoring taxes in the loan example above.

    EDIT2: You could try another exercise, that may demonstrate why not to get a mortgage, unless you need: Suppose you loan $400K at 3%, and you straight up put that money in the market with a %7 rate or return due to taxes. Given the front loading nature of the loan, during the first 10 years you will have to pay the loan by well over 7% which will force you to pay the loan not only with the yield, but with principal on your investment, virtually destroying it. It is likely that in the end you will come fairly red. Which sort of makes sense because this is a very effective money making strategy for banks. It's late and I don't want to crunch more numbers. But hopefully you get the picture.
     
    Last edited: Oct 9, 2020
  19. YMO

    YMO Chief Fun Officer

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    I woke up this morning, feeling meh before I log in into my work laptop and seeing all the Subordinations/HELOCs/Mortgages/Unsecured Line of Credit that have issues when they were booked into my employer systems.

    No one needs a $400,000 HELOC.....geeez.....
     
  20. zerodeefex

    zerodeefex SBAF's Imelda Marcos

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    My parents did quite well in the bay area, borrowing as much as possible to get houses as early as possible and paying them off quickly. The longest they had a mortgage before paying it off was 18 years for their Sunnyvale home. They scrimped and sacrificed to do it but it left them with a financial security that is almost unparalleled among even their more successful peers due to having 3 properties in that market.

    I get it, if you're risk tolerant, leveraging and reaping the benefit of a small investment making a lot is phenomenal. There is benefit going the other way, too.

    With regard to @winders, very few people have a decade+ of apple equity so your situation is probably unique.
     

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